19 minute read
AMAs Drive Consumer Alignment
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LivestockResource
Your direct source for livestock news and information
Published by Farmers & Ranchers Livestock, Salina, Kansas
In this Issue:
1 AMAs Drive Consumer Alignment
Much discussion has taken place in the last half of 2021 regarding the government stepping in and imposing mechanisms to support the cash markets. Wes Ishmael tackles this topic, reporting on conclusions drawn by the nation’s most respected ag economists. As always, the devil is in the details.
10 Fertile Opportunity
Today, genomic influence, current market dynamics and risk tolerance challenge cow-calf producers to consider potential value across production sectors. It all starts with a live calf from a consistent producer.
19 Margin Battle Brews
Long expected cattle price recovery picked up steam through December. The forecast for early to mid-2022 is bullish. That’s the good news. The bad news is rising inflation adding to input costs will have an effect. At this point, the good news still outweighs the bad!
24 Beef Quality Bar Rising
The fact that beef has gained an 8% share of the protein market is no accident. A couple of decades ago, progressive beef producers heard the signal from consumers to produce a better product or else. Today, consumers are reinforcing that message by paying record high prices for high quality beef.
26 Hurricane-Force Winds Spark Wildfires in Kansas
The wildfires that devastated at least six counties once again remind us of our humanity and our need to rely on each other. Please take time to read and help if you can. Godspeed to all the families impacted.
27 Politics, Cattle and Beef
Wes Ishmael reports on the timely presentation made by Scott Bennett, director of congressional relation for the American Farm Bureau Federation (AFBF) during the American Hereford Association’s Annual Membership Meeting.
28 Dog Whispering
Izzy takes talking to the dogs to a new level. We’ve all done it…talking to the dogs, that is. The problem is, most of our dogs’ response would be the same as Wink and Jasper!
29 The 109th Annual K-State Cattlemen’s Day
March 4 will recognize Pat Koons as the 2022 Stockman of the Year.
AMAs Drive Consumer Alignment
Premiums and discounts segregate beef and find the highest value home.
By Wes Ishmael
“Please do not create regulations and legislation that have the unintended consequence of harming value-based marketing,” said Mark Gardiner of Gardiner Angus Ranch, Ashland, Kansas, during testimony to a Senate Agriculture Committee hearing in June. “Doing so would undo many years of progress for producers such as my family and those of our customers. Onerous legislation has the potential to result in a reversal of quality that is simply unacceptable to consumers. Legislation limiting progress (and ultimately is a detriment to quality beef production) punishes America’s beef producers.”
The hearing came under the heading, “Examining Markets, Transparency and Prices from Cattle Producer to Consumer.” The value-based marketing Gardiner mentions comes under the heading of alternative marketing arrangements (AMAs). These are trading methods outside spot cash markets,
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1Reinhardt CD, et al. A fenbendazole oral drench in addition to an ivermectin pour-on reduces parasite burden and improves feedlot and carcass performance of finishing heifers compared with endectocides alone. J Anim Sci. 2006;84(8):2243-50. 2Merck Animal Health National FECRT Database.
Livestock
Resource
Volume 5, Issue 2
Winter 2022
Published quarterly by Farmers & Ranchers Livestock, Salina, Kansas
1500 W. Old Hwy 40 Salina, Kansas 67401 (785) 825-0211 • (785) 826-1590 (fax) FandRLive.com find us on Facebook
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By Deb Norton
“Rich people have a lot of problems. Poor people have one.” —Dr. Dan Thomson
Marketing professionals are challenged to have a comprehensive understanding of the industries they work in, yet, have the capacity to avoid the minutia in developing short and long-term strategies. For the past nearly two years, civil discussions and not so civil arguments in the meat animal protein spaces have ultimately focused on who’s winning and who’s losing. Those on the losing side arbitrarily argue those on the winning side are too successful, making too much money and regardless of historical market performance… wait for it… the government should intervene.
One of, if not the most important consideration in every marketing strategy is the perception of the end user. In meat protein production, the end user is the consumer. Whether it’s a fine dining restaurant, fast food franchise, a consumer shopping at Whole Foods or an inner-city single mom hoping to afford a pound of ground beef for her family, our collective success or failure is directly connected to every consumer. Respecting and being able to respond to the diversity of a global consumer adds even greater complexity.
