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BEEF Cattle questions may be directed to the OSU Extension BEEF Team through Stephen Boyles or Stan Smith, Editor
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Previous issues of the BEEF Cattle letter
Issue # 501
August 23, 2006
What Does Value-Added Beef Production Mean for the Cow/Calf Producer? - John B. Hall, Extension Animal Scientist, Beef, Virginia Tech
Part 2 - Adding Value by Sales to the Consumer
Last week's article focused on adding value to feeder cattle. This month will finish the series with a discussion on adding value by selling directly to the consumer or being part of a group that is involved in direct marketing. Remember from last month - Value-added beef production means different things to different people. Quite simply, value-added is a procedure or process that increases the value of your product to the customer for which they are willing to pay additional money. Also remember, that this series is written from my perspective as a Specialist in Cow/Calf Management, not as a marketing specialist.
There are numerous ways to market directly to the consumer, but for this article let's discuss two broad categories: Pasture to Plate Alliances and Direct Marketing. Value is added in these programs by the cow-calf producer having an economic stake in the final product sold at the retail level. If the product sells well and acceptance is high then the cow-calf producer shares in the profits which should result in greater income. If sales are poor then the cow-calf producer accepts a portion of the loss and income at the farm level is decreased compared to selling feeder calves.
Types of programs:
Pasture to Plate Alliances - These programs range from small local alliances (i.e. Blue Ridge Premium Beef™) to regional groups (Western Ranchers Beef Cooperative™, Oregon Country Beef™) to nationally known brands (Maverick Ranch Natural Beef™, Creekstone Farms Premium Beef™). These are a few of the many alliances that can be found on the internet or in trade magazines. The goal of these alliances is to produce a specific product that is sold as a branded product. The profit or loss is shared by the group.
Each alliance is unique in what is required of member producers in terms of financial input, profit sharing, decision making, and quality control. Producers interested in a pasture to plate alliance should research each alliance carefully. Interested parties should seek input from consultants in livestock production, economics, and contractual arrangements before committing resources to the alliance.
Production criteria are determined by the alliance. Management practices, cattle genetics, marketing schedules are usually dictated in these groups. Product flow from the ranch to the market place is usually controlled by the alliance rather than the producer. Cattle may need to move to the next stage perhaps the feedlot earlier or later than normal from the ranch perspective in order to smooth the flow of product into the retail sector. This is particularly true of alliances that market fresh product. The cow-calf producer may have to accept the impacts of cattle flow on production costs in order to participate in the alliance.
These alliances usually require members to provide financial backing to the alliances usually in the form of membership, shares, or dues. This helps provide operating capital for hiring production managers, processing animals, marketing/promotion, and retail space. In large alliances, these "non-cattle" duties are completed by third parties hired by the alliance or operating as a contractor to the alliance. In small alliances, a member or relative of a member is often hired to be responsible for several of these duties.
Oversight of large alliances may be conducted by a board of directors or directing family. Producer members of large alliances may provide input through annual meetings. In contrast, small alliances may function by decisions being made by all members as they are gathered around a kitchen table.
These Pasture to Plate Alliances will market tens to thousands of head of cattle through retail grocery stores and restaurants. A few groups will direct market to consumers. By working as an alliance, cow-calf producers can concentrate on what they do best producing feeder calves while others in the alliance take care of cattle feeding, processing, and retail marketing.
Advantages:
Challenges/costs:
Direct Marketing - There is increasing interest in direct marketing of agricultural products to consumers. According to the Virginia Tourism Authority, 55% of the US population lives within a 500 mile radius of Virginia. Even if only a small percentage of people would buy beef by direct marketing the impact could be significant. Local Harvest, a web site for direct marketing, indicates that 35 to 40 operations in Virginia already direct market beef to consumers. The number of operations that actually direct market beef is probably larger especially when 4-H projects and "freezer beef" are considered.
Producers see direct marketing as a way to eliminate the middlemen and increase returns to the operation. On the surface, it seems logical moving from the commodity sector to the retail sector should increase profits; however, producers sometimes fail to appreciate the myriad of procedures and events that put that steak, roast, or hamburger in the hands of the consumer. Animals need to be fed to market weight then harvested and products packaged, marketed, stored, distributed, and sales collected. All contractors or members that conduct these procedures need to be paid for there efforts before profit reach the farm.
