Doing what works

A few weeks ago I drove south and west of Oklahoma City, toward a town named Corn. With that name, I was not surprised to see that row crops and wheat have a big impact on agriculture here.

But among the miles of crop ground I found a father-son duo sticking out in a good way – raising quality cattle.

“Its very satisfying,” says Jim Richert, the dad. “It’s a lot of fun and I enjoy it.”

With a smile on his face, I see he enjoys talking about the cattle more than the crops. His eye for quality is also apparent.

“Not many people doing what we’re doing in the area,” he says. “Look around, this is corn ground. Ten years ago we were farming this, but turned it into grass for more cattle.”

It all started with Jim’s father. When an area of land didn’t have the best soil for growing crops, he turned it back to native pasture grasses for cows. Experience with that small section spurred Jim to believe grass and cattle could thrive here; even if his neighbors didn’t always think so.

Turning cropland back to pasture would come under scrutiny, so Jim wasn’t going to raise just any type of cattle. He was going to focus on quality and premium markets. Then grid-based pricing took off in the late ’90s, adding extra incentive.

“When grids developed, then we really started concentrating on selecting sires for carcass traits,” he says. “Probably one of the best things we ever did. It’s amazing by doing that our premiums just keep getting better.”

The Richerts aren’t only selecting for carcass traits though. They’re production oriented and know each live calf can add or subtract from the bottom line. With a 60-day bull turnout they expect to have 80% of their calf crop within the first 30 days of calving season. Any open females don’t stay around. The cowherd has to be productive and their calves have to excel on the rail to earn their keep.

In addition, for the last three years, the Richerts have incorporated using GeneMax genomic testing to help select replacement heifers. Jim gives Jay all the credit for introducing the technology.

“We’re looking at the numbers,” Jay says. “When it comes to selection and improvement, GeneMax^® is a way you can get there faster.”

There are plenty of neighbors who question the cowherd.

“In this part of the state you’re not going to find many cowmen,” Jim says. “You know you got to stay with what works for you. The people that diversified what they’re doing in this area are the best off.”

So that’s what the Richerts are doing, and from what I could see, they’re gaining attention in all the right ways.

~Katy

Industry Information intern Katy Kemp is currently pursuing a master’s degree in ag communications from Oklahoma State University.

They deal with it

You can’t go anywhere in Nebraska (or maybe even a great chunk of the continental U.S.) without talking about how hot and dry it’s been.

So it’s no surprise the weather came up on my visit to Zutavern Ranch Co. near Dunning, Neb., last week.

The calves tell you it's June, even if the grass looks like October.

Sure we talked about a lot of other things—like the way the first Zutaverns loaded their stock and all their fence posts up on a train in eastern Nebraska to settle in Custer County and how the Blaine County (the one they now call home) fairgrounds came to be located on the family ranch thanks to uncle George.

But when I hopped in the pickup with Conrad “Con” Zutavern and his mom Marcena, it was hard not to talk about the grass that should be green or the hay crop that’s less than half of last year’s.

The fact that Con’s nephew got called away to fight a fire on an area ranch while we were talking kind of brought it front of mind, too.

Had a great visit with these folks: Con, Marcena, Zak and Adam Zutavern

As we drove along the “great meadow” between the MIddle Loup and Dismal rivers they often said things like “the last time we had a drought like this” or “back in 2002.” Like many ranchers, wanting for rain is nothing new.

So they know how to cope. Although the idea of feeding cows before the snow flies doesn’t sound too appealing, they have some hay stockpiles they can tap. During the last major drought they bought a feedtruck to help them deliver distillers grains to the cowherd. It now serves them well in their on-ranch feedlot, but that doesn’t mean that tactic won’t be tried again.

Con said he hasn’t checked a weather forecast in weeks because he just doesn’t want to get his hopes up. Yet looking over the pastures he said with optimism fully engaged, “If we get a rain, these meadows will green right up.”

That same spirit guides the rest of the ranching operation, too. Worry about what you can change, do your best to prepare for what you can’t.

They talk about the decreased competition from packer-buyers at their 2,000-head feedyard and the increased prices for feedstuffs, but point to that as the reason they tried grid marketing nearly as quick as it was offered.

“We grabbed the opportunity because it we saw it as a way to maximize our income,” Con says. “We knew it was going to take above average grading cattle.”

So they’ve worked to accomplish that and at 58% Certified Angus Beef(R) brand and Prime, I’d say they’ve done it. But the Zutaverns don’t call it “mission accomplished” just yet.

