Do value-added cattle programs really add value?
January 26, 2016
With a volatile cattle market, producers are always looking for ways to add a few dollars to the value of their cattle. Value-added programs can be based on breed, treatments, practices and identification. The hard part is figuring out which ones will pay off.
Greg Arendt, manager of Valentine Livestock sale barn in Valentine, Nebraska says the success of value-added programs depends on figuring out where the demand is. "Does the consumer want their beef identified? And if they want it identified, do they care whether it's hamburger or a steak? Do they want it hormone free? Do they want it from a Red Angus critter or a Certified Angus critter? Do they want it vaccinated properly?" Arendt says those are all questions producers, buyers, wholesalers and retailers need to be communicating about.
One of the biggest programs in Ahrendt's region is Certified Red Angus. "Age and source used to be very popular but it lost ground after the ban was lifted on specifics for foreign export. Farther west there is more of a program for that," he says.
“There is value added for all-black cattle and this is why the Angus bull market is the largest. CAB is very popular with the packer so there is value added. This is probably why we are selling so many black cattle today.” Bart Uhler, South Dakota rancher
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"A lot of producers who sell cattle through our sale barn go after some of these programs. I don't know what the exact percentage is, but we try to put ourselves in a position to promote and market any type of added value that we can to enhance the value of someone's product," Arendt says.
Some of the cattle buyers are on board with these programs while others are not. "It's a training program; it takes initiative from the ground up because ranchers have to initiate the process. They need to activate it and there also has to be someone involved on the other side. The feedlot has to be involved; the packer-buyer has to be involved, as well as the retailer/wholesaler. No one can do this by themselves. It's a group effort. In order for us, as a sale barn, to be involved, we must recognize the program," Arendt says.
The people behind the CRA are providing a lot of support. A new hire, Ray Pike, is promoting red calves in a big way, said Arendt "They are working with packers to pay a larger incentive for cattle that are identified that way. That's the only way it can work."
Bart Uhler ranches in South Dakota, south of Rapid City, and is involved in the Certified Red Angus program.
"It's getting to the point in our industry that you need to have some kind of value-added program to make your cattle stand out and bring a premium. Whatever program works for you, I think you'd better utilize it. A lot of the people who have black cattle are in the CAB program. Whatever we raise, we need to find ways to market our product so it stands out and buyers want it," Uhler says.
"The certification for these cattle has inspired Bart to stay on the red track because he's gotten a premium out of his heifers and his steers. It's worked well for him," Arendt says.
Uhler has utilized the Red Angus Certification ever since it began about 15 years ago. "It works very well. For this program the calf must have at least one registered parent–a registered bull or a registered female. We buy all registered bulls and use Pieper genetics." Some buyers won't even look at the calves if they don't have the certified Red Angus tag, he said. The calves must be tagged with their own unique number before leaving the ranch, he says.
"Some go through the (Tyson) Gridmaster program and can be tracked back to the ranch that way. Nearly all the red ones that go through the sale barn at Valentine, Nebraska are certified Red Angus," says Uhler. He hasn't tried the Gridmaster program yet.
Last year Uhler's heifers weighed 558 and brought a premium $382.50 per hundredweight, more than $2,100 a head. Our steers usually bring a good premium as well. "We have buyers coming back every year for our calves. Calves with the Certified Red Angus tag generally bring at least $50 a head more than other calves." The heifers usually go for replacements, he said.
Cattle buyers interested in Red Angus calves are plentiful at Valentine Livestock, Uhler said, and consigners often group together to sell those calves on the same day. "Anyone who uses Red Angus bulls can take advantage of this program, and a lot of the seedstock guys in South Dakota and Nebraska really promote this. They try to buy some of the calves back in their feedlot programs," he said.
In contrast to the Red Angus program, which is promoted to the packer, the CAB program is more of a feedlot/wholesaler program, with less involvement in the rancher/feeder area mainly because they simplified their requirements to just be black cattle, he said. "There is value added for all-black cattle and this is why the Angus bull market is the largest. CAB is very popular with the packer so there is value added," he says. "This is probably why we are selling so many black cattle today."
University research in the early '90s initiated the shot-in-the neck trend encouraged by Beef Quality Assurance standards, Arendt said. "That's also a value-added program, to instruct and inform the cattle producers that there are things they can do—that don't cost them a lot of money—to give them potentially more in their pocketbook," he says.
Arendt said his salebarn is inspected and he follows regulations including reading ID tags for a non-hormone treated cattle (NHTC) program. "That (program) was very popular for awhile but has lost favor in the past six months. Dollars got a bit high, and exporting to Europe was not quite as lucrative as it once was," he says.
"Last year, when cattle were bringing $2,000 (per head), we were getting $2,100 or $2,200 for NHTC cattle. The only time people don't try for this is when they don't pay a premium. In the last three months, on our biggest day ever, we had 800 NHTC steers in June on a 3,000 head feeder sale but couldn't sell even one of them for a premium. A year ago in June we only had about 300 and they brought an exceptional amount of premium, with an added $100 to $150 per head. We can do all we can to promote these programs but you can't make people buy something they don't feel comfortable buying," he says.
"Value-added used to simply mean preconditioned calves, and at that time a 7-way vaccination was thought to be adequate. Then about 17 years ago we proved that if you give a 7-way, a 5-way viral, a pasteurella vaccination, and advertised the calves that way, there were people who would pay extra for it. This was worth $3 a hundred, at that time. Today it's probably worth only about $1. But now if the calves only have a 7-way shot, they are probably discounted. So there is still value added with preconditioning," Arendt says.
Larry Rice, a cattle buyer in the Scottsbluff, Nebraska area, says he has seen interest in these programs come and go.
