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Previous issues of the BEEF Cattle letter

Issue # 646

July 22, 2009

Moving Forward: Marketing Strategies - (part 2 of 2) - Rory Lewnadowski, OSU Extension Educator, Athens County

During last winter's "Managing for Dynamic Change" beef schools , several speakers addressed the topic of marketing within the context of changes in the global beef industry, consumer demand, and risk management. I'll try to summarize some of the comments and strategies in this article.

Nevil Speer, from Western Kentucky University said that the wrong question for beef producers to ask was: What's the market going to be? This type of questioning implies a mindset of being a price taker and marketing in the same way as in the past. Instead, according to Speer, the right questions to be asking in these times are: What's the business environment telling us? How will management and marketing decisions be constructed around those business signals? Where do new marketing opportunities lie? Asking these types of questions implies a willingness to adapt to new markets, to use information to change production, management and marketing practices, and to attempt to manage market risks.

Another place for beef producers to start when they are considering market strategies is to understand the consumer. Nevil Speer showed several slides in his presentation that indicated consumers are feeling the pinch of our economic recession. Consumers are trying to reduce household debt and in doing so 71% are eating at home more often, 58% are increasingly using leftovers and 52% said price was very important in deciding where to buy food. While these number could be used to support an argument for a decrease in beef demand, there might also be some opportunities hidden in those numbers. For example, Dan Frobose, an OSU Extension Educator with the Agriculture Business Enhancement Center in Bowling Green , showed a slide with some results of a consumer study done by the University of Dayton . Of those surveyed, 66% said they would buy Ohio beef to support the local economy and local farmers. If consumer dollars for beef are limited, it probably makes some sense to market in a way that appeals to those consumers. Marketing locally may be an opportunity.

We have all heard it said that consumers are increasingly concerned about where their food is coming from and Nevil Speer put up a slide from a May 2008 food survey that showed 76% of the respondents were more concerned about the food they eat now vs. five years ago and 73% of the respondents believe that the number of food related recalls has increased in the last year. When asked to identify their food area of concern, 78% said beef. Food safety issues and food recalls have an impact on public perception. Nevil Speer showed a slide with comments from a 2008 USDA Outlook forum that said "Customers care about the background of their food" and "Each incident (food recalls) causes consumers to trust us (Smithfield Foods) a little bit less". Nevil Speer said that the future is going to be market-driven traceability of products. It is going to be necessary to restore consumer confidence. This will impact on what is required of beef producers to sell into commercial channels.

Francis Fluharty, OSU Ruminant Nutrition Specialist and coordinator of the Ohio Beef Industry Center, showed a slide with some results from a survey of chefs conducted by the National Restaurant Association. Various foods were ranked as "hot" based on their overall rank and indication of what consumers want. Locally grown produce ranked number 2, organic produce was ranked number 3 and grass-fed items were ranked number 8. For those producers asking about the market environment and marketing opportunities, these types of surveys might provide them with information to make some changes in at least some of their marketing strategies.

What about global trends and global beef markets? Will any of this impact the Ohio beef producer and how they produce and market their product? Francis Fluharty began his presentation by looking at the changing beef industry and the consolidation in the beef packing/processing sector. There are now 3 main big U.S. beef packers: Tyson, Cargill and JBS SA. JBS SA is based in Brazil and is the world's largest beef processor/packer. It is number 3 in size in the U.S. after its purchases of Swift Foods and Smithfield Beef Group. One of the slides that Francis used spelled out some of the implications of JBS SA now being a major player in the U.S. beef market. It included the following points:

* USDA Choice is the world's most recognized beef brand. Certified Angus Beef (CAB) is second. It makes sense to think that JBS SA will want to market these brands to the world. As part of the U.S. beef packing industry, these brands will have access to world markets using U.S. quota agreements.

* In order to market these brands into various world markets, the U.S. beef market must adopt Process Verified Program (PVP) standards. Those standards differ depending upon the country importing the beef. (PVP compliance allows sale of cattle into USDA Beef Export Verification programs. For example, The European Union requires this to verify beef comply with the non-hormone treated cattle standards, while Japan requires it to verify that no beef comes from cattle older than 20 months.)

* In order to compete with JBS SA, Cargill and Tyson will adopt the same standards.

The bottom line is that global beef markets and the consolidation of the beef packing industry may require that producers are enrolled in some kind of audit and verification program that will allow their calves to get a stamp of approval that could allow that beef to end up in a USDA export program; if producers are selling into the conventional beef market controlled by one of the major packers.