Dr. Dan Thomson, Jones Professor of Production Medicine and Epidemiology at Kansas State University for 15 years, founder of the popular “Doc Talk” series on RFD-TV, and current chair of the Department of Animal Science at Iowa State University, arguably has consulted with every Fortune 100 company involved in the delivery of meat protein to the consumer. In his many presentations, Dr. Dan often states, “Rich people have a lot of problems. Poor people have one.” In my mind, this statement should be at the very beginning and the very end of every discussion we have in our industry relative to quality, affordability and access.
Meat protein consumers represent every segment of society. Not just in America, but around the world, consumers love beef. Meat processors are challenged to produce beef that meet ethnic and religious, portion size, health, and safety requirements while making beef affordable. Further processing of beef satisfies a large consumer appetite for deli meats and table ready meals. The common denominator in the increasing demand for beef around the world is quality.
Quality starts in the pasture. The cattle feeder will feed enough corn to get an animal to the optimum weight. The processor will fab the carcass to meet marketing specifications. The rest is up to the producer to make genetic and management decisions at the beginning of the supply chain that inherently provide opportunities for profitability at every production segment. Not every producer has the risk tolerance to retain ownership. However, every cow-calf producer can supply the next segment with a calf that can be successful as a healthy stocker or feeder calf with the genetics to meet premium specifications based on quality.
No doubt the past nearly two years have wreaked havoc on the cattle market and created unprecedented pressure on the production side of the ledger. Yet, after months of civil debate and not so civil vitriolic verbal grenades being lobbed, not one ag economist supports government intervention. Joining in the bitter chorus is the societal faction whose goal is to ultimately eliminate food animal production.
Economists agree the chokehold on the supply chain will largely be resolved in 2022. Providing we can finally get past the devastating impact of COVID-19, and societies and economies around the world can find a new normal, the greatest competitive advantage throughout the beef complex is quality.
Beef will continue to compete with pork and poultry. Some will argue the meat protein sector’s newest competitor is the plant-based and cultured meat movement. So far, the data doesn’t support the claim. A recently published analysis indicated investors in plant-based and cultured meat startups have
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From the Editor
Continued on page 23 _____________________________________
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Continued from page 1 ________________________________________ such as formula and grid trades.
For perspective, as use of AMAs increased, the percentage of fed cattle under federal inspection grading Choice and Prime grew from 54% in 2006 to 83% in 2020. Along the way, consumers became more willing to buy more beef at higher prices—the definition of increased demand.
According to Randy Blach, CattleFax CEO, domestic consumer beef demand last year was the strongest in more than 30 years, based on the U.S. Consumer Beef Demand Index. That was helped by consumer incomes being replaced almost entirely by government stimulus.
Prime and Choice beef production increased from approximately 11 to 12 billion pounds in the early 2000s to around 18 billion pounds last year, according to Blach, during this year’s International Livestock Forum hosted by Colorado State University and the National Western Stock Show.
Along the way, the Choice-Select price spread maintained its strong pace, while the spread between Choice and the upper two-thirds of Choice grew. The Prime-Choice spread wilted because of the dearth of restaurant business.
“We produce more high quality beef and consumers continue to say they want more,” Blach said. Since 2000, he noted that beef gained 7% share of total meat spending, away from pork and poultry.
Paying for Consumer Demand
“The method of pricing all finished cattle on a live, cash basis was antiquated and needed to change. We felt strongly in the need to price cattle on a value-base system which paid for quality, instead of pricing all cattle on the average,” Gardiner said in his Senate Ag Committee testimony. He was explaining his family’s decision to join with others in 1997 to create what ultimately became U.S. Premium Beef (USPB), which maintains an ownership position in National Beef Packing Company, LLC (National Beef).
“Alternative marketing arrangements have grown in use in recent decades for several reasons,” explained Glynn Tonsor, agricultural economist at Kansas State University, during the same hearing. “Initial interest in AMAs from both fed cattle buyer and seller perspectives originated from cost efficiencies (coordinating logistics, lowering marketing and procurement expenses, etc.). Furthermore, consumer demand signals leading to proliferation of beef products concurrently elevated demand for specific cattle, and with it, further use of AMAs. The above-noted production of beef items for specific market channels would be seriously constrained without this increased use of AMAs. In short, increased use of AMAs reduces costs and enhances demand in some segments of the industry—both worthwhile outcomes
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that increase the economic pie for industry participants.”
Tonsor also pointed out that increased use of AMAs means less use of cash markets. “Understanding this situation underpins prudent assessment of any proposals that involve changes in how fed cattle are marketed,” he explained.
