Realizing Increased Returns as a Result of Adding Value to Feeder Cattle

Dr. Matt Poore
Extension Beef Nutritionist
Department of Animal Science
North Carolina State University

Introduction

There is no question that times have changed in the cattle business, and that the trend is toward known identity cattle and rewards to producers for the value that they work hard to build into their product.  In the past there have been disincentives to putting that hard work into production systems because of the perception that cow/calf producers are not rewarded for that value.  Because of this problem, in the past producers were focused on producing calves for a generic commodity market, and the primary way they were rewarded was through selling more pounds.  Obviously some “premiums” were realized for practices such as castration, dehorning, and genetics including breed and muscling, but analysis of typical sale barn prices made it difficult to determine just how much those premiums were.

As producers develop and/or modify production systems with an eye on the future it is important that they 1) take into account what production practices and traits add value to the cattle, 2) maintain the identity of their cattle so that any premiums flow back to them, and 3) improve the efficiency of their production system so that increased returns are realized.  It is possible for producers to spend more adding value to their cattle than they can hope to recapture in marketing premiums, and that is something that must be avoided if producers are to achieve their goal of increased profits.

Adding value to cattle

There are a myriad of ways producers can add value to their cattle.  Selecting improved genetics that improve muscling, quality grade and growth rate will enhance value of feeder cattle.  Utilizing good basic production practices such as castration and dehorning (or using polled genetics) at a young age result with fewer problems down the road, increasing their overall value.  In general, these practices are a given and have been embraced by producers for many years, and in most cases they have been rewarded by the market.  Less obvious upon visual appraisal is the improved value of cattle imparted by a good preventative health and weaning program, commonly refered to as preconditioning.  

There actually is a limited amount of data showing how much preconditioning actually increases the value of cattle, and more research in this area is warranted.  In a recent summarys from the Texas A&M Ranch to Rail Program, McNeil (2000) showed that cattle that became sick upon arrival at the feedlot were worth about $87 less than were healthy cattle.   Lalman and Smith (2001) reviewed preconditioning literature and concluded that cattle that had been weaned 45 days and that received a prescribed health program including 2 doses of a modified live respiratory vaccine deserved a premium of $3-8/cwt over cattle sold directly off the cow without a vaccination program.  

A recent summary of data from Superior Livestock Auctions (King, 2001) suggests that buyers are becoming more aware of the increased value of cattle that have gone through a good health and weaning program.  Cattle were classified as 1) having no vaccinations and being sold off the cow, 2) having a vaccination for Clostridials, IBR, PI3, BVD, BRSV and Pasteurella 3 to 4 weeks before weaning (Vac 34) or 3) being vaccinated twice for Clostridials, IBR, PI3, BVD, BRSV, and Pasteurella, and being weaned at least 45 days before shipping.  Cattle in the Vac 34 program received a $2.21/cwt premium over the non-vaccinated cattle, and the Vac 45 program received a $4.06/cwt premium.  The price premium reported in this most recent report was somewhat higher than that reported in previous years, suggesting that buyers are becoming more aware of increased value of these preconditioned calves.

Obtaining marketing premiums

Adding value to calves is one thing, but getting paid for that value is completely another.  The most obvious marketing premium results from selling like cattle as a group rather than individually.  Programs such as commingled graded sales have been a big success in the past, primarily because the buyer uses less effort to purchase the cattle needed to fill a specific order.  Being able to purchase groups, and the ability to make such purchases over the telephone is much more efficient than sitting in a sale barn and purchasing cattle one at a time, thus resulting a marketing premium.  In North Carolina, selling at a commingled graded sale has resulted in typical market premiums of $4-5/cwt (Miller and McCraw, 2001).  It is important to note that in such sales, basic practices such as castration and dehorning are required, but cattle are not required to be weaned nor to receive viral vaccinations.  In a sale where all the cattle have undergone the same health program and a 45-day weaning program an additional premium is often realized .  

