Cattle marketing during an economic downturn

Beef prices have ridden a world-class roller coaster in recent years, making profitable cattle marketing an enormous challenge. Prices peaked in 2014, going as high as they’d been in recent memory. However, they began a downward slide in mid-2015 before tanking through most of 2016.

cattle marketing

Troy Hadrick, pictured with wife Stacy, recently began doing things different when it came to his cattle marketing efforts. Those efforts helped him and other producers get through a recent run of the worst cattle prices the industry has seen in some time. (photo courtesy of advocatesforag.com)

Troy Hadrick is a producer from Faulkton, South Dakota, who rode the highs and lows in beef cattle prices, experiencing firsthand the challenges that low prices present. While fed cattle prices had rallied from October of 2016 into early this year, the business is cyclical and low prices will come around again. Hadrick said it is possible for beef cattle producers to make it through the down times, provided they’re willing to try new things.

There are a lot of theories as to why prices began a free-fall in 2015, falling at an unprecedented pace. Before prices got to that point, Hadrick says beef saw a perfect storm of conditions that drove prices to record highs in 2014. A large number of pigs in the U.S. had died of PED so pork production was way down. An Avian Influenza outbreak had pushed chicken and poultry production lower as well. Combine those facts with the lowest cattle numbers America had seen since the 1940s and you have the recipe for high beef prices.

“There wasn’t enough beef and protein to go around,” Hadrick said, “so our industry did what it always does. It responds and makes a bunch more of the product.”

But the number of cattle head in the herd doesn’t paint the full picture. It’s more about the pounds of product the industry produces. High prices meant producers were getting cattle as fat as possible to produce as many pounds as possible. The industry was at record carcass weight during the boom.

“We were producing carcass weights of approximately 850 pounds at that time,” he said. “Our recent carcass weights were around 814 pounds. So if we kill approximately 500,000 head a week, take that times 30 pounds a head, and look at the difference. The population stays the same as we’re killing the same number of head but the amount of product we’re producing is different.”

Needless to say, prices going from record highs to unbelievably low prices came down hard on the beef industry. There’s no doubt producers were pushed out of business as profits margins shrank to razor-thin levels. Theories ranging from oversupply to market manipulation abounded as the industry was under stress. Hadrick is very sympathetic to the plight of his fellow producers, having gone through the downturn himself. He does want to point out that if producers are willing to try new things, it’s possible to weather the downturns more efficiently.

Back in 2012, the Hadricks began changing their breeding and marketing programs for their cattle. There are different grades of beef and those grades are priced differently.

 

 

Higher quality beef demands a higher price because there’s less of it available. There’s a good demand for higher quality beef because it tastes better.

“We started shooting to produce cattle that would give us the beef that would qualify for these premium programs, such as Certified Angus Beef and USDA Prime,” he said. “If you produce cattle that fit into those categories then you get a nice premium price for your product.”

They did a couple of different things to try to speed up the process of producing premium beef. The family implemented an AI program on the ranch that covered the entire herd, using the best genetics they could find on the market to help them produce the highest quality beef. There’s a lot of data being collected on sires and they looked for the bulls that could get the job done.

So, with that as their focus, here’s where they did something different from what might be considered the ‘norm’ in beef production. Their cattle go down south to be finished but the Hadricks retain ownership.

 

 

“Those cattle are then marketed on a grid,” Troy said. “They harvest those cattle, they hang on the rail, and they’re graded by a USDA Inspector. Based off of that grade and the weight, that’s how the price we receive is calculated. We don’t know the final value of the cattle until they’re hanging on the rail as meat.”

Obviously, there’s a risk of being discounted when you market on a grid. The actual grid is just like other grids you may have seen. For example, if a particular animal graded Prime and was a Yield Grade 3, you follow those two columns and where they meet, that’s what the price was that week for that animal and that’s what we’re paid.

“We started our program with AI and then combined it with genomic testing,” Hadrick said. “We would take DNA samples from some of our cattle, get it analyzed, and that would give us an indicator as far as which cattle would perform well on the grid. We’d also keep back those females that would produce the best calves.”

Between those two technologies, Hadrick said their production went from grading 90 percent Choice, 35 percent Certified Angus Beef, and no Prime, to cattle that finished 57 percent prime, and 100 percent Choice. Hadrick said producers get really good premiums for numbers like that.

“The nice part about it is it doesn’t cost us any more money to raise those cattle,” he said. “It doesn’t cost us any more to feed them, either. Of course, we have to get them bred, but at the end of the day, they’re worth more money.”

There is an additional cost with the genomic testing, but Hadrick says it’s worth it to them because the idea is to identify the cattle that are going to make the family money and those that won’t. They sort cattle accordingly and market those cattle accordingly.

The Hadrick cattle are harvested through a cooperative called U.S. Premium Beef. It’s a rancher-owned cooperative based in Kansas that owns parts of the National Beef Packing Plants in Dodge City and Liberal, Kansas. Hadrick said some visionary people put this idea together back in the 1990s.

“They wanted to give producers the incentive to produce better beef,” Hadrick said, “and they wanted food service businesses and consumers that need beef to be able to come and know they’re getting the highest quality beef. They also wanted to reward the producers that could give them the highest quality beef consistently.”

The grid system runs off what they call plant average. Hadrick said in order to get the premiums, producers have to bring in cattle that are better than what everyone else brings in. That can be a big challenge as they’re attracting a lot of cattle that are high quality right from the start.

The plant isn’t buying cattle from the Hadricks, but instead, they’re buying carcasses. Hadrick said that makes it much harder for producers to try to sneak a bad one through the plant. There’s no hiding a poor carcass once the hide comes off.