“As USPB stakeholders, we were able to negotiate and implement a value-based system that changed from simply selling cattle, to marketing specific meat and meals desired by and in higher demand by consumers,” Gardiner explained. “USPB, through its ownership position in National Beef, provided unprecedented opportunity to grass roots producers such as Gardiner Angus Ranch to be compensated for producing higher quality beef products. I stress that this opportunity has been for all sizes of producers. The families and operations earning the highest value per head are often considered small family producers. In a value-based system, the very family operation who never had market access due to limited cattle numbers can reap the largest financial benefit on a per head basis.” “I encourage the industry to proceed forward in a manner that does not deteriorate economic benefits of the industry’s evolution in recent decades to improve beef quality and align effort with beef demand signals.” —Glynn Tonsor
From its inception through 2020, Gardiner explained producers marketed 16.5 million head of cattle through USPB, earning more than $605 million in premiums above the cash market. In 2020, the average premium earned was $50.32 per head above the live cash market.
“Considering earnings and distributions, along with grid premiums, more than $2.1 billion have been returned to USPB shareholders because of their investment in the company and the production of higher quality beef,” according to Gardiner.
“USPB was an answer to a market experiencing intense challenges. Since the beginning, those who participate in USPB, market their cattle on a value-based pricing system, based on the quality of the beef produced. This is a market with targeted, well defined, repeatable end points directly influenced by consumer demands,” Gardiner explained. “Value-based pricing in the beef industry recognizes and pays premiums for the production of beef products in highest demand. This pricing mechanism also uses discounts for the production of undesirable beef, which does not hit the defined targets. The data confirms, through economic signals, what we are doing right, as well as areas in need of improvement. We have gone from selling a commodity product on a cash market, which does not differentiate quality attributes, to marketing on a value-based program which fully recognizes and pays premiums for quality production.”
Likewise, Tonsor said to the Senators, “I encourage the industry to proceed forward in a manner that does not deteriorate economic benefits of the industry’s evolution in recent decades to improve beef quality and align effort with beef demand signals. This pursuit can also include regularly assessing the viability of ways to enhance the information content available on actively negotiated cattle and/or consider increased use of alternatives to traditional, spot markets in establishing base cattle values.”
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Salina, Kansas 2021 Futurity Results Placing Horse Owner / Rider / Nominator
Reining
1st Playguns Smartmate Dan Barner / Alesa Jones / Dan Barner 2nd Busy at the Bar Dan Barner / Alesa Jones / Lisa Miladinovick
1st Playguns Smartmate Dan Barner / Alesa Jones / Dan Barner 2nd Busy at the Bar Dan Barner / Alesa Jones / Lisa Miladinovick
1st Playguns Smartmate Dan Barner / Alesa Jones / Dan Barner 2nd JK Smart Docs Holly Doug Regers / Cliff Hall / Jerry Kinsey
1st Playguns Smartmate Dan Barner / Alesa Jones / Dan Barner 2nd Busy at the Bar Dan Barner / Alesa Jones / Lisa Miladinovick 3rd SAH Blues Jacksprat Salvador Torres / Salvador Torres / Clayton Nisly 4th A Shot of Chex Jos Lilley / Josh Lilley / JC Jensen 5th/6th JK Gabilan Huddy Boy Zack Parkins / Zack Parkins / Jerry Kinsey 5th/6th Whiskeys Doc O Lena Dan Barner / Dan Barner / Dan Barner 7th/8th JK Smart Docs Holly Doug Regers / Cliff Hall / Jerry Kinsey 9th Shining TJ Frank Higgs / Troy Higgs / Doug Michaelis 10th Leos Three Skyline Kirby Smith / Kirby Smith / Scott Preston