In his presentation, Dan Frobose had a section on market access and a quote by John Sticka with the Certified Angus Beef (CAB) program that said: "Do you want access to the competitive value-based market of the future? Better start getting together a resume for your cattle." What in the world is a cattle resume? It includes documentation of genetic history, health history, management practices, feedlot and carcass history and identification from birth to harvest. Another term we are hearing more often that fits this topic is: source verified. This term includes the traceability or accountability of the animal from the farm of origin to the consumer's plate. Some key components of source verified cattle are:

* strict management and feed protocol to ensure herd health and a quality product

* record keeping and adherence to beef quality assurance (BQA) practices

* producer affidavits

The driving force behind independent verification programs and source verification requirements is consumer demand. So, how does a small scale cow/calf producer begin to develop some alternative marketing strategies? Several different market options were highlighted at the beef school. They included:

* The West Virginia Calf Pool: There are a number of requirements in this program but essentially it brings together calves that are source and age verified, originate from BQA herds and that are managed under BQA guidelines. Calves must follow a vaccination program and be weaned a minimum of 45 days before delivery. Calves are weighed, sorted and loaded at a central location specified by the marketing pool.

* United Producers Branded Beef and Source/Age Verified programs.

* Great Lakes Family Farms Beef Alliance : outlines a suggested genetics program, sets requirements for calf identification, weaning before sale, vaccination program, and acclimation to grain before sale

* Pineland Farms and Wolfes Neck Natural Meats program that markets to the no-implants, no anti-biotics, natural market

In all the examples marketing is about grouping together calves that have similar characteristics and adding value to those calves either by the fact that semi-loads can be marketed and/or providing some kind of verification program related to calf age, origin and standardized management practices.

I'll close this article with two quotes that I hope provide something to think about. The first is from Francis Fluharty to cattlemen at the Athens Beef School ; "We are in the food business, not the beef cattle business." The second is from a slide in the Dan Frobose presentation that said: "Producers who are open minded and willing to accommodate the desires of the consumer will survive, even prosper. Those unwilling will find the future very challenging."

The Plight of Being Average - Kris Ringwall, Beef Specialist, NDSU Extension Service

The cattle business is a profession that requires considerable education and experience. In other words, the managerial inputs need to be well thought out so that the ramifications or consequence of doing or not doing something has the desired outcome.

With rising input costs and falling calf value, survival in the beef business is a very real question for many producers. Unfortunately, our simple willingness to do what we have previously done is a major impediment to moving forward. At the end of the year, if the dollars and cents are added up and the bottom line is pathetic, what does it take to move from the status quo to a more proactive thought process?

It is not easy, but if a producer wishes to remain in the beef profession, reality needs to be addressed. If we were to review the numbers, a good source is the 2008 annual report for the North Dakota Farm and Ranch Business Management Education Program (http://www.ndfarmmanagement.com).

As has been noted before, if the 119 producers engaging in a cow-calf enterprise are sorted by net return per cow, assuming 100 cows in the herd, then the lower 20 percent lost $15,378. The middle or average producer made $1,521 and the top 20 percent of producers made $13,025.

These net returns do not include a charge for labor and management, so the average beef producer has $1,521 to pay himself or herself for his or her effort. There is another way to tap reality. If a typical summer job pays $10 per hour, the average producer could have worked four weeks off the farm or ranch and made more money than was made in the beef business. Just as those producers who are not making a profit, the average producer needs to look at the operation and ask just what is the primary product produced on the farm or ranch.

In the annual report, one can approximate that the average cow-calf producer fed 104 tons of corn silage valued at $21 per ton, 21 tons of alfalfa hay valued at $58 per ton and 259 tons of hay valued at $40 per ton.

If one was to assume these forages were produced on the ranch (the report does not indicate the source of forage), then those values were retrieved by marketing the forage through the cows. The function of ruminate animals is to convert forage into a marketable product.

If I was to sum up the plight of the average beef producer, the work is hard, the pay negligible, but the farm or ranch forage was marketed at reasonable prices, and the producer is certainly worthy of being in the forage business. Are the cows the right tool to add value to the forage from the operation is the obvious next question. It is a good question and worth asking of a professional cattle person. The answer is not simple and that is why average producers should not seek to remain average because there will come the day when it is easier to simply market the forage and let someone else feed it.

Average producers must dismiss the innate willingness to accept the current negatives based on an optimistic wish that next year will be better. Many producers, perhaps too many, have come to accept the concept that going backwards occasionally is an accepted principle in agriculture. Such thinking leads to the principle that the bank will carry us for another year and the upcoming good years will bail us out.

However, if, as beef producers, we simple choose to remain average, in reality, the good years only will bring us back to break even. We can and must do better. We must become professionals who truly use our education and experience to excel in the beef business.

Let's do something.

