How can beef compete

Higher prices bring higher expectations

by Miranda Reiman

Eleven to one—those were the odds the beef industry was up against for two decades.

“We got $10 in new spending over that 20 years, meanwhile our pork and poultry competitors got $110,” said Nevil Speer, an animal scientist at Western Kentucky University. “You can’t grow an industry without new revenue coming in, and we basically worked in a stagnant industry for 20 years.”

Speer presented as part of the Harlan Ritchie Beef Symposium during Midwest American Society of Animal Science meetings in Des Moines, Iowa in March.

Beef struggled with health perception issues, convenience woes and the challenge of being the most expensive protein in the meat case, he said.

Then, the independent sector orientation began to adjust for mutual good.

“We began to understand that we need to work together in this industry,” Speer said.

That lent itself to more branded programs and supply-chain alliances.

“Today we’re averaging somewhere around 12% to 15% branded sales on a weekly basis,” he said. “This push will probably continue in the years ahead.”

As a result, grid and other negotiated sales make up 75% of all fed-cattle marketings today.

Part of that also comes from increased competition for feeder cattle, and the need to recoup premiums paid on cattle coming into the feedyards.

“They’ve begun to implement more and more supply management over the last 10 years, and those are strategic business decision,” Speer said. “If we can find cattle that meet some end-user specification and then match our inputs and do that securely, we begin to kind of distance ourselves from the rivalry of fighting it out in a commodity market.”

That’s not only happening on the cattle side of the business, but once it’s processed into beef, too.

An estimated two-thirds of retail marketings are “out front sales,” Speer said. “They’re not spot sales.”

“What’s happening is that we are continuing to have more need for efficiency of movement, precision, to meet consumer needs,” he said. “We need the right cattle, the right products, at the right time and the right place, and that’s ultimately because we want to offer high-quality, highly competitive products with consistent, predictable turnover.”

That’s especially important as beef looks to compete with much cheaper alternatives. Beef is running at 240% the price of chicken and 140% that of pork.

“We’re on the upper edge of where we’ve ever been,” Speer said. “At what point do consumers begin to push back? I don’t know; they’ve shown amazing resilience and continue to do so, but this is a concern.”

“Certainly, higher price equals higher expectations,” he said.

The apparent solution is more teamwork.

“If we can supply high-quality product on a consistent basis, then we create demand,” Speer said. “Then the demand feeds back into the supply and it’s really a network-type of perspective where we create an entire ecosystem around a business, and ultimately we get new value creation.”

To those who say at some point the industry will have too much Prime or Choice beef, Speer counters, “If we can over-deliver that in an efficient way, and be more price-competitive with a quality product, I say let’s go. That means more opportunities in the beef industry.”

The National Beef Quality Audits, along with numerous other studies, show that meeting consumer demand sets the industry up for success.

“We have pretty good evidence that as we increase cooperation and responsive to consumers, we do a much better job in this industry,” he said.

Relationships rule

Will Feed honored by CAB

by Miranda Reiman

Matt and Anne Burkholder earned their degrees at Dartmouth—an Ivy League college in Hanover, N.H.—and considered jobs in Midwestern cities, but the Burkholder family’s central Nebraska diversified agriculture operation was calling.

“When we told Matt’s dad that we wanted to come back, he about dropped his coffee cup,” Anne recalls. “But the double surprise was when Matt said, ‘Anne wants to try to work at the feedyard.’”

Dave Burkholder laughed.

But he wasn’t about to tell his daughter-in-law “no.” After all, he could use another hand at Will Feed Inc., the 3,000-head yard he’d built in the early 1970s.

“It took a tremendous leap of faith to give a job to a 22-year-old woman who had no background in agriculture,” she reflects. “But he didn’t give me the manager job right from the start. I went to work for $6.85 an hour, running the feed truck, scooping bunks and processing cattle.”

As manager today, she still does most of those tasks.

Perhaps it’s because she’s a woman in a male-dominated field. Maybe it’s her Florida “city girl” roots, her perspective as a mother or her psychology degree. Likely it’s all that rolled into one, but whatever the impetus, Burkholder has made many changes at the feedyard and within the greater beef industry.