2021 Top 20, Saturday
Lot Consignor
8 Lori Cline
Horse $ Notes
JG French Pep 19,500 2010 sorrel gelding grandson of Frenchmans Guy—barrels 52 Alan Long NZ Summer Merada 16,000 2016 roan gelding by Cats Merada—ranch, rope horse 166 Salvador Torres Freckle Sprat Badge 14,500 2017 buckskin gelding Topsail Whiz X Colonel Freckles—head horse 163 Jamie Stover Dough Rey Mi 13,200 2015 sorrel gelding by Rey Dual—solid head horse 19 Josh Lilley Unikia Slid 12,750 2013 buckskin gelding by OSU Powerslide—head, ranch 102 Kirk Cunningham JAE Bar McCue 12,200 2013 bay roan gelding by Genuine Doc McCue—head, ranch 24 Aaron Porter Mr Enterprise Peppy 11,250 2013 brown gelding by Natural Enterprise—team rope 4007 Salvador Torres 11,250 2018 bay gelding 3rd place futurity winner 112 Shea Meeks Diamond Busin Baron 11,000 2011 bay gelding grandson of Mr Baron Red—team rope 81 Foard Kemp King Caddie 10,800 2010 sorrel gelding grandson of Genuine Doc—team rope 46 Sandy Albright Verses Love Bird 10,000 2015 APHA black tobiano mare—pretty, broke 58 Patrick Chester Sailing My Mercedes 10,000 2012 chestnut gelding grandson of Custom Crome—head horse 4001 Dan Barner Busy at the Bar 10,000 2018 buckskin mare reserve champion futurity Top 5 Avg: $15,190 Top 10 Avg: $13,245 Top 15 Avg: $12,110 Top 20 Avg: $11,380
84 Glen Hall
Doc Boon 45 9,700 2018 red roan gelding by Smart Lena Boon—futurity entry 23 Seth Larson Checkin a Frostie Jet 9,500 2011 bay gelding by grandson of Jet Smooth—head horse 72 Kirk Cunningham Major Gin 9,500 2016 red roan gelding grandson of Tanquery Gin—head, ranch horse 123 Dinges Performance Horses Butterscotch* 9,250 2013 buckskin mare pony 32 Shea Meeks HESA French Bruce 9,200 2007 palomino gelding grandson of Frenchman Guy—head horse 11 Steven Ratzlaff SR Power Ball Baby 9,000 2018 blue roan gelding grandson OSU Power Slide 44 Clifford Morrison Dunit Like Freckles 9,000 2016 buckskin gelding grandson Hollywood Dunit—ranch horse *Grade, all others AQHA
2021 Top 20 Sunday
Lot Consignor Horse Sire $ Notes
342 Rob & Sue Stevenson Chex Out My Nu Gun Lets Play Guns 16,500 Gray Gelding 390 Tim & Pat Don’t Stopp Red Don’t Stop Believen 12,700 Sorrel Gelding 309 Dan Barner Rangers Smart One Ranger Cookie 9,000 Chestnut Colt 385 Rob & Sue Stevenson A Smooth Metalic Mtalic Style 8,750 Gray Filley 405 Glenn Hall Flashbac of Mine JC Flashbac 8,200 Bay Colt 414 Joe Bevington Bueno Peppy Jay Peppys Gold Colonel 8,000 Sorrel Gelding 417 Tim & Pat Dewey Sing Two Me Shooter Shooter Cat 7,200 Sorrel Colt 406 Trever Hall Topsail Whiz Chex Whiz My Nu Chex 7,100 Sorrel Colt 338 Lindsay & Braden Davis CCC Cash Flow Roan Dry Cash Badger Pete 7,000 Red Roan Colt 233 Rob & Sue Stevenson Oh Whatta Metalic 02 Metalic Style 6,750 Red Roan Filly 402 Neal Berry Shaqed Up At Midnite Pepto Cee Lena 6,600 Red Roan Filly 345 Tracy Cutler Spooks Cashin In Spooks Nitro Gun 6,500 Buckskin Colt 419 Tracy Cutler Spooks Nitro Splash Spooks Nitro Gun 6,000 Buckskin Colt 301 Wes Roberts High Brow Stoli Freckles Cat Diablo 5,750 Bay Roan Colt 322 Salvador Torres Stylin Quixote Glows Stylin With Pepto 5,500 Red Roan Colt 207 Tim & Pat Dewey Bucks Believin Don’t Stop Believen 5,300 Sorrel Colt 300 Neal Beery Hustlin Moonshine NB Cats Moon Shine 5,300 Sorrel Colt 368 Kalynn & Clay Hokr Six Guns Gal Sixes Sixgun 5,300 Bay Filly 375 Scott Bankes Metallic Hot Roder Metalic Malice 5,300 Buckskin Filly 298 Nicki Ragland Nuthin But Traffic Dash Ta Traffic 5,100 Blue Roan Colt Top 5 Avg: $11,030.00 Top 10 Avg: $9,120.00 Top 15 Avg: $8,103.33 Top 20 Avg: $7,392.50