Take a deep breath, look up and jump as high as you can. Keep jumping until you can see over all the walls one has built up through the years. Even though the vision may not be clear, make the commitment to grab the top of one those walls and tear it down. When you land and the wall is lying at your feet, look out and simply say I can do this.

Now step over the rubbish and let's move on. More later.

Registration deadline for this event is Aug. 10, 2009, and the cost is $30 for OCA members and $40 for non-OCA members. All registrations at the door will be $40. For more information about the Roundup or to register contact the Ohio Cattlemen's Association at (614) 873-6736, visit the OCA web site at www.ohiocattle.org, or visit the Roundup web site at: http://cattlemencare.net/

Forage Focus: Grazing Bites, July 2009 - Victor Shelton, NRCS Grazing Specialist

As I write this article during the third week of June, storm clouds are gathering again and I can hear thunder in the distance. This is usually a good time of the year for making "dry" hay and wondering if you will have enough soil moisture for regrowth and to get any planted annuals up and growing, but instead you scramble to make dry hay and find yourself waiting for the ground to dry enough to plant summer annuals. Just another interesting year here in the Midwest!

I like to plant at least a small amount of one or combination of turnips, swedes, rape, kale, sorghum-sudangrass and or millets early May to supplement perennial forages in late summer when you tend to get some summer slump. They did not get planted due to numerous reasons this year including wet conditions, but at the moment, it does not appear that they would be critical either.

Usually just about the time that the spring calving cows are hitting peak milk and calves are putting a lot of extra pressure on those cows, our perennial cool-season grasses start slowing down and can even lose a lot of nutritional value depending on management and conditions making it necessary to supplement something in those cases to maintain body conditions in these cows. There are several lower cost options than stored feed. You have heard me say many times something to the tune of, "grazing is cheaper than feeding most anything" and this is generally true for this time of year (July-August). Stockpiled summer forages or hay aftermath is usually fair for dry cows, but growing animals and lactating animals are going to need a little better stuff. This is where annuals can really fit the bill. Brassicas and warm-season grass annuals can work well. There is certainly a cost for planting anything, but you also have to weight this against not obtaining the gains you want on spring calves and stockers. Forage type brassicas that are spring seeded are highly productive and digestible and usually can be grazed 75 to 120 days after seeding. This is also true for summer seeded brassicas (seeded now to August), which can help supplement fall forages and also help extend the grazing season. Swedes and rape are best utilized for spring seeded brassicas and kale best used for late summer seeding and normally overwinters fairly well. Turnips, will work either time period, and will also mix well with Italian ryegrass for fall/winter grazing or with sorghum-sudangrass or millets for summer grazing.

The common "no name" purple top turnip can yield over 10,000 pounds per acre of dry matter and provide an average 12-20% crude protein. Doesn't that sound better than some normally dry looking cool-season grass that is trying to or going dormant in the increasing summer heat, and dry conditions? When possible, the ability to graze both some dry forage and some brassicas at the same time is optimal. Brassicas contain a lot of water and crude protein and lacks much fiber, and gains will be best when grazed with some dry material available to help maintain that rumen mat.

Turnips will regrow if the growing point at the top of the bulb is not removed. Kale and rape should not be grazed closer than about six inches if you want regrowth. Kale can be seeded for fall/winter use with a light seeded cereal rye which can provide some good fall grazing and then more grazing the following spring. Oats are another option for mixing with turnips for spring or fall use.

Once established, brassicas will smother out most weeds. When conditions are favorable, like on level, less erosive ground, clean tillage is ideal. No-till seeding is also possible, but competition must be controlled by a burndown herbicide prior to seeding.

Sorghum-sudangrass and or millets can also be planted and can provide excellent forage for summer grazing. Again, these are best seeded in May-early June for summer grazing. The key advantage of the millets is the lack of prussic acid and associated problems that occur under extremely droughty conditions or later after being frosted.

Brassicas and warm season grass annuals can offer a means for livestock producers to supplement and or improve summer forage during the normal slump period and can provide some cheap insurance. Everyone needs some type of contingency plan. What are your plans if it does turn dry? Are you and your pastures ready if it does? Don't sacrifice the pasture - it costs a lot today to re-establish it with new forages. If all else fails, you would be better off feeding hay in August than overgrazing and sacrificing the pastures that could pay you dividends later in the year. Remember short and especially very short forages also have short roots and will not respond as quickly, if at all, in comparison to forages with adequate residual left behind. A planned annual is always a better option.

Keep on grazing!

