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RIDING THE GAP
Breaking Average
By Wes Ishmael

One of the great ironies of the cattle business remains that while the production Val Halla is cookie-cutter uniformity, it’s the variation that offers opportunity in the marketplace.

Spun differently, every producer can make cattle worth more, simply by recognizing the physical, management and marketing attributes that buyers covet the most, year-in and year-out.

For instance, you can believe there’s no need to cut bull calves because they brought just as much as the steers at the sale. You can believe that until you realize the bulls and steers brought the same money because there were so few steers; the bulls set the market; the steers were discounted to the level of the bulls rather than the bulls being elevated to the status of their castrated peers.

If you ever doubt such reality, take a look at any of the studies conducted by various Land Grant Universities through the years. One of the most recent comes from researchers at Kansas State University (K-State). In that study, bulls were worth $5.91/cwt. less on average in the fall (basis 550 lbs.) and $5.19/cwt. less in the spring. At heavier weights, the bull discount increased to $7.06/cwt. in the fall and $5.73/cwt. in the spring.

The K-State study comprises 8,200 lots of cattle (84,319 head) sold at auction in Dodge City, KS and Joplin, MO in November and December of 2008 and in March and April of 2009. The average weight across the cattle was 584 lbs. The average sale price was $90.64/cwt., ranging from $60/cwt. to $139/cwt. The cattle included 48% steers, 10% bulls and 42% heifers. The average lot size was 10.3 head, ranging from 1 to 287 head.

Fleshing out the gender categories, heifers at 550 lbs. were worth $10.06/cwt. less in the fall; $11.16/cwt. in the spring. At 650 lbs. the heifer discount declines to $8.32/cwt. in the fall and $9.95/cwt. in the spring.

Short of using sexed semen, producers have no control over how many bulls and heifers they end up with; but they’re the only ones who control whether it’s steers or bulls they’re selling and in what season of the year.

Cattle are not Equal
Both hide color and breed type come with additive rewards and discounts, too.

In the K-State study, relative to the base (Hereford-influenced calves) buyers paid the most for Angus (+$3.10/cwt.) and Angus X Hereford (+$2.72/cwt.) They paid the least for dairy (-$12.22/cwt.) and Longhorn (-$10.86/cwt.).

Now, tack on or subtract color preference. Compared to red calves, blacks (+$2.49/cwt.) were worth the most. Mixed colors were worth $1.89.cwt. more than the reds; whites $1.01/cwt. more than reds. Keep in mind, these premiums and discounts are additive, according to K-State researchers. So that black Angus calf was worth $5.59/cwt. more than the red Hereford calf in the study.

Genetics can play a few tricks, but producers control what genetics are used. If color matters enough to them, they can control that, too, via genetic selection.

Speaking of genetics, buyers pay more and less for frame size and muscling, too. In the study, compared to average muscling, heavy muscle was worth $6.62/cwt. more and extremely heavy muscling was worth $5.25/cwt. more. Small-framed cattle were discounted $5.98/cwt. and large-framed cattle rewarded $0.75/cwt.

Similarly, buyers discount horns (-$2.18/cwt), unhealthy appearance (-$6.31/cwt) excessive gut fill (-$4.02/cwt.), excessive condition (-$4.87/cwt.) and too little condition (-$10.83/cwt.). See Table 1 for more specifics. Lots that buyers perceived as non-uniform from a weight standpoint were discounted $2.11/cwt.

All of these cattle-related characteristics are also under producer control, as are marketing attributes.

Of course, load-lots have more value to buyers than smaller lot sizes. “Premiums of $2-$10/cwt. can be acquired if several small calf crops from similar genetic and management backgrounds can be combined and sold together, possibly even via video or private treaty,” says Brett Barham, associate professor of breeding and genetics at the University of Arkansas. He focused on marketing and adding value to calves in the May UA Beef CHAMPS newsletter (http://www.aragriculture.org/News/beefchamps/2010/may2010.htm)

Information adds Value
Barham points to a number of opportunities producers have to earn more money than otherwise by documenting management they’re already practicing.

Consider age and source-verification. If buyer’s have the records that make cattle eligible for marketing to Japan or via other programs that include an age specification, the calves are worth $1-$3/cwt. more according to Barham.

Documentation verified by a third party attesting to calf eligibility for Natural, Organic and breed-based branded beef programs can also offer a premium.

Likewise verification of calves complying with industry-recognized vaccination/preconditioning and weaning programs continue to offer reliable premiums. Barham also points out some buyers are willing to pay more for calves tested to be free of persistent infection for Bovine Viral Diarrhea (BVD). For other buyers, documentation of feedlot and carcass data can make the difference in an extra bid.

Obviously, there are situations where the net potential of any premiums mentioned in this column cannot justify the cost of obtaining it. The point is that all of these things are opportunities to add and retrieve value.

No one is big enough to make the market, but everyone has the chance to break the average by understanding what is worth the most to most buyers.

Table 1

Characteristic Price Premium/Discount ($/cwt.)
 
BREED
Angus 3.10*
Herford Base
Angus/Herford cross 2.73*
Other English crosses 0.66
Exotic crosses 1.78*
Longhorn -10.86*
Brahman -0.76
Dairy -12.22*
Mixed breed -.82
   
COLOR  
Black 2.49*
Red Base
White 1.01*
Mixed color 1.99*
   
MUSCLING  
Light muscling 5.03
Average muscling Base
Heavy muscling 6.62*
Extremely heavy muscling 5.29*
   
FRAME SIZE  
Small -5.98*
Medium Base
Large 0.75*
   
HEALTH  
Healthy lot Base
Non Healthy lot -6.31*
   
HORNS  
No horns Base
Mixed horns -0.70*
Horns -2.18*
   
CONDITION  
Very thin -10.83*
Thin -1.23*
Moderate Base
Fat -0.86*
Very fat -4.87*
   
FILL  
Very gant -3.60
Gant -0.99*
Average fill Base
Full -0.72*
Very full -4.02*

*Indicates statistical significance of difference from base

Source: Factors Affecting Feeder Cattle Prices in Kansas and Missouri, Kansas State University, Schulz L., Dhuyvetter K., Harborth K., Waggoner J.

http://www.agmanager.info/livestock/budgets/production/beef/Factors%20Affecting%20Feeder%20Cattle%20Prices%20(Nov2009--RevisedMar2010).pdf

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