Demand Driven Premiums

Demand Driven Premiums

By Laura Handke

A new demographic of information seeking consumers and export markets have fueled beef value-added marketing programs over the past two decades to provide cattle producers new premium-driven market opportunities direct from their farm or ranch. These noncarcass merit premiums have proven that the market is willing to pay a producer for management practices, age, source, and breed influence information.

“Packers are contracting value-added cattle with feedlots way ahead of time, up to a year before harvest in a lot of cases. Then those feedlots have to go into the marketplace to find the cattle to meet those agreements,” says Doug Stanton, senior vice president of business development at IMI Global. “It puts a producer in a place where they have to plan ahead if they want to capture those premiums.”

No matter which value-added program a producer chooses to participate in, the first step is market research and determining a breakeven price. Followed by establishing a budget to reflect the costs of the value-added marketing program. It’s hard to make money if you don’t know your numbers.

“We have a variety of different programs that we can bundle together so that the producer and the marketplace have different options,” Stanton says of the IMI Global marketing opportunities.

Value-Added Program Options

Source and age verification (SAV), followed by NonHormone Treated Cattle (NHTC) and the Verified Natural Beef (VNB) programs make up the foundation of value-added programs. Those three programs are part of the United States Department of Agriculture (USDA) Process Verified Program and have oversight by the Agricultural Marketing Service (AMS) to ensure all requirements have been met. IMI Global undergoes an annual audit by the USDA to be able to conduct audits and approve farms and ranches.

In addition to the three core programs, many breed associations are also working closely with IMI Global to help their members find additional breed-related value while capitalizing on the marketing opportunities the core programs offer. The American Gelbvieh Association, for example, has partnered with IMI Global to create the Balancer® Edge program, which requires a minimum of 75% of the sires used to be registered Gelbvieh and Balancer® bulls, with a minimum of 25% Gelbvieh genetics. Because the verification process for the Balancer® Edge program also satisfies the SAV program, all cattle enrolled in Balancer® Edge can be marketed into the China Export Verification program, NHTC program for the European Union, VNB and CARE, a sustainability program encompassing animal care, environmental stewardship, and people and community.

With the exception of the SAV, which producers can enroll in by submitting their first calf-last calf born records and an audit completed via phone call. All other programs require an on-site audit with annual renewal.

“What we have done with the Balancer® Edge program,” Stanton says, “is added the Balancer® Edge verification to the source and age verification program. Those producers can still enroll in other programs, but that one verification provides them two verified claims for their cattle. The premiums have been a very good source of return for producers who choose to enroll.”

Demand Driven Premiums

Since 2004, when SAV came on-scene in the cattle industry as a result of isolated bovine spongiform encephalopathy cases, premiums for the verification have stabilized.

“We are verifying 30 months of age today, not 20 like we were when we started, and those ages can be verified at the packing plant, so we have seen the SAV premium decline some. Producers are still looking at a $1.50 (cwt) so around $7-8 per head return,” Stanton says. “When you move up to NHTC, we’re seeing around a $30 per head return and the natural market is very strong. It’s a domestic-only market that seems to see higher returns every year. On average, producers can expect around a $40 per head premium.”

Tom Strahm, commercial marketing director for the American Gelbvieh Association agrees that crossbred cattle are also adding a level of genetic advantage in the feedyard and helping producers maximize their return on investment when they enroll in value-added programs with strong demand.

“Balancer® (Gelbvieh x Angus or Red Angus) cattle provide great economic advantages in the feedyard, compared to straight bred cattle, you see higher average daily gain and improved feed efficiency because of heterosis,” he says. “When you couple that with a valueadded program like NHTC, you not only get that verification that bumps the product into a premium label at the grocery store, but you also have excellent carcass merit.”

For the Kersey, Colorado, Five Rivers Cattle Feeding, LLC Kuner Feedyard, SAV NHTC cattle are always in high demand, no matter the breed.

Specialty Beef Program Manager, Kim Rounds, says, “Our yard is always looking, we could definitely handle more supply and there is definitely a strong demand for them,” she says. “There is significant premium value for these cattle on both sides: the packer and the feeder, and that allows us to pass that value all the way down the chain.”

Rounds shares that when she began working in her role, about three years ago, only one quarter of the Kuner Feedyard housed program cattle. Today, more than half of the pens are filled with program cattle.

“Our value-added program cattle capacity has doubled in size in only three years,” she says. “There’s just so much more interest from consumers in the marketplace. They are asking questions about where their beef is coming from and how the cattle were cared for and treated, and we are seeing that on the feeding side.”

Both Rounds and Stanton agree that while many progressive producers have risen to meet the record keeping and management demands required of the valueadded programs, more are needed.

In a win-win strategy, a number of breed associations and auction companies have put in place marketing tools to help producers maximize the returns on their program investment.

Marketing Value-Added Cattle

The American Gelbvieh Association’s Feeder Finder, a complimentary feeder cattle sourcing tool, compliments the association’s Balancer® Edge program well. The email service matches feedlots looking for Gelbvieh and Balancer-influenced cattle with producers who can fulfill a load lot of cattle that fit the criteria.

“We buy a lot of breed association program cattle that are third-party verified. We work with IMI Global, but not all of our suppliers do,” Rounds says of Five Rivers’ sourcing flexibility. “As long as the cattle meet the specs of our contract, they can be approved and purchased.”

Many producers also find success acting as their own marketing representative to contracting directly with the feedlots. Rounds says that the Kuner location receives many of these calls and advises producers to know when and what they have to sell before making the call.

“We have quite a few producers call us and we are happy to visit with them about the specifications of our program and the eligibility of their cattle.” she says.