In the Cattle Markets, July 13, 2009: Beef and Cattle Market Seasonality - John D. Anderson, Ph.D., Extension Professor and John Michael Riley, Ph.D., Assistant Extension Professor, Department of Agricultural Economics, Mississippi State University

Last week fed cattle cash prices dropped by about $1 (live basis) in most locations. In fact, the 5-Area weighted average live steer price was exactly $1 lower than the prior week at $81.81. This is fractionally higher than the live price for the last week of June ($81.54), which is the lowest summertime price of the year so far. Similarly, boxed beef cutout values continued a slow downward slide last week, with both Choice and Select weekly average cutouts dropping a few cents from the prior week. With mid-summer now upon us, it is a good time to think about how this year's cattle and beef prices stack up against normal seasonal patterns. It is instructive to start by thinking first about last year's prices.

Last year was a unique year for many commodities. Tim Petry noted in last week's ICM that last year prices for virtually all commodities increased sharply (in many cases, to record levels) until late June and then dropped just as dramatically for pretty much the rest of the year. For cattle and beef prices, this amounted to a very strong counter-seasonal move. Figure 1 shows an average weekly Choice boxed beef cutout value index for 2004 through 2007 along with the 2008 index. Note that using a longer period for constructing the average index would reduce some of the week-to-week variability in the series; however, the boxed beef price series is consistent only back to the end of 2003. On average the cutout value peaks in late spring/early summer with strong seasonal demand. Prices decline rather rapidly into mid-summer as seasonally heavier production adds pressure from the supply side and hot summer weather cuts into demand. As Figure 1 shows, 2008 was nearly a perfectly counter-seasonal year, with a low price in the spring and a price peak in mid-summer.

Figure 1. Choice Boxed Beef Cutout Value (BBCOV) Seasonal Price Index

Figure 2 shows comparable seasonal price information for fed cattle. Not surprisingly, fed cattle price seasonality is very similar to that of boxed beef prices. Normally, fed cattle prices peak in late-winter as available supplies of finished cattle reach a seasonal low. Prices decline into the latter half of the summer, again largely reflecting a seasonal increase in supplies, before rebounding through the fall. As with the cutout value, 2008 fed cattle prices were strongly counter-seasonal, falling through winter and early spring, rallying into the middle of summer, and falling sharply in the fall.

Figure 2. Fed Cattle Seasonal Price Index

So, after a notably abnormal year last year, how do this year's prices look? For most of the first quarter of this year, both wholesale beef and cattle prices declined more sharply than normal (see Figures 1 and 2, prices on the right axis in each figure). This was, it appears, a continuation of the price declines from the end of 2008 - declines related mostly to the deteriorating general economy at that time. Since the beginning of the second quarter, prices have followed a more-or-less normal seasonal pattern. Wholesale beef prices peaked in the last week of April. Through last week (the 28th week of the year), wholesale beef prices had declined by about 10 percent from that peak. The seasonal index in Figure 1 suggests a typical seasonal decline of 12 or 13 percent from a spring peak in late-April/early-May to a summer low late-July/early-August. By that benchmark, this year's wholesale beef price behavior looks about normal.

This year's fed cattle prices are also basically consistent with typical seasonal behavior, at least so far. This year's highest 5-Area weekly average live fed steer price was $88.21 for the week ending April 19. Last week's price of $81.81 was about 7.5 percent below that spring high. The fed cattle price index in Figure 2 suggests a typical mid-March spring high with prices subsequently declining around 10 percent to a summer low in late July. This year's spring high was about a month later than for the 2004-2007 data - not surprising given the pressure on prices in the first quarter from the very poor condition of the general economy. The subsequent decline in prices has been consistent with a typical summer market. Is the summer low in yet? A strict reading of the seasonal index would argue that fed cattle prices may have another dollar or two yet to fall in the next two weeks or so. Of course, if the seasonal behavior of prices was that accurate and reliable, we could all get rich trading on it. It is fair to say - consistent with normal seasonal price behavior and consistent with this year's supply situation - that prices will likely remain under pressure for another three or four weeks as adequate supplies of cattle meet tepid buying interest. Beyond that, tightening supplies set the stage for some price improvement; how much improvement will depend on how we fare on the demand side of things.

Don't forget the Ohio State Fair begins next Wednesday, and you'll find the best sandwich on the grounds in the Ohio Cattleman's Steak Barn or in their AIR CONDITIONED location in the Food Pavilion. If you attend the Fair on Wednesday, August 5, be sure and stop by and say hello to members of the OSU Extension Beef Team who will be working the second shift in the Pavilion.

Also note, by popular demand, the Cattleman's Country Club and Golf Course returns to the Voinovich this year. It's a great fund raiser for the OCA scholarship program, and an inexpensive (unless your 'golf pro' frequents the links as often as ours does