One of the more recent was Will Feed signing on as Certified Angus Beef LLC (CAB)-licensed feedlot in 2008. The overriding quality focus, data-gathering and details management took hold long before, but those became increasingly apparent.

They helped earn recognition as the 2011 CAB Feedlot Partner of the Year for operations with up to 15,000-head capacity. Matt and Anne accepted the award at the CAB annual conference in Sunriver, Ore., Sept. 20-22.

“The niche we’ve really tried to get into is tracing calves from ranch to rail,” Burkholder says.

She’d dreamed of a business plan where she was the only “middleman” sharing information between ranch and packer. Then the rising oil market gave her an additional incentive to give that a try.

Rather than pay several hundred extra dollars to truck in a calf from Idaho or down South, she tapped into the local pool of high-quality genetics.

“I can give a good chunk of that money to the rancher instead of putting it into freight,” she says. It’s also a stress-reducer for the animals.

She started working the connections she’d made from involvement on Nebraska Cattlemen committees and the list grew. Today there are times when the yard is 100% full of Nebraska-born, age- and source-verified calves.

Many of them are Angus and sold on the U.S. Premium Beef (USPB) grid.

Pat Laird, who lives just a few miles down the road, starting selling his calves to Burkholder in 2002.

“She’s very conscientious about their environment, and I like how she treats the cattle when they’re there,” he says, noting he appreciates all the feedlot and individual carcass data.

“I can make management decisions based on that,” he says.

Like many customers, he has Burkholder wean his calves.

“Through a real focus on the minute details, we’ve come up with a plan that really works,” Burkholder says. “We do all the little things right. If somebody doesn’t get to the bunk that day, we make sure we get them looked at. We exercise and acclimate our calves when they come in.”

Exercise goes on for five to seven days. During that time they’re being fed mostly prairie hay with “just a touch” of wet distillers on top and that gradually that gives way to a calf ration before they work their way through the normal feedlot formulations.

Nothing gets an implant until it’s been there for 30 days.

“When you implant an animal and they’re under stress, your implant isn’t as effective and it can impede the animal’s ability to marble,” Burkholder says.

Health programs are all coordinated, and everybody—from suppliers to consultants—knows her end goal.

“I want to produce something that tastes good and something that’s tender,” she says. “Beef is not inexpensive, so it’s something that a lot of people have to sacrifice to put on the dinner table.”

So there’s the greater good, plus a monetary benefit.

“Even when the Choice-Select spread isn’t very big, if you can get your animals to go CAB, that’s a really nice kicker,” she says.

From June 2010 to May 2011, more than 1,300 head of Will Feed cattle enrolled in CAB’s Feedlot Licensing Program went 59.8% CAB and CAB Prime.

In addition to her feedlot work, Burkholder has become an “agvocate” who puts a face on that segment.

“I want to put good content out there so people can understand what I do every day,” she says.

For more of her story, visit her blog at http://feedyardfoodie.wordpress.com/.

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Average doesn’t cut it on grids

April 27, 2011

It’s a pretty well recognized fact: if you want grid premiums, your cattle have to be better than average.

Most people don’t sell on a value-based system unless they have reasons to believe their herd genetics and management will result in high-quality beef. But even among ranchers who sell on a grid, the plant average factor—part of the formula used to derive grid pricing—is not as well understood.

“It affects producers in two ways,” says Clem Ward, Oklahoma State University professor emeritus: “One, in terms of premiums and discounts, and, two, in the form of base price.”

Paul Dykstra, beef cattle specialist for Certified Angus Beef LLC (CAB), says the first point is pretty straightforward: “Plant average for percent Choice is the most common, and that percentage needs to be exceeded before most shipments of cattle realize net premiums.”

A Nebraska packing plant might have a 70% Choice average, for example. Cattle that made 80% Choice would net a premium. If they made 50%, there’d be net discounts. Let’s look at some details (see box).

“Mathematically, the way to handle that is to multiply the boxed beef Choice/Select [CH/SE] spread for the week by the plant-average percent Choice,” Dykstra says. The spread minus that number is the premium applied to every Choice carcass on the grid.