In the past he had a purebred Angus operation, and owned/managed commercial feedlots, including a 20,000-head one, and two grow yards that held 10,000 apiece. He has downsized and now ranches and operates a grow yard and maintains an order-buying business for some coporate and smaller rancher/feeder clients.
Healthy calves that have been pre-conditioned are the main thing he looks for. "Probably the biggest and most important value-added incentives now are the vaccination and preconditioning programs. Most of the time, if the market is right, there is extra money in these calves," he says.
It's harder to keep cattle healthy when they come into a feedlot today. Any calves that are not vaccinated and preconditioned are harder to sell. "Our specialty—and what our operation was built on—has been our ability to handle a high risk, high-maintenance calf, and each year it just gets tougher to do. Even though we have more expensive and newer antibiotics now, we get less response from them. So the only thing that still really works is a good vaccination and preconditioning program. There is a huge premium there, if you market these calves in the right place," he says.
Many feedlots don't want risky cattle, and insist on some kind of preconditioning. "Not many years ago, feedlots accepted generic cattle, as long as they were good calves, and weren't as concerned about their shots. Today, I don't have any interest in that kind of calf, at any price. The train wrecks and problems you can have with those calves are too expensive. It's difficult to keep those cattle healthy."
Back to Basics
Some producers have tried value added programs and gone back to selling the cattle on their own merit. "I sell a lot of these," Arendt said. "Bob Simmons is a Nebraska producer who sells his steers in the NHTC program, but not his heifers. They could have been enrolled, but he isn't going to do it. He's been doing the NHTC for three years. Not interested."
Another South Dakota rancher, who prefers to remain anonymous, has participated in some of these programs and no longer wants to use them. "Last year we did the NHTC program and the extra price for the cattle paid for it. This year we did it and the order buyers were not interested. It didn't pay, so that was a discouraging experience for us, after putting forth the extra effort of tagging the cattle, the record-keeping and ranch audit. I am not sure if we will do that again. We have also done the all-natural drug-free, where you don't use antibiotics. We didn't have to go through an audit for that one, but when we market them as drug-free we sign an affidavit at the sale barn saying that they are drug-free," he says.
Taking out any individual calves that had to be treated with antibiotics, he will continue with the program. "Those are the only two programs we've participated in. I think there will be a lot of people continue to do the value-added programs that are working for them," he says.
"I'm not sure what led to the lack of demand for the NHTC calves but I heard the rumor that buyers were now getting them from other countries instead of just the U.S. There are many factors that play into how these things work, and it's a gamble every time," he says.
In order to be worthwhile, a value-added program has to pencil out. "With the drug-free program we were treating a few less cattle than we normally did; I was reluctant to treat calves unless they were definitely sick and needed antibiotics to recover. I wanted to keep them drug-free. The ones that we did treat, that fell out of the program, we sorted off. We had a few of those to sell, and they brought less than average price because the buyers knew they'd had some kind of problem," he says.
Where the Dollars Are
Rice says his operation has never sought CAB, Red Angus certified or all-natural cattle. "For the all-natural cattle, the premium seems like a lot, but there are higher feed inputs and bigger difference in the cost of gain—by not being able to use Rumensin and implants—so it has never added up, to me," he says.
"An all-natural yearling can bring a good premium, but an all-natural just-weaned calf is a different story. The only place you can get by without having to treat a lot of those calves is to have them weaned at home—with less stress and no exposure to other cattle. If you can keep them on the ranch, handle them right, and have a good vaccination program, there are some all-natural programs that give a premium for healthy weaned calves or yearlings, but an all-natural calf at weaning time doesn't work. The feed yard might end up with a third of them thrown out of the program because they have to be treated," he says.
There can be underhanded activity too, Rice warns. A cattle owner might claim his calves are all natural even if they aren't.
"Some of the buyer reps don't think it's a big deal whether calves have or haven't been implanted or given antibiotics. These calves are fed so long that there won't be any residue left, so the buyer reps think it would be ok if they have ranchers sign this. But I am not going to sign something like that because it's wrong," says Rice.
"To me, the all-natural deal has always seemed phony and not something I wanted to get involved in. Not all people in the program are dishonest. I am sure a lot of them sell cattle that are well identified. They sell their main set of calves that way, and then a smaller group has white tags in their ears and they tell the auctioneer that they can't sell those as all-natural because they were treated. Or they sell a set of calves or yearlings and say that tag numbers X and Y have to be sold different because they treated those. I respect that, because those people are trying to do it right. Then the auctioneer can ask the buyer if they want to take those two animals off," he says.
Rice said he recently bought some all natural calves for a corporate feedlot client who wasn't even interested in the all natural status. "It all depends on where you are going with the cattle. If they are selling on a video sale where they will be exposed to more buyers, including some that want all-natural cattle, then it might pay," Rice says.
"Marketed right, calves might do ok on certain added-value programs, but I am not convinced that ranchers are being paid well enough for not implanting these calves and selling them 20 to 30 pounds lighter than they would have been with the implants. If you only get $5 per hundred more to have them all-natural, and calves are bringing $2.50 per pound, you gave away more than that on loss of gain. You are better off to just implant them because it's hard to compensate for the loss of pounds," he says. Jay Godly, Buffalo Livestock Auction, in Buffalo, Wyoming, says a lot of calves go through some kind of value-added program, but the interest varies. "Two or three years ago it seems like the buyers were more in tune with these programs. Last year, the cattle prices got so good that fewer people were as interested. Money talks more than programs, for some people," he says. When cattle prices are low there is more interest because any extra dollars are more sought after.
"So far, this year, we haven't seen very many buyers saying they need a bunch of all-natural calves or they need this or that. It might start up again, but we haven't seen as much demand this year," says Godly.