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.”

Cattle feedlot labor pains getting worse

Labor pains are a good way to describe the work situation in production agriculture, but it’s not a shortage of jobs that are the problem. More and more sectors in production agriculture are having a hard time finding help and the problem runs from coast to coast. Reports abound of crops left rotting in the fields because of a shortage of available labor to get out and harvest. The labor shortages aren’t just limited to crops, either. Feedlots across the country are having a hard time finding people to work with their livestock. The labor pains have gotten progressively worse in feedlots during the past decade.

“It is a problem,” said Gary Ruskamp of Ruskamp Feed Yards in Dodge, Nebraska. “I finally just got my crew filled in again. They kind of come and go after a couple of years and then you must find new people. I’ve got all good guys now, but it’s tough.”

Labor pains cattle feedlots

Labor pains are growing in the cattle feedlot industry as qualified help is getting harder and harder to find. (photo from silverspurranches.com)

Ruskamp has a stack of applicants every time he has an open position. But the problem is almost none of the applicants are qualified to do the job. The labor shortage is real in feedlot country and there are some good reasons behind it.

“I have a son that’s a partner with me in the feed yard,” Ruskamp said, “but a lot of families have kids that don’t stay on the farm. Plus, there’s less number of kids born on the farm. If you hire someone that didn’t grow up on a farm, you have to train them. They often don’t have the ability to work with livestock and the equipment we work with.”

He added, “There’s nobody that grows up on a farm anymore. It’s changed. Fewer farms. Fewer children on farms. They go to the city to work. The kids don’t come back out here and work in feedlots. There are a few family feed yards where the son might come back and work with them, but not a lot of that is going on.”

Ruskamp tries to hire local folks for open positions but occasionally has had to cast his net far and wide for employees. However, there’s a challenge when hiring people who aren’t from the area.

“I try to stay local,” he said, “because when you hire someone from further off, they usually want to get back home at some point. They don’t usually stay as long as somebody local.”

The labor shortage is worse in some counties than others. In the northern part of Cuming county, there’s a lot more feedlots that are closer together. He said workers can skip from feedlot to feedlot, working at one for two or three years.

“If they get 50 cents an hour more,” Ruskamp said, “they’ll skip to another feed yard. Eventually, they’ll come back to the first feedlot they were at.”

The struggle for labor isn’t hitting every feedlot in the plains. Ron Coufal runs a feedlot 14 miles west of West Point, Nebraska. He has a lot of family working in the business with him so the labor situation is in good shape there. However, that’s the exception rather than the rule in most feedlots.

“Our operation consists of all family members,” Coufal said. “My sons, my brothers, and a couple nephews all work here. All told, there are nine families that make a living out of this operation. We farm quite a bit of ground and we also feed quite a few cattle.”

Coufal said it’s always a problem hiring people, specifically the right ones for the job. It can be hard to pay people what they’re worth in agriculture these days with low cattle prices. That makes it tough for would-be employers because Coufal said you need to be able to pay people in order to hire the right people for the job.

“The right kind of people are typically in business for themselves or working for corporations somewhere else,” he said. “You can always hire a body but it can be hard to find one with the brain that allows them to do the job.

“If you want to work in the livestock industry,” Coufal said, “you have to be there every day. If 8:00 in the morning is when we feed cattle, I want them fed right at 8:00 in the morning. If it’s 10:00 in the morning, then I want them fed at ten. I want them on a schedule.”

Coufal said they did hire outside help before his sons came back from college. It took a lot of work to find good people. He enjoyed the staff he worked with before it became a family operation again, but did note that good help is getting harder to find.

If you know someone that’s possibly interested in working on a livestock operation, this is what it entails. There are opportunities there for people willing to work hard and learn the trade:

 

 

Ag has trade questions for the new administration

Let’s go ahead and talk trade headlines from the latest edition of the National Association of Farm Broadcasting News Service headlines:

Trump Election Leaves Agriculture Awaiting Clarification on Issues

rabobank-logo-squircle-jpgA new report from Rabobank says the election of Republican Donald Trump as President of the United States has the food and agriculture sector awaiting clarification on his policies and positions. The Rabobank Food and Agribusiness Research and Advisory group authored the report on the possible implications of the election. Rabobank analysts say Republican-controlled Executive and Legislative branches could “mean swift action when the new administration takes office.” Rabobank notes the advisory group is watching trade, labor and farm bill talks for potential policy changes that could have longer-term implications on the industry. The report says while President-elect Trump’s policies are yet to be clearly defined, his statements during the campaign suggest drastic changes from current policy could be on the horizon. Finally, the report predicts agriculture markets may be impacted by foreign exchange volatility in the short term as Trump takes office in January.