If the carcass price base at that Nebraska plant is $185 and the CH/SE is $4, the Choice premium is $4 – (70% x $4), or $1.20 added to the $185. The Select price would be $4 less than $186.20, at $182.20.

“Packers use a grid as a yardstick to value your cattle compared to everybody else’s,” says Ken Conway, president of GeneNet, a marketing alliance. “When they buy a set of cattle on the grid, many of the formulas use more than just a quality grade to adjust the base price.”

A Choice yield grade (YG) 3 is usually the base.

“A lot of plants will have a ‘clean up’ cost, where they’ll figure averages on yield grade, quality grade and carcass weight,” Conway says.

Some packers have YG allowances, too, where discounts don’t kick in until the plant average YG 4 level has been reached. If the plant average was 6%, your load would have no YG 4 discounts unless they exceeded that, and then only on the excess. Plants that make YG 4 allowances typically combine that with steep YG 4 discounts once they kick in.

Neither plant averages nor allowances generally apply to premium quality brands and grades, however, and that’s an added incentive for quality.

“Typically each Certified Angus Beef^® brand and Prime carcass would be awarded the full premium for those categories,” Dykstra says.

Some producers might think this is a new scheme, but it’s been going on since the inception of grids and really makes sense, the sources say.

“The plant management is only willing to pay a premium for those cattle that are above the average of the cattle they can go out and procure in a live market every week on their own,” Dykstra explains.

Of course, they realize monetary incentive is the best way to get the type of cattle they need.

“They know their market for beef products and they need to have a certain percentage Choice to meet customer demands,” Ward says. “If they’re not getting that on the average, they’re going to pay a premium to get more Choice.

“That’s definitely out there as a target or incentive for the producers,” he says.

So how can cattlemen figure out what that benchmark is in their region?

“The Northern cattle are going to have a higher percent Choice as a rule,” says Dykstra, who has tracked weekly grading trends for years. Nebraska, Iowa and Illinois have reached 65% to 75% Choice recently, while Kansas is in the 60% to 65% range. Texas and the “southern region” are closer to 50%, he says.

“As a seller, the further north you go, the higher the bar is set to get premiums,” Dykstra notes.

Conway says that doesn’t necessarily mean that the southern cattle are at an advantage, or that a northern feeder of high-quality cattle would be ahead to ship cattle to a southern plant.

“Once you figure trucking, regional pricing and other factors it often evens out,” he says.

Grading trends have changed over the years, and they vary seasonally, so the best way for a producer to know what they’re up against is to ask.

“Talk to whoever is offering the grid,” Conway says. “I get the question all the time, ‘What kind of cattle do I need to have just to break even on the grid?’”

Dykstra says the bottom line is that grid-sold cattle need to be above average to justify that marketing channel, and producers need to know what average is.

“This certainly points toward the importance of carcass data collection and a general awareness of what type of genetics, breeds, nutrition and management will allow you to achieve your carcass quality goals,” he says. “If your cattle aren’t better than average, then they need to be sold live or on the rail for a flat price.”

EXAMPLE LOAD:

800 lb. Carcass Weight

10 % Prime

40% CAB^®

40% other Choice

10% Select

22% YG 2

70% YG 3

8% YG 4

PLANT/GRID STATISTICS:

Start price $185.00 ($1,480 for 800-lb. carcass)

Plant Avg. 65% Choice

CE/SE Spread $6.00

Prime $14.00

CAB^® $3.00

Choice $187.10

Select $181.10

YG 2 $2.00

YG 3 $0.00

YG 4 ($7.00)

THE MATH;

Prime = 10 x $201.10 = $2,011

CAB^® = 40 x $190.10 = $7604

Other Choice = 40 x $187.10 = $7,484

Select = 10 x $181.10 = $1,811

(2011 + 7604 + 7484 + 1811) / 100 = $189.10

YG 2 = 22% x $2.00 = $0.44

YG 4 = 8% x -$7.00 = ($0.56)

$189.10

+ $0.44

+ ($0.56)

= $188.98 ($1,511.84 for 800-lb. carcass) $31.84 premium per head over market average

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Update keeps beef success going

March 10, 2011

You could read your way to more profitable, high-quality beef production. A new 40-page edition from the Certified Angus Beef^® (CAB^®) brand shows how and why to increase the supply of cattle that qualify.