“We don’t want to get to the point where we think the only way we have to go is backward,” he says.

May your bottom line be filled with black ink,

Miranda

PS–Watch the October Angus Journal for the full feature story on this ranch!

Know your cattle, grid conditions

by Steve Suther

Commodity cattle are priced by weight class, sex or average carcass grade, but some are worth a lot more or less. Indeed, some producers carve out a reputation, a kind of brand for their consistently high-quality cattle akin to that of Mercedes-Benz®, Apple® or Rolex®.

Pete Anderson, Ag Knowledge Services, says owners of those better cattle should earn premiums, but producing them is just the first step on the way to capturing value. “Grid marketing of fed cattle is one way to get paid a premium for producing something that is superior to the average,” he notes in a new white paper.

“Understanding grid marketing: How quality grades and grid conditions affect carcass value” is available with its several tables at https://cabcattle.com/research .

The subject may seem “a little mysterious and risky to some, especially feeder cattle producers who are new to retained ownership or only market cattle once or twice a year,” Anderson says. It helps to know how grids work and how your finished cattle will perform.

The Choice-Select spread is a key to many premiums and discounts, published daily by USDA and based on sales of primal cuts. On February 15, 2012, for example, the $5.11 per hundredweight (/cwt.) spread came from the range of a $19.95/cwt. Choice premium on loins to a Choice discount (-$3.40/cwt.) for the short plate.

In 2011, a particularly volatile year, the spread ranged from near $0 to more than $18/cwt., with exaggerated seasonality. Typical seasonal supply factors are higher grades in the winter, lighter carcasses in spring and fewer finished cattle in summer. On the demand side, the grilling season supports steaks and burgers while the fall and winter holidays focus on roasts from the chuck and round. The economy, exports and decisions of large companies are nonseasonal influences, Anderson adds.

The higher the Choice-Select spread, the more premium for quality cattle. “But with grid pricing, what looks like simple math is often not so simple,” he says. Mastering the math means figuring in a few more factors.

“The first of these is the percentage Choice requirement (Choice base) required to get par value,” Anderson explains. Each grid publishes its Choice base under terms and conditions; sometimes it’s a fixed number but more often it is a moving target like a plant average. Either way, as the hurdle required for par moves higher, all cattle are worth less money above average. “That’s because premiums are generated not by the absolute number of Choice cattle, but by the amount by which your cattle clear the hurdle set by the grid,” he says (See Box).

Beyond Choice and Select, cattle that grade USDA Prime or qualify for Certified Angus Beef^® (CAB^®) or other branded programs receive premium prices, and those can be substantial, Anderson says. For example, if 40% of your cattle make CAB at $4/cwt. more, it amounts to another $12.80 on the pen average, figuring 800-pound carcass weights. Prime premiums can run much higher, but even at $15/cwt., your 800-lb. carcasses grading 20% Prime add $24 to the per-head pen average.

Heavily discounted quality grades can be a problem in some sets cattle. USDA Standard grade beef has almost no marbling, and its likely unsatisfactory eating experience brings the discount. The table (below) shows an example of how low- or high-grading cattle could compare in premiums and discounts, and the impact on cattle value. In this case, cattle grading 50% Choice would bring the average market price, Anderson notes.

“Remember, it is not enough to create cattle with high value,” he says. “You need to find a way to capture that value and put it in your pocket.”

CAB premiums at seven-year high

Biannual packer survey shows cumulative contribution at $352 million

by Steve Suther

Demand for the Certified Angus Beef^® (CAB^®) brand surged higher in 2011, which helps explain a 40% jump in packer-reported CAB grid premiums. Licensed packers paid owners of CAB-accepted finished cattle $32.3 million last year, compared to almost $23 million in 2010, according to February reports. That does not include related premiums paid for Choice and Prime grades.

The news ended a general downtrend in annual grid premiums for the brand from the historical high of nearly $37 million in 2002 (see Chart 1). CAB volume had gained more than 40% over the eight years and premiums often decline in the face of more supply. However, during those years, the value added by CAB was becoming relatively more important in comparison to the weakening premium for USDA Choice over Select beef.

The latest fed-cattle premium spike is supported by what happened on the boxed beef side.

“A simple average across five middle-meat items—the rib, strip, tender, butt and short loin—shows that the CAB product premium in 2011 jumped roughly 20% over 2010,” says industry analyst Julian Leopold, of Leopold Foods.