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New Zealand Wants to Talk Trade with Trump

Trade

New Zealand Prime Minister John Key wants to talk trade with President-elect Donald Trump as he prepares to take office in 2017.

New Zealand’s Prime Minister John Key wants to talk trade issues with U.S. President-elect Donald Trump. In a phone call between the two this week, Key told Trump he wished to talk further about trade and the Trans-Pacific Partnership. Key told Radio New Zealand that TPP was “worthy of a much fuller discussion,” adding that Trump needs the chance to get a proper assessment before seeing how “we can move things forward.” The Prime Minister said Trump was not rejecting the notion. New Zealand indicated the nation would give the new U.S. administration time to fully consider its trade agenda. That comes after New Zealand’s Parliament approved legislation last week allowing the nation to join TPP, despite the likelihood the trade deal will not proceed.

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Canada Cattle Producers urge Trade Fight if Trump Revives COOL

country-of-originCattle producers from Canada will urge the nation to retaliate against the United States, should U.S. President-Elect Donald Trump revive the U.S. Country-of-Origin meat labeling program (COOL). An internal memo within Trump’s transition team detailed how the new administration would immediately initiate changes to the North American Free Trade Agreement with Canada and Mexico, according to Reuters. That could include measures on COOL, which would reignite a six-year trade battle between the U.S. and Canada. U.S. lawmakers repealed COOL last December after the World Trade Organization approved more than $10 billion in trade retaliations by Canada. Canadian Cattlemen’s Association spokesperson John Masswohl says: “We’re watching, and if we think it discriminates against our cattle, our recommendation is going to be that tariffs go into place immediately.” However, he added that until it’s clear how Trump might approach COOL, no action is necessary.

One of the bigger post-election questions is the North American Free Trade Agreement. President-elect Trump feels it needs to be renegotiated with Canada and Mexico. Cuba is another country that agriculture groups want to open up to free trade opportunities. A group of US farmers and congressmen went to Cuba to lobby for agricultural trade about a year ago:

Minnesota Cattle Industry Convention Registration Open

The Minnesota Cattle Industry convention is an event that brings together producers and beef industry partners for educational opportunities, policy discussion and development, and a cattle focused trade show.  The Minnesota State Cattlemen’s Association, along with the Minnesota Cattle women and the Minnesota Beef Council, will host the Minnesota Cattle Industry Convention and trade show December 1st – 3rd, 2016 at the Double Tree Hotel in Bloomington, MN.

Minnesota Cattle industry convention

The Minnesota Cattle Industry Convention is coming up on December 2 and 3 at the Double Tree Hotel in Bloomington, MN (Pic provided by the MN State Cattlemen’s Association)

The convention will kick off with “Mom at the Meat Counter” Janeal Yancy –PhD Meat Scientist and professor at Arkansas State University, mom and beef industry advocate blogger speaking about consumer engagement and the need for science based facts.

National association leadership will also be joining us in welcoming everyone to the convention, including NCBA President Tracey Bruner – Ramona, KS and ANCW President Penny Zimmerman – Foley, MN. 

The 2016 Cattlemen’s College speakers will focus on the need for self and third party evaluations as part of an increased need for on farm transparency.  These speakers will include Josh White – NCBA Director of Producer Education – Denver, CO, IMI Global – Castle Rock, CO and Wulf Cattle or Morris, MN.  

Friday will also include a public grazing workshop featuring a team of speakers from the Minnesota DNR and the USFWS, along with Cody Nelson of Prairie Creek Seeds discussing strategies for integrating livestock into cover crops.  

Friday’s events will round out with the 2016 Best of Beef Banquet highlighting many of the successes from 2016 and recognizing the best of the best from Minnesota’s beef industry.  The entertainment for the night will be Jerry Carrol: Farmer, Comedian & Agriculture Speaker from Raleigh, NC.  The evening will wrap up the MSCA’s annual live auction.

Saturday’s events will include the 2016 Breakfast Briefing featuring MSCA’s and NCBA’s policy work in 2016 and set the stage for policy priorities for 2017.  This session will feature Bruce Kleven – MSCA Legislative Advisor and Colin Woodal – Sr. Vice President of Government Affairs, NCBA – Washington D.C.

The convention will round out with a Beef Market Status Round Table featuring Jeff Stolle – Nebraska Cattlemen’s Association Marketing Program Manager – Lincoln, NE, Micheal Klamm – USDA-NASS – Washington D.C. and Brad Kooima – Kooima and Kaemingk Commodities, Inc. – Sioux Center, IA.