While there are premiums offered for like cattle sold in groups no matter how small the group, the best way to capitalize on the “group effect” is to offer cattle in truckload lots.  As you consider how you are going to improve your marketing leverage, you should look to find ways to package your cattle into truckload lots.  There are a variety of opportunities to sell truckloads of cattle; directly off the farm, in conjunction with traditional auctions, or through special video or teleauctions.  Consider the opportunities in your area and talk to representatives of the variety of sales options that are available to you.  In our area, cattle that are preconditioned and sold off the farm in truckloads will bring about an $5-8/cwt premium over cattle sold in a traditional graded sale.  One big advantage of selling cattle as a truckload is that the identity is preserved which is usually not the case in the commingled sales.  Cattle can be described in terms of the genetic base, health program, specifics of the weaning program and will generally be supported by the reputation of the marketing representative.

It is relatively easy for a large producer to package calves into truckload lots because they can sort through a large number of cattle and make uniform groups.  Large producers also may choose to retain ownership on the cattle which allows them to capture all the value they have built into their calves if they are marketed on the rail using the optimal grid.  Medium and small producers are much more challenged when it comes to retained ownership or truckload marketing of calves.  Uniformity becomes an issue, and danger of an unfavorable market swing makes retaining ownership without a good hedging program a big risk.   A producer with less than about 250 cows needs to do all they can to tighten up their calving season, have as uniform as possible a genetic base, and grow cattle to heavier weights if they are to market in truckload lots.    

A producer with less than 150 cows will have difficulty putting together a truckload of cattle from their own cows.  A medium sized producer who doesn’t have enough of their own cattle should consider purchasing enough cattle similar to their own, precondition them and group them with their own cattle for marketing. Not only will they make some profit on the purchased cattle (assuming that they make good purchasing decisions), this will add value to their own cattle because they can capture the truckload premiums.

Small producers are the most challenged to capture value that they build into their cattle. Commingled, preconditioned sales have been the most common way small producers have captured value in the past. A recent development that has a lot of promise is cooperative marketing programs or local alliances.   There are two pilot programs in North Carolina that deserve a mention.  The first is the Nash County Alliance.  This is a program made up of small producers that purchase similar bulls, use a common health program and then package cattle in truckloads for sale at weaning.  These small producers have made the decision not to wean calves because of the necessary investment in weaning facilities and the extra labor requirements.  These cattle sell at a significant premium over graded sale cattle which was the marketing approach previously used by these producers, because they have uniform genetics and a uniform health program.  

A second example of small farmer cooperation is the Surry County Beef Marketing Project.  In this program, small producers with similar genetics take calves off the cows and transport them to a custom backgrounder.  The backgrounder is also a small producer that had access to an old feeding facility, feeding equipment, etc, and is paid on the basis of gain.  Cattle are processed and commingled for weaning and then fed for about 3 months on a byproducts and silage based ration.  The calves are then marketed in truckload lots.  Over the last two years, this program has returned an additional $60/head to the producers.

Improving economic efficiency of preconditioning programs

As discussed above, producers can add value to their calves and by using a good marketing program they can be paid premiums for those cattle.  However, this will not always improve economic returns because preconditioning programs can be expensive.  Producers can use several approaches to reducing the cost of preconditioning.  Costs include pharmaceuticals (vaccines, dewormers, implants), feed, facilities and labor.  The local alliances mentioned earlier also pool their purchasing power to obtain inputs at a lower cost.  Grouping cattle at weaning for custom backgrounding as is done by the Surry County group allows economy of scale in facilities, labor and feed cost making them more competitive with the larger operations.
Of all the inputs, feed is likely to be the biggest single expense in a preconditioning/backgrounding program.  There are a number of commercial preconditioning feeds available that are very good quality products but they have a relatively high price.  Work in North Carolina in the early 1990s (Allison and McCraw, 1993a,b) showed that home mixed concentrates reduced the cost of preconditioning relative to commercial preconditioning feeds, and that the most economical gains were achieved when cattle were preconditioned in high quality pasture with a limited amount of grain supplement. 