That was after a “pretty flat” period for CAB premiums following the 2008 crash in the overall economy, he says. “It looks like demand is picking back up though, and likely at restaurants as well as retail.

“The other side of the equation would be the volume, as the 4% increase in 2011 CAB sales over 2010 could have further increased the total dollar premiums in the system.”

Grid premiums for CAB-accepted cattle have reached a cumulative total of $352 million, with packers paying producers about $28 million per year for hitting that target over the past 10 years.

“We’re seeing the premium nature of our brand on both the product and cattle side of the industry, with rewards to all of the stakeholders and partners who are committed to quality,” says Certified Angus Beef^® President John Stika. “The investment and focus in taking the high road above commodity beef pays off with more and more satisfied customers.”

The numbers come from a “Here’s the Premium” project that has surveyed packers on annual CAB grid premiums paid since 1998. They report total dollars but not volume of grid cattle bought, and individual data remains confidential.

The trust and integrity built into the CAB program may limit the precision of reporting on price signals, but that’s more of a problem for USDA’s Mandatory Price Reporting (MPR) system. Its “Five-Area Weekly Weighted Average Direct Slaughter Cattle – Premiums and Discounts Report” shows a weekly CAB grid premium, but that reflects only the narrowly defined 15% of value-based marketing that is “negotiated,” and does not include formula grids that pay higher CAB premiums.

MPR Supervisor Brittany Koop admits several “challenges” may lead to understated figures. Packers report intentions rather than actual records, so auditing is difficult. Even if they offer several grids, packers can list only one expected CAB premium, and Koop notes it is not in a packer’s best interest to report a higher price. Weighted averages only consider total plant volume, not CAB volume, and volume cannot be assigned to grid data. Finally, USDA confidentiality rules keep many grid transactions sealed.

Based on published grids connected with several packers, the upper range of available CAB premium last year was more than $5 per hundredweight (/cwt.) in the Plains area. Yet, despite the 40% hike in total reported grid premiums to CAB, USDA reported only a 6-cent move in CAB grid premium, to $2.84/cwt.

The historical data reported to CAB by packers indicates grid premiums have returned to the market in a big way. While it took 20 years to reach an estimated cumulative total of $3 million paid, the 14 years since then have been rewarding for Angus producers who focus on quality. Premiums have been up and down, but among the top four CAB packers, last year’s total was either the second-, third- or fourth-highest annual CAB grid outlay ever.

Looking at Urner Barry Yellow Sheet boxed beef values over the past four years by CAB fiscal year (Oct.-Sept.), versus calendar year (Table 1) illustrated the fourth-quarter strength in beef prices in 2010 and 2011.

Still, the CAB/Choice spread has not fluctuated by as much as $1 in those years, notes Urner Barry reporter A.J. Munger.

He says higher CAB grid premiums paid last year are likely due to the sharp increase in wholesale demand for premium Choice beef, “with the continued expansion of branded programs, particularly the CAB brand.” A retail demand shift from Select to premium Choice was obvious by late summer.

“That increased the competition for higher-grading market-ready cattle,” Munger says, which would be enough to increase premiums. On top of that, however, the shift coincided with a fall-off in quality grades, thus limiting total available supplies, he adds.

What will 2012 bring? It was off to a strong start with even the USDA report showing a weekly weighted CAB grid premium of $8 in January. “Of course that could be seasonal and it is way too early to talk about a trend for the year,” says Kansas State University economist Ted Schroeder.

There is much volatility and uncertainty in the market, with severely negative packer margins. But with all beef priced at historic highs, a trigger level may turn consumers toward either higher quality beef for a little more premium or away from beef toward other proteins.

“We also know that not all cattle qualifying for CAB receive a grid premium,” Schroeder says. “Many are sold in ways that return a commodity price to the seller, but enable the packer to capture CAB premiums for the beef.”

The big jump in reported CAB grid premiums for 2011, when USDA’s MPR system showed little change, suggests a lot more CAB-qualifying cattle were sold on a value-based formula or grid last year. “That says if you want in on the higher CAB premiums, you should look at selling your cattle on a value-based grid that pays a competitive rate for those that qualify,” he adds.

Healthy gains hit quality target

The first step in achieving goals is to set them. That’s why feedyard managers aim for the best live and harvested performance, and that means a few points better than last year. Carcass value is especially important to those who sell cattle on a grid.

Producers may think efficiency comes from choosing genetics for feedlot performance over marbling and beef quality. But thesis research by Kansas State University Master’s student Marisa Hands-Kleysteuber and academic advisor, animal scientist Chris Reinhardt, says otherwise.