Registration and room reservation information is available at www.mnsca.org or in the November edition of the Minnesota Cattleman newspaper.  The Minnesota State Cattlemen’s Convention and Trade show block will be held until November 10th, 2015. Exhibitors and vendors are also encouraged to attend, sponsorship opportunity details available at www.mnsca.org or call 612-618-6619 with questions.

We look forward to you joining us in December!

Is it beef or Pink Slime

One of the largest defamation lawsuits in American history revolves around something known as “pink slime,” and that term is at the center of a dispute between ABC News and Beef Processors Inc., of Iowa.  Over one billion dollars is at stake, depending on the outcome of the case.   According to examiner.com, the lawsuit is a result of a series of ABC News investigative reports on how one of the nation’s biggest meat producers prepares its products for the marketplace.  What ABC News characterized as pink slime is what the beef processor calls “lean, finely textured beef.”

Beef cattle farmers await a ruling on "Pink Slime"

Beef cattle farmers await a ruling on “Pink Slime” (Photo by Chad Smith)

Carissa Nath is a meat scientist with the Agricultural Utilization Research Institute, which specializes in finding new uses for agricultural products and technology, with the goal of expanding business and employment opportunities.  She explained what Lean, Finely Textured Beef is: “When carcasses are fabricated (cut; broken down) into steaks, roasts and other retail cuts there is always some amount trim left over.  This trim is mainly fat, but often times there will be a good amount of lean that could still be salvaged from this trim.  Due to the fact that carcasses are fabricated manually (by human hands), it is impossible to capture all this lean at the time of fabrication.  This trim can then be slightly heated and spun rapidly (think of a large salad spinner) to remove all the fat and retain all the lean.  The resultant product (beef lean tissue) is LFTB, 100% beef. LFTB is then used in the beef industry by adding it back into other trimmings (ground beef) to make varying levels of lean to fat ratios (85/15 (85% lean 15% fat); 90/10 (90% lean 10% fat), etc, to meet consumer demands.”

Mark Malecek is a cattle farmer from Redwood Falls, Minnesota, and said the goal is to “make the nation’s beef supply go farther, and make beef more affordable for the consumer at the grocery store. They’ve been using this process since 1990.”   The controversy arises when the separated beef is processed, heated, and treated with a cloud of gaseous ammonia to kill E. Coli and other bacteria.  In 2001, the Food Safety and Inspection Service okayed the process, and agreed that the ammonia was a “processing agent, and didn’t need to be listed on the ingredient label.”

According to Reuters, Dr. Gerald Zirnstein was a microbiologist at USDA, who sent an email to fellow scientist, first using the term “pink slime.”  In the email, he said he was “disgusted by the process and USDA’s approval of it,” and coined the term pink slime.  He said “USDA undersold it to the public and the meat industry soft-sold it to consumers.”

The issue came back into the public eye thanks to British celebrity chef Jamie Oliver, devoted an episode of his television show “Jamie Oliver’s Food Revolution” to Pink Slime in 2011.

ABC News then picked up the Pink Slime story and ran a series of reports in 2012 about the product.

 

According to the Pink Slime Wikipedia page, as a result of the series run by ABC News, grocery chains, restaurants, and even school districts announced they would no longer be purchasing beef with the Lean, Finely Textured, beef product.   The beef industry was hit hard by the Pink Slime controversy.

On May 8, 2012, Beef Processors Incorporated announced it would be closing three of its four processing plants in the Midwest.  On April 12, another producer, AFA Foods, a ground-beef processor, announced it had filed for Chapter 11 bankruptcy.  Beef prices on the Chicago Mercantile Exchange hit a three and a half month low.  Malacek said the cattle prices on the Mercantile “went down about three and a half dollars per hundredweight, which is a significant chunk of the local cattlemen’s profit.”  Malecek said prices have returned to where they were before the controversy became news headlines across the country.

Beef prices have rebounded, pending a judge’s decision on “Pink Slime” (photo by Chad Smith)

Beef prices have rebounded, pending a judge’s decision on “Pink Slime” (photo by Chad Smith)

As a result of financial losses, BPI announced on September 13, 2012, that it had filed a 1.2 billion dollar lawsuit against ABC News, claiming damages as a result of the pink slime controversy.  ABC News denied the allegations, and tried to get the case moved from state court to federal court.  In June 2013, a federal judge sent the lawsuit back to state court.   According to Reuters.com, on December 17 of last year, lawyers for ABC News asked South Dakota State Judge Cheryle Gering took under advisement oral arguments from both sides in the case, and will issue ruling in the near future as to whether or not the case will proceed to trial.