It is very important to get cattle started eating immediately after weaning, and the use of one of the commercial starter feeds or a home mixed feed is recommended.  A proven weaning formula is shown in Table 1.  Calves may be challenged with coccidia at this time, so use of a product to control coccidia is recommended early in the weaning process.  In general you will be most successful in weaning if you offer calves very high quality grass hay in a feedbunk, and pour the grain on top to get the calves eating.  Limited creep feeding prior to weaning will also be very helpful in getting calves started.

Table 1.  A palatable concentrate mix for use in weaning calves to be fed at 1 to 4 lb/head/day	

Ingredient	
%	
lb/ton	

Ground corn	
41	
820	

Soybean meal	
6	
120	

Wheat midds or soyhulls	
41	
820	

Molasses	
5	
100	

Limestone	
1	
20	

Complete mineral1	
6	
120	

1	Four lbs of this grain mix will provide .25 lb mineral/head/day. The mineral  percentage of the mix should be adjusted according to the label of the product being used.  A coccidia control product should be included according to manufacturer’s recommendation, or administered through the water.	

Once calves are weaned and on feed, a less expensive feed should be used for the growing program.  Use of local byproducts to form the concentrate supplement, along with high quality pasture as the forage is likely to be the most economical approach to backgrounding.  In general we recommend feeding calves about 1% of body weight of a byproduct-based concentrate. We have had good luck with soybean hulls, either loose or pelleted, pelleted wheat midds, or in some cases corn gluten feed, which give similar performance to standard concentrates (Poore et al., 2002).  In some cases, we have encountered problems getting calves started on corn gluten feed so it is probably not the best alternative, at least early on in the process.  

As these byproducts can be very inexpensive relative to commercial mixes, producers can increase returns by up to $25/head with their use during a 90 day backgrounding program.  Of course this depends on making good purchasing decisions on the byproducts as they can experience dramatic spot market swings which is the case in the winter of 2002-2003.  Currently, it is more and more common to find commercial blenders of byproduct commodities and the blends probably have some nutritional advantage over single byproducts although that is not well understood.

Summary

To advance in the cattle business, cow/calf producers need to focus on adding value to their calves in an efficient way and then use an aggressive marketing program to get paid for that added value.  Finding a way to market the calves directly off the farm in truckload lots will be the best approach for maximizing returns and giving the producer the most control over their program.  Growing cattle to heavier weights on the farm after preconditioning will help producers package cattle in truckload lots, and if feed costs are kept under control will be an opportunity for additional profit on the gain.  Small producers should consider developing production and marketing alliances in their local areas to enhance economies of scale in input purchases and to help package cattle in truckload lots.

Allison and McCraw. 1993. Western North Carolina Calf Preconditioning Project. Part 2: Rations and health programs for preconditioning. North Carolina State University Department of Animal Science Annual Report number 245. Page 73-76.

Allison and McCraw. 1993.  Western North Carolina Calf Preconditioning Project. Part 3: Preconditioning on pasture vs. confinement. North Carolina State University Department of Animal Science Annual Report number 245.Page 77-79.

King, M.E. 2002. The effect of value added health programs on the price of beef calves sold through sevel superior livestock video auctions in 2001.  Final Report, Pfizer Animal Health.

Lalman, D.L. and R. Smith. 2001. Effects of preconditioning on health, performance and prices of weaned calves.  Oklahoma Cooperative Extension Service Fact Sheet F-3529.  Available at http://www.ansi.okstate.edu/exten/beef/ Accessed January 6, 2003.

McNeil, J.W. 2001. Texas A&M University Ranch to Rail Annual Summaries (1992-2001). Available at http://animalscience-extension.tamu.edu/frameset.html Accessed January 6, 2003.
	
Miller and McCraw, 2001. Graded cattle sales continue to provide consignors financial premiums. North Carolina State University Department of Animal Science Annual Report number 248. Page 35-36. 

Poore, M.H., J.T. Johns and W. R.Burris. 2002. Soybean hulls, wheat middlings and corn gluten feed as supplements for cattle on forage-based diets. Vet Clin Food Anim 18:213-231.