CATTLEFAX TRENDS

VALUE-ADDED PROGRAMS

CATTLEFAX TRENDS

A successful business model pays close attention to both expenses and revenue. With the tight margin environment currently impacting the cow-calf segment, every dollar matters. Thankfully there are several approaches to potentially increase the revenue stream. Utilizing risk management tools or understanding the seasonality of the calf market to avoid marketing during the fall when the lows typically occur are a couple of examples. Value-added programs, another approach to enhance revenue, have gained a lot of attention in recent years. The term “value-added” is somewhat of a loose term that can be used to describe specific health programs, weaning protocols, or process verified programs. While participating in most value-added programs should increase the price producers receive, it is not guaranteed to improve profitability significantly, or at all, considering most programs require additional costs. How much the bottom line is impacted will vary from operation to operation depending on other underlying factors such as labor resources, time, logistics, and others. Regardless, the following discussion will provide premium estimates for several different programs. Like many things in the cow-calf segment, there will be a wide range around the values. One program, once referred to as value-added, that is now becoming standard operating procedure for most of the industry is vaccinating or implementing a solid health protocol. Rather than producers receiving a premium for vaccinating, anymore it is viewed as a discount for cattle that are not vaccinated. However, there are different vaccination protocols, and those differences appear to have an impact on the value of calves. Some backgrounders/stocker operators and cattle feeders will not purchase calves unless they have at least two rounds of shots. Results from CattleFax’s annual Cow-Calf Survey show a positive relationship between calf value and number of times vaccinated. Over the last three years about 45 percent of producers reported vaccinating twice, while about 30 percent only vaccinate once. The three-year average difference in calf value for two versus one round of shots is $55/head. It is likely the entire price disparity is not solely due to the vaccination protocol, but it is not a fluke that the positive correlation is noticeable each year in the survey data. Healthy cattle are simply more profitable. Buyers certainly will remember the cattle purchased that had very little performance losses due to morbidity and mortality. This is the best way to establish a positive and long-lasting reputation among buyers. It is difficult to truly quantify how valuable that reputation is. Nonetheless, it is counterproductive for cow-calf producers to have the mentality that as soon as the cattle leave my place, they are somebody else’s problem. Weaning is one of the most tried and true methods of adding value. While there are some risks that come with weaning, there are a couple of datasets that indicate calves should garner a fairly significant premium versus selling right off the cow. Returning again to the survey results, calves weaned for at least 45 days averaged $113/head more than unweaned calves over the past three years. Again, the full price difference is not entirely from weaning, but the relationship shows up in the results every year. Analysis from Superior Livestock Auction data suggests weaning pays, on average, around $50 to $60/ head or about $10/cwt. Fully capitalizing on weaning often requires 45-days, if not 60-days. Weaning for shorter time periods, the producer incurs the cost, morbidity and mortality risk and may not capture the benefit of getting calves heavier, fully straightened out, and ready for the next owner. Essentially, producers are barely getting the bawl out of calves and results from the survey show there is not enough of a price premium to offset the risk. In fact, calves weaned for less than 28 days, although a pretty small sample, averaged a $30/head discount to those sold right off the cow. Calves weaned for 28 to 45 days only averaged a $17/head premium relative to unweaned cattle. Bottom line, if producers are going to implement a weaning program, it must be done correctly otherwise it is a waste of time and likely turns into a financial loss. Differentiated programs are another opportunity, and often catch the most buzz. Non-hormone treated (NHTC), natural programs, Beef Quality Assurance participation, GAP, BeefCare, and source and age verification (SAV) are some of the most common programs. Often, cattle will be marketed with a long list of programs in the description. Because of this, there will be some overlap between the premiums for each program. If enrolled in a few of the programs, it would not be uncommon for those cattle

to bring an additional $5 to $10/cwt premium compared to commodity-type cattle of comparable weight and kind. While there is a significant range around the values in the accompanying chart, those estimates are a good starting point for each program. The premiums were calculated based on Superior Livestock Auction data from the last couple of years. As the calf market trends higher, and supply and demand relationships change for each program, the dollar amounts could adjust over the next few years. One program that stands out in the chart is natural, since it shows a discount of nearly $3/cwt compared to non-program cattle. In reality it likely isn’t a discount, rather there is very limited benefit from a price standpoint for making that specific claim. The definition of natural in this analysis is owner certified natural. Essentially, producers sign an affidavit claiming they followed natural practices, which means calves never received hormones, antibiotics, or animal byproducts. The natural plus program, which is the same as natural, in addition to the seller agreeing to sign any additional affidavits for the buyer, equates to a slight premium, on average. Enrolling in these programs makes a lot of sense for producers who are already practicing natural protocols, considering the additional work is minimal. The programs that require thirdparty verification, such as verified natural, NHTC, and GAP, typically demand the biggest premiums. At the same time, they require more paperwork and operational requirements depending on the specifications of the program, and there is a monetary cost to be audited that varies depending on level of detail. While the definition of value-added is pretty general, considering it is simply enhancing the worth of the underlying product, cow-calf producers have several different ways of achieving this when it comes to marketing their calf crop. Some may be easy additions to existing programs, while others may require more significant operational changes and/or investment. Additional value for programs varies widely based on marketing channels, and more specifically, what buyers are in the market. The cost-benefit tradeoffs for various programs can range significantly between different operations but are likely worth investigating. If the decision is made to participate, it is important to have a plan to market those calves to an audience or program that seeks those type of cattle.