Data from 17,919 cattle fed at a southwest Kansas feedlot were evaluated for the paper, “Relationships between feedlot health, average daily gain and carcass traits of Angus steers.” Results show the highest quality grade cattle were also the highest gaining, regardless of disease status. They also suggest managing for a consistant end-point can be as influential as genetics.

“Even if cattle with similar genetics are fed for the same period of time, differences in carcass qualities will arise,” Reinhardt says.” Many times that is because of illnesses in certain animals.

Healthy animals tend to perform better, and the steers in this study provide an example. All marketed at an individually identified, fat-constant endpoint, those requiring no treatment for disease or illness graded 72% USDA Choice or Prime, compared to 59% for those treated two or more times. They weighed more coming in, and gained more with fewer days on feed to extend their advantages over steers that required treatment.

Reinhardt examined data on those steers that were never sick to look for correlations between average daily gain and quality grade because earlier work has noted that higher gaining cattle tend to grade better. This study found nothing to dispute that, and noted, “performance dramatically dropped for those cattle that were ungraded [Standard or No-Roll].”

On the other hand, the more times cattle were treated, the lower performance in the yard and in carcass value; ungraded cattle turned out to be those that required treatment just about twice as often as other cattle.

Sickness usually means a temporary setback. While cattle showing morbidity deposit less external and intramuscular fat, feeding to the same fat-constant endpoint as healthy cattle cuts down on those differences in marbling scores and performance. Of course, it takes more days on feed in a setting where clearly time is money.

“The relationship between Yield Grade (YG) and Quality Grade in treated cattle is actually greater than in non-treated cattle,” the report states. “Allowed to reach an adequate degree of finish, marbling should also follow.”

Regardless of health, the study suggested all cattle optimize marbling by feeding them with the goal of achieving YG 3 (See tables and full study on page 4 of the 2012 KSU Cattlemen’s Day Report at http://www.ksre.ksu.edu/library/lvstk2/srp1065.pdf).

Steers reaching that level of cutability made 16.1 percentage points more Choice and Prime as compared to those steers falling within the range of YG 1 or 2. Premium Choice carcasses were increased by 10.3 points in the same comparison.

“It pays to keep cattle healthy, yes. But these results also tell us if we want to raise high-quality beef, we do not need to bypass performance genetics for high-marbling traits,” Reinhardt says. “We can select a combination of both.”

Management counts, certainly. The research report concludes producers who “reduce opportunities for nutritional stress (e.g. nutrient restriction, health challenges) and ensure their cattle are fed to their target fat content endpoint … will more consistently achieve both excellent performance and quality grade [goals].”

Market-toppers need proof

Without a history, premiums paid don’t mean profit made

by Miranda Reiman

In most investment situations, you get a chance to evaluate the risk and rewards, do some research and make an informed decision. But when cattle pass through the sale barn in 30-second intervals, it’s not always easy for buyers to base decisions on anything more than appearance.

Data from Oklahoma-based Professional Cattle Consultants (PCC) shows that challenge could make the difference in whether feeders make or lose money on individual sets of cattle.

“You’d think premiums in the marketplace are being based on factors that will ultimately pay off when you’re going to sell those cattle,” says Dillon Feuz, ag economist with Utah State University.

This analysis, taken from five years of closeout data on millions of cattle from across the feeding belt, shows otherwise.

To get at the answers, actual purchase price was subtracted from the USDA Cash Feeder Price Index. All weights were standardized to a 750-pound (lb.) average using a 5 cent slide, and then sorted into four quartiles: heavy discount, light discount, light premium and heavy premium price.

The main finding? “Just because cattle look pretty doesn’t mean they are going to perform,” says Ron Hale, PCC analyst.

The top profit-getters were those with the heaviest discount, at -$20.90 per head, followed by those in the light discount (-$9.39) group. They earned $86.92 and $27.44 per head, respectively.

“If you pay a premium just because they look good or they have the hide color that you think is best, there’s enough variation in those groups that you’re going to come out short on those premiums,” Feuz says.

The PCC numbers illustrate that point. The quartile with a light “premium,” so slight the average came in barely negative at -$0.79, lost $17.15. The most expensive calves—purchased for $12.37-per-head above the market—lost $101.83 on feed.

Does this mean cattle are never worth a premium? Hardly; but it takes information to make them pay.

“If we could correctly identify the cattle that make the most money in the feedlot and grade the best, if we could identify those as feeders in the auction market,” Feuz says, “then the premiums aren’t big enough.”