He said the new system has advantages from the traditional way of doing business in the cow/cattle industry.

 

 

“On the farming side of things, we got into ethanol, we got into crushing soybeans, in order to get our product closer to the end point,” he said. “The closer you sell your product to the final consumer of your product, the more you’re going to get for it because you’ve added some value to it.”

He said doing business this way isn’t easy. Producers have to manage risk more, they have to have a relationship with the packer, and with the feedlots they work with. Producers also have to know their cattle because they won’t get away with trying to slip a bad one through the chain.

“If you market average cattle, you’re going to get an average price,” Hadrick said. “We’re trying to do things a little differently to do things better.”

Food prices down from last year

 

WASHINGTON, D.C., September 28, 2015 – Lower retail prices for several foods, including whole milk, cheddar cheese, bacon and apples resulted in a slight decrease in the American Farm Bureau Federation’s Fall Harvest Marketbasket Survey.


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The informal survey shows the total cost of 16 food items that can be used to prepare one or more meals was $54.14, down $.12 or less than 1 percent compared to a survey conducted a year ago. Of the 16 items surveyed, 10 decreased and six increased in average price.

Higher milk and pork production this year has contributed to the decrease in prices on some key foods.

“Energy prices, which affect everything in the marketbasket, have been quite a bit lower compared to a year ago. Processing, packaging, transportation and retail operations are all fairly energy-intensive,” said John Anderson, AFBF’s deputy chief economist. Lower energy prices account for much of the modest decrease in the marketbasket.

The following items showed retail price decreases from a year ago:

  • whole milk, down 17 percent to $3.14 per gallon
  • bacon, down 11 percent to $4.55 per pound
  • apples, down 7 percent $1.45 per pound
  • shredded cheddar, down 5 percent to $4.56 per pound
  • flour, down 4 percent to $2.37 per five-pound bag
  • bagged salad, down 4 percent to $2.46 per pound
  • vegetable oil, down 3 percent to $2.61 for a 32-ounce bottle
  • Russet potatoes, down 3 percent to $2.64 for a five-pound bag
  • white bread, down 1 percent to $1.69 for a 20-ounce loaf
  • chicken breast, down 1 percent to $3.42 per pound

These items showed modest retail price increases compared to a year ago:

  • eggs, up 56 percent to $3.04 per dozen
  • orange juice, up 7 percent to $3.43 per half-gallon
  • ground chuck, up 6 percent to $4.55 per pound
  • toasted oat cereal, up 3 percent to $3.09 for a nine-ounce box
  • sirloin tip roast, up 3 percent to $5.67 per pound
  • sliced deli ham, up 1 percent to $5.47 per pound

“As expected we saw higher egg prices because we lost so much production earlier this year due to the avian influenza situation in Iowa, Minnesota and some other Midwestern states,” Anderson said.

Price checks of alternative milk and egg choices not included in the overall marketbasket survey average revealed the following: 1/2 gallon regular milk, $2.21; 1/2 gallon organic milk, $4.79; and one dozen “cage-free” eggs, $4.16.

The year-to-year direction of the marketbasket survey tracks closely with the federal government’s Consumer Price Index (http://www.bls.gov/cpi/) report for food at home. As retail grocery prices have increased gradually over time, the share of the average food dollar that America’s farm and ranch families receive has dropped.

“Through the mid-1970s, farmers received about one-third of consumer retail food expenditures for food eaten at home and away from home, on average. Since then, that figure has decreased steadily and is now about 16 percent, according to the Agriculture Department’s revised Food Dollar Series,” Anderson said.

Using the “food at home and away from home” percentage across-the-board, the farmer’s share of this $54.14 marketbasket would be $8.66.

AFBF, the nation’s largest general farm organization, began conducting informal quarterly marketbasket surveys of retail food price trends in 1989. The series includes a Spring Picnic survey, Summer Cookout survey, Fall Harvest survey and Thanksgiving survey.

According to USDA, Americans spend just under 10 percent of their disposable annual income on food, the lowest average of any country in the world. A total of 69 shoppers in 24 states participated in the latest survey, conducted in September.

 

 

 

 

Minnesota turkey growers hit hard by H5N2

An avian influenza outbreak began in Minnesota on March 4 of this year, with the first report coming from a commercial turkey flock in Pope County, Minnesota. The Minnesota Board of Animal Health website said the virus has been found in wild birds, as well as backyard and commercial flocks.

The Centers for Disease Control and Prevention considers the risk to people from the H5N2 virus to be low. In fact, the Board of Animal Health website said no human cases of the H5 virus have been detected in the United States, Canada, or internationally.

Minnesota is the largest producer of turkeys in the Union. Over 5.5 million birds have been affected by the outbreak, with turkey flocks around the state being hit the hardest. A few chicken flocks have been hit too. So far, 84 farms have been affected, and the virus has hit 21 of the state’s counties.

Steve Olson is the Executive Director of the Minnesota Turkey Growers Association, and he’s reminding the public that turkey is safe for human consumption (Photo from minnesotaturkey.com)

Steve Olson is the Executive Director of the Minnesota Turkey Growers Association, and he’s reminding the public that turkey is safe for human consumption (Photo from minnesotaturkey.com)

KLGR radio (Redwood Falls) Farm Director Dustin Hoffmann spoke with Steve Olson, the Executive Director of the Minnesota Turkey Growers Association, about the outbreak, and was kind enough to share the audio with me. You can listen to the report below:

 

 

 

If you have general questions about avian influenza and biosecurity, the Board of Animal Health has a phone number to call: 888-702-9963

 

To report a potential outbreak, please call 320-214-6700 Ext. 3804