In February, CAB began distributing a second edition of its full-color, in-depth special report called “Supplying the Brand,” first released four years ago. Distributed to registered and commercial Angus producers, feedlots, allied industry partners and educators, it explains the finer points on the production side of the brand, says Mark McCully, CAB assistant vice president.

Demand was brisk for the 2006 first edition printing, when 50,000 copies filled requests in single envelopes and boxes of hundreds. In the following six months there were more than 200,000 downloads of pages from the web. The award-winning report simply explains how the CAB Program works with market forces to put more dollars in producer pockets

It still starts with high quality. “Marbling remains the most significant performance and carcass trait, even as prices shift,” McCully says. “That’s why we must learn how to keep managing cattle to make the most of their marbling potential.”

The updated magazine explains how the long-term focus on marbling is paying off at every link from ranch to plate. The CAB brand has become a destination product for consumers: they seek out restaurants and retail stores where they can buy that brand. In a similar way, some ranches and feedlots have become repeat destinations for cattle buyers looking to find the kind that perform and grade.

Consumer preference lays out the challenge to keep producing high-quality beef, because that’s what they want. As noted in “Supplying the Brand,” when asked to visually identify the desirable amount of marbling in a steak, nearly 70% favored premium Choice or higher – the same levels required for CAB brand acceptance.

Producers have responded to keep a good thing going. Rather than reverting to the late quarter-century downward spiral in demand when it came to pleasing consumers, they improved quality. It had to do with feeding conditions, cowherd culling and better tools to apply better Angus genetics, but production of high-quality beef started trending upward in 2007, McCully says.

And when it comes to profitable quality, CAB is holding the bullseye as “the brand that pays,” just using market forces. The report explains nobody enrolls or pays dues or feeds a certain ration to qualify for the program, but everyone raising Angus-influence cattle can shoot for the target as market signals warrant. CAB does not get involved in buying, selling or owning cattle or beef – it simply builds demand. Since 1996, packers have paid producers more than $300 million in premiums for cattle that have met brand requirements.

“From the growing success of the brand to the trickle-down economics that maintain a nice flow of consumer cash back to the ranch, this updated report is based on more than theory,” McCully explains. “It includes commentary from producers successfully and profitably targeting the high-quality end product.”

The full-color magazine details those challenges and opportunities. To request printed copies, visit www.cabcattle.com, call Marilyn Conley, 800-225-2333 ext. 298, or email mconley@certifiedangusbeef.com.

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Where’s the premium?

January 30, 2011

High percentage Angus calves continue to outsell non-Angus calves of similar weight and frame at livestock auctions across the U.S.

Data collected from eight cooperating markets in fall 2010 reveal steers of that breed brought $6.32 per hundredweight (/cwt.) more than their non-Angus counterparts.

That’s a $32.58/head Angus advantage for the average 516-pound (lb.) steer.

Certified Angus Beef LLC (CAB) has tracked similar patterns regionally and nationwide since 1999 through its “Here’s the Premium” study. Average premiums have trended higher for Angus genetics over the years, with the most recent figure just 47 cents/cwt. below the 2008 record spread, but on slightly heavier average weights. The Angus heifer premium over non-Angus was 44 cents/cwt. more than in 2008.

The 2010 comparison study included more than 10,000 head from nearly 600 lots; the overall database contains records on 12,721 lots and approximately 275,000 cattle from 13 states. The markets participate in the study on condition that exact locations remain confidential.

“We’ve seen the premium grow because cattle feeders have learned from experience that high-percentage Angus cattle are healthier and more profitable to feed than other types, said Steve Suther, the CAB director of industry information who initiated the study. “When they bid accordingly, there are more dollars for Angus cow-calf producers compared to those with other cattle.”

The premium has endured independent of commodity cattle market trends (note top line in historical graph).