The most expensive cattle in the analysis had the worst feed conversion at 6.56 lb. of feed/gain, compared to 6.38 lb. for the most efficient group. They ranked third for average daily gain.

Although grade wasn’t part of the dataset, previous PCC work pointed out a highly favorable correlation between gain and grade, so chances are those cattle with the highest premiums didn’t live up to quality expectations either.

Danny Herrmann, Ford County Feeders, says he’s willing to pay more for cattle that stay healthy, gain and convert, and grade. The best chance at those is recruiting repeat suppliers into his Kansas feedlot.

“If I have a pretty good history, I’ll try to buy those cattle again,” he says. In the long run, partnership pays off for ranchers, too. “Those people probably get more of a premium than the person who is just taking the highest price every year from a different person.”

Hale says producers who want to ensure cattle top the market year after year should make certain they deserve to.

“For a cow-calf man to do the best at marketing his cattle, he needs to know how his calves have performed and graded in the feedyard and how their health has been,” he says. “Then he can make changes and improve his cattle and develop a history.”

Communication is the key, says Herrmann—that and an extra dose of concern for the entire industry.

“If you do all the vaccinations and everything you can to give it 100%, I’ll be more interested,” he says. “But if you’re complaining about a 50-cent shot, then you’re telling me you don’t care about me. You need to be concerned about how the cattle perform for the next guy.”

Paying more for high-grading or source-and-age verified cattle, but selling them on the average live or dressed price is a flawed business model.

“If you’re paying a premium for cattle that you think are going to grade above average, but you’re not selling in a market that rewards that,” Feuz says, “then you’re just wasting money on a [calf] premium.”

At the ranch level, lack of knowledge on how cattle gain and grade after weaning makes it hard to know if its worth paying a premium for breeding stock, he adds.

Through the years, premium levels in the feeder-calf market have remained fairly consistent, but what they’re paid on has evolved.

“Feedlots are paying premiums based on perceived feedlot performance or end-carcass merit,” Feuz says. “What we’ve thought would deliver that over time has changed.”

Black-hided, Angus influence animals used to fetch a discount, for example.

“The biggest impact on feedlot profitability is how much you pay for those cattle,” Hale says. “There are times that discounts and premiums are worth it, but it all comes down to some kind of history.”

It’s time to pay attention

As the quality spread widens, prepared cattlemen profit

by Laura Nelson

Boxed beef climbed 15% in value to start the year, but with the passing of summer into fall value trends began a dramatic differentiation. “At these prices, buyers wanted better quality,” said Larry Corah, vice president of Certified Angus Beef LLC (CAB).

The spread between USDA Choice beef and lower quality Select, moderate since 2008, shot up $15 per hundredweight in a matter of weeks. It was partly attributed to a major retailer switching to higher quality beef, but others had set the stage.

“Two of the largest retailers in the United States had added a premium-Choice program to their marketing plans in the past couple of years,” Corah noted. They were winning more satisfied customers, and the competition was quietly building demand at the high end.

The latest retail shift signaled a sudden need for more Choice and better beef, he said, but more importantly an excess of the low-Select product formerly in those cases.

“Combine the retail factors with an improving middle-meat market in our upscale, fine dining restaurants and a whole new demand profile for high-quality beef has been created,” Corah explained.

What does it mean at the feedlot and ranch? More money for informed marketers.

“There’s no reason not to sell high-quality cattle on a grid,” said Paul Dykstra, beef cattle specialist for the Certified Angus Beef^® brand, commenting on prices for CAB Prime. “When you’re looking at nearly $250 per head in premiums, that makes a guy pay attention.”

Those figures are based on mid-October calculations of an 850-pound (lb.) carcass, sold on a popular Nebraska grid (Table 1). The difference is much larger when compared to Select, which brought $187-per-head less than CAB on the grid. The premiums for quality represent a significant jump from recent annual averages.

Before anybody tallies potential premiums, Dykstra warned that it’s important to understand how area-weighted averages work (Table 2).

“Many people believe they’ll get the full Choice/Select spread over and above the carcass price for Choice,” he said. “Not true. It all depends on the plant location and grid structure.”

If a plant averages 65% Choice, the packer will likely pay 35% of that Choice/Select spread on every Choice carcass. Southern plants with historically lower grading may pay up to 50% of the spread, Dykstra noted.

Even in Nebraska, where quality competition is fierce, there’s plenty of reward for those who have focused on carcass quality.