Some of the value of the animal is lost when direct marketing occurs at a smaller scale than the major packing operations. The current value of hide and offal is $8.50 per hundred pounds of liveweight. This means the hide and offal is worth $102.00 for a 1200 lb. steer. This value exists because large processors have an outlet for hides and can ship specialty meats (tongues, heat, tripe, etc) overseas. In contrast, small processors will have to charge producers $30-$50 or more to send these valuable by-products to the landfill or renderer. The lost value of by-products must be compensated for by premiums for the meat products that are marketed.
Another challenge is providing the consumer with a steady supply of product. Few consumers have the capability or desire to store a whole side of beef. Calving season, variation in gain during different parts of the year, and animal genetics all create havoc with product flow. If fresh product is the primary item sold, then as the old saying goes "you have to sell it or smell it!"
Sales of live animals to a person for "freezer beef" are legally a simple process if the live animal becomes the property of the consumer and they arrange for custom processing. On the other hand, there are a host of regulations and practices that producers must abide by to direct market meat. Producers should contact other direct marketers or marketing specialists for advice. The Virginia Department of Agriculture has produced a CD on Marketing Virginia Meat Products. To obtain more information or a CD go to the VDACS web site at http://www.vdacs.virginia.gov/livestock/cattle.html This CD is a good place to start when considering direct marketing.
Another factor is our individual marketing skills and business acumen. As Mike Goldwasser from Blue Ridge Premium Beef noted at a recent conference on value-added beef marketing, we are great at raising cattle, but we are lousy marketers. Business planning and marketing assistance is essential. However, quality support in these business areas will increase the cost of the product as well.
The first step in direct marketing is to decide what product you want to produce and can produce. Then producers need to research, research, research. Create business and marketing plans and have them reviewed by knowledgeable people. Also, make sure you have enough time to dedicate to the business. Direct marketing creates another full-time job if not several full-time jobs when managed correctly.
Direct marketing can be successful. However, it is not for everyone. Producers would be well advised to proceed slowly and cautiously.
Advantages:
Challenges/costs:
Virginia beef producers already have a variety of options for value-added marketing from feeder calves to steaks. For most producers, increasing calf value through genetic selection and programs such as VQA will be the best option. A few others will create their own line of beef products. Hopefully, this short series will encourage you to think about ways to add-value to your cow/calf operation. Disclaimer Commercial products or programs are named in this article for informational purposes only. Virginia Cooperative Extension, Virginia Tech, do not endorse these products or programs and do not intend discrimination against other products or programs that also may be suitable.
Forage Focus: New insurance tools for pasture and forage
Beginning with next year's crop, farmers and ranchers will have new risk-management options for pastures and forage threatened by drought. U.S. Secretary of Agriculture Mike Johanns this week announced the availability of two insurance programs offered by the Risk Management Agency and available through approved insurance providers.
The Rainfall Index Insurance Program uses rainfall indices as a means to measure expected production losses, while the Vegetation Index Insurance Program uses satellite imagery that evaluates land productivity to measure expected production losses. During a pilot-testing phase, the programs will be available in selected counties around the country beginning late this month for insuring next year's crop.
For more information, follow this link: http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?contentidonly=true&contentid=2006/08/0280.xml
Fly Control Around Concentrated Animal Facilities - Steve Boyles, OSU Extension Beef Specialist
Flies may be a nuisance or be of economic concern due to transmission of disease, reduction in growth or production. Another important factor associated with flies is the threat of nuisance lawsuits. Generally the plaintiffs cite odor, dust, and flies together as constituting a nuisance. Effective fly control cannot be achieved with insecticides alone. Proper animal manure management and sanitation must be the major element in a good fly control program.
Around Concentrated Animal Feeding areas, major fly breeding/resting areas have a lot to do with EDGES!
Flies cannot develop in dry materials.
Do a walk around.
Each livestock unit is different and there may be fly breeding occurring in only two or three locations. However, since even small amounts of fly-breeding material can support large numbers of flies, these areas should be located and managed. I always like to look at the "gray areas" of building (i.e. flies may rest in mid-part of barns more than in the dark areas or in full sunlight. Don't forget to look on the underside of fences.
Feedlot and Dry lot Surface Area Management: Maximum-stocking rates creates tramping action that helps in drying. The lots also can be dragged periodically which helps maintain a dry surface. During wet periods, the wet edges of the pen can be scraped into the lot in a thin layer to facilitate rapid drying.
Manure is collected below slatted floor pens, a crust occasionally occurs unless some type of agitation is provided. Houseflies may breed in the crust just below the surface.
Watering Areas: Water tanks should be surrounded by a concrete apron. Float valves on waterers should be protected to prevent animals from causing an overflow and wet areas in proximity to the waterer.
The feeding area: Good bunk management means cleaning out the feedbunk and the area behind the feeding apron should be scraped at about two weeks. This is a typical place for larger amounts of manure than other areas of the pen and the apron usually has a slope away from the feedbunk and directs water to the edge of the hard surface.
How neat and dry are your feed piles? The seepage from fermented feeds (silage/haylage) provides an excellent fly-breeding site. Covering this seepage area with black plastic should create enough heat to kill the developing fly larvae.
Spreading Manure: Care should be taken to spread the manure thin enough for rapid drying. If the manure is spread at depths of three to four inches or more and enough moisture is present, it may allow fly breeding.
Sanitation is a major part of a fly-control program to prevent fly breeding. Nevertheless, it is often necessary to supplement sanitation practices with pesticides.
Beef Producers Program Set for August 24
Beef producers interested in heifer development, grazing management and new alfalfa seeding management are invited to a free program on Thursday, Aug. 24, at 6:30 p.m.
The program, sponsored by the Licking County office of Ohio State University Extension, will be held at Dickson's Simmental Farm near St. Louisville, Ohio, and will include a wagon ride tour of hay and pasture fields.
Presentations include:
The event is free to the public and requires no reservations. Dickson's Simmental Farm is located at 7834 Dog Hollow Road. For more information, contact Amy Fovargue at (740) 670-5323 or fovargue1@ag.osu.edu.
Weekly Roberts Agricultural Commodity Market Report - Mike Roberts, Commodity Marketing Agent, Virginia Tech
LIVE CATTLE in Chicago (CME) closed higher on Monday. USDA's Cattle on Feed report issued last Friday showed no surprises, was basically neutral, and slightly bullish to feeders, floor sources stated. Placements are spread well over all weight groups and feeder supplies are tight. Where will the numbers take us? I am optimistic about prices as a production void may be in the offing about 12 months from now due to good prices and dry weather. The AUG'06LC contract finished at $87.525/cwt, up $0.350/cwt. The OCT'06LC contract closed up $0.775/cwt at $91.65/cwt. Both the JUNE'07LC and the AUG'07LC posted new highs. USDA put the Aug. 1 on-feed supply at 10.8ss million head, about 107% of a year ago and the second largest on record. July placements were placed at 117% of last year while July marketings came in around 102% of a year ago. Some analysts noted that placements in earlier months were heavier and are hitting the market now. Speculation for higher cash cattle this week possibly at $88/cwt or more spurred the market. Funds carried the market even higher. Cash cattle on Friday were steady to higher $0.50/cwt at $85.50/cwt to $86/cwt in the southwest Plains amid thoughts that the Labor Day holiday supply buying was about to slow down. USDA put the choice beef cutout on Monday at $148.52/cwt, down $0.83/cwt. Declining beef prices are seen cutting packer margins. According to HedgersEdge.com, the average beef plant margin for Monday was around $7.70/head, down from $16.95/head last Friday and down $22.95/head a week ago. Cash sellers should sell live cattle at the heaviest possible weights, not hurrying anything out the door. Hedgers should seriously consider protecting December and February marketings. Corn users should still not consider pricing more corn needs at this time.
FEEDER CATTLE at the CME ended up $1.050/cwt with the AUG'06FC closing at $116.375/cwt and the SEPT'06FC contract closing up $1.075/cwt at $117.050/cwt. Fresh highs were set in the NOV'06FC through the APR'07FC contracts. Friday's USDA report showing large July placements was very price positive to feeder futures. Where will the numbers take us? A large sucking sound in the supply-side may be heard if ever so faintly right now. The numbers of feeders outside feedlots are diminishing as lighter cattle are showing up in feed lots filling demand. Rising prices are on the horizon amid a rising CME Feeder Cattle index, floor sources said. The CME Feeder Cattle Index for Aug. 18 was up $0.18/cwt at $115.90/cwt. Fund buying fueled and extended gains. In order to maximize cash flow, cattle feeders may still want to slow cash marketings carrying feeders to heavier weights with a watchful eye to hedging incoming cattle. Forward pricing of feed inputs can hold off for now as feed supplies are expected to go further south.
Visit the OSU Beef Team calendar of meetings and upcoming events
BEEF Cattle is a weekly publication of Ohio State University Extension in Fairfield County and the OSU Beef Team. Contributors include members of the Beef Team and other beef cattle specialists and economists from across the U.S.
All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status. Keith L. Smith, Associate Vice President for Ag. Admin. and Director, OSU Extension. TDD No. 800-589-8292 (Ohio only) or 614-292-1868
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