Kevin Dhuyvetter, an agricultural economist at Kansas State University, has been providing statistical expertise from the start.

“This was the second highest Angus premium among 10 sets of fall values for steers,” Dhuyvetter said. “It was the third highest Angus premium for heifers.”

For the first eight years of the project, fall surveys compared prices for Angus and non-Angus calves weighing 400 lb. to 599 lb., and spring surveys compared those for 600 lb. -799 lb. feeders. Since 2008, the survey is only conducted every other fall. While the overall average price per head tends to increase for the lighter fall-sold calves, premiums for all Angus-influenced cattle have remained consistent and strong throughout the study.

As the last two HTP installments have shown strong Angus-influenced premiums, the average historical premium for all Angus steers in the database moved up by $2.96/head from 2008 to average $24.22 in the 2010 report.

All calf prices were consistently $12 to $14/cwt. higher at northern and western locations, compared to the base of Oklahoma, but Kentucky calf prices averaged $5.86/cwt. lower, Dhuyvetter noted.

Auction markets from states that also include Kansas, North Dakota, South Dakota, Wyoming, California and Nebraska reported breed type, sex, weight, and price of calves personally known as Angus genetics compared to non-Angus calves on four different sale dates. One Dakota market manager said roughly 80% of the cattle sold there are high-percentage Angus; providing listings for similar but non-Angus calves is often reported as a challenge across the country.

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Ranchers as ambassadors

January 10, 2011

Connecting to the consumer is a hot topic any time of the year, as more and more people want to learn about the food they eat.

That’s especially important in the perception-rich world of branded beef. A 33-year-old company owned by 30,000 rancher-members of the American Angus Association is empowering its stakeholders with the facts.

Those cattlemen are learning how to explain the Certified Angus Beef^® (CAB^®) brand and what makes it different. Last fall the company released the Brand Ambassador Training program, an on-line course that takes less than 15 minutes to complete and provides a user-friendly overview of CAB specifications, business model, sales objectives and success stories.

“To their neighbors and friends, producers are experts on what all these Angus brands mean,” says Christy Johnson, special projects manager for CAB. “Now they have an easy place to get information that helps them prepare for those conversations.”

Jerry Gustin, an Angus breeder from Gloucester, Va., completed the program after he heard about it on an industry e-wire.

“I learned a lot more about the specifications that guide the criteria for CAB quality than I ever knew before,” he says. “I didn’t realize how it always arrived at such a consistently excellent quality beef. The specifications are much more stringent than I had imagined.”

More than 80 people have completed the course and taken a short quiz at the end. Many respondents say they knew of the premium-Choice marbling specification, but discovered lesser known criteria like the 10- to 16-square-inch ribeye and moderate or thicker muscling, for example.

The program was unveiled on the National Angus Tour, which is where Virginia Koepke, from Edgar, Wis., heard about it.

“I knew that Certified Angus Beef wanted to offer a product superior to others, but this program brought that to light in more detail,” she says. “I also never realized how many Angus brands are out there—to the general consumer this has got to be confusing.”

Indeed more than 75 USDA-certified brands that include the Angus name, and many more non-certified Angus brands.

The course shares how CAB works, from the seedstock producer to their customers, feedlots, packers and the restaurants and retailers that ultimately market the product.

Teresa Perry, of Cottage Grove, Tenn., says, “We are proud of what we produce and are grateful to the businesses that support our efforts to provide the best quality.”

After their quiz, cattlemen were invited to share a message with the brand’s nearly 14,000 partners in the United States and 46 other countries.

“My ultimate goal is to provide an eating experience that will make them want to come back for CAB every time,” says Mark Savage, of Mount Juliet, Tenn. “I care about the welfare of my animals, the environment and the consumer. We have the tools available to continue to ensure that we provide the best beef.”

Koepke shares that goal: “It’s so important to offer the best palate experience out there and keep customers satisfied, so we can keep producing those quality animals.”

To view the Brand Ambassador Training, visit www.cabcattle.com and follow the link at the bottom of the home page.

Tag: Certified Angus Beef premiums

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