“Select is always a discount by the full Choice/Select spread below the base, and Choice is that area-average premium over the base,” Dykstra said. “The spread covers the up- and the down-direction from the base.”

Regardless of whether you think about quality, it affects your price, he added: “Cattle with a track record for quality are the ones now bringing higher bids as calves and feeders.”

$100,000 Up for Grabs with 2024 Colvin Scholarships

by Courtney Weekley | Mar 20, 2024

Certified Angus Beef is offering $100,000 in scholarships for agricultural college students through the 2024 Colvin Scholarship Fund. Aspiring students passionate about agriculture and innovation, who live in the U.S. or Canada, are encouraged to apply before the April 30 deadline. With the Colvin Scholarship Fund honoring Louis M. “Mick” Colvin’s legacy, Certified Angus Beef continues its commitment to cultivating future leaders in the beef industry.

Raised with Respect™ Cattle Care Campaign Launched This Fall

by Lindsay Runft | Dec 20, 2023

Raised with Respect™ was developed as part of a strategic cattle care partnership between Sysco and CAB. The collaboration focuses on supporting farmers and ranchers, equipping them with continuing education to stay current on best management practices and helping to increase consumer confidence in beef production.

Drought Impact and Cattle Industry Dynamics

by Courtney Weekley | Nov 8, 2023

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Now we’re in the money!

September 20, 2011

I’m excited to see the price differential between Choice and Select boxed beef at $11.87/cwt today. Did anyone else notice? It’s a pretty big adjustment from the values under $5.00/cwt. that we’ve seen more often than not over the past few years and as recently as several weeks ago.

I suppose my job with Certified Angus Beef may have something to do with my excitement, but it’s really my interest in cattle and profitability that has me excited. I just like to see the better cattle rewarded in dollars and cents.

The value-based grids offered by packers always generate premiums for the high-grading cattle that avoid discounts. But when the Choice/Select price spread is wider there are more dollars to be had. It’s pretty simple.

With the current Choice value at $11.87/ cwt. above the Select price, the premium per head is right at $40.36 for an 850 lb. carcass. Premiums are paid above the packer’s average weekly Choice percentage, so you’ve got to do some math to adjust accordingly. I’m using 40% of the boxed beef premium in this example, it would be higher in the south.

Providing that the Angus steer met the 51% black-hided requirement, there’s a chance of moving that Choice carcass on up to the upper 2/3’s of the Choice grade and meeting the 10 other carcass specs for CAB®. Doing so generates another $2.50/cwt., or $21.25/head, for a grand total of $61.60 per head. Now we’re in the money!

Folks, every pound is already worth quite a little in this market. Efficient production of high-quality product is not a fad that will fizzle out. It’s a winning plan in any business.

-Paul

Paul Dykstra is a beef cattle specialist for Certified Angus Beef LLC. He works closely with current and prospective licensed feedlots and ranchers in north-central and western states of the U.S to help them profitably meet the demands of a high-quality marketplace through breeding and managing Angus cattle to their utmost potential.

Progress from small steps

by Morgan Boecker | Apr 21, 2021

Every day is a chance to learn and get better. Thousands of others like my new friends in Alabama are taking steps to meet the shifts in consumer demand, and to know more. Small steps in the right direction can start now. Even if it’s just recording a snapshot of where you are today, a benchmark for tomorrow.

Not perfect, but working to get better

by Miranda Reiman | Dec 10, 2020

The CAB Cattleman Connection team heard its name called more than once in the virtual ceremonies, and each time came a sense of personal accomplishment, but even better: confirmation that we’re getting better at our craft. I hope that means we’re doing a better job for you.

Beefed up findings

by CAB Cattle Crew | Jun 17, 2020

Frank Mitloehner presents his findings on the animal ag sector’s impact on global warming. He explains how cattle counterbalance other fossil fuel sectors, proving that cattle are a solution and not a threat.

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Market at weaning like a feeder at finishing

June 3, 2011

I love meeting and learning from new people, so this week was a real treat for me. I was on a “story trip” through southern Iowa where got to visit a handful of cattlemen with very different operations and very different stories of how they got where they are today.

For one, his father’s dairy barn fire and development dreams led him to the land he and his cattle have called home for 31 years.

Another father-son combo, share a dream of farming and raising cattle together. Sam Mendenhall, the 6th generation farmer, is sending his son (the 7th generation) to his alma mater (Iowa State) this fall, with hopes Continue reading “Market at weaning like a feeder at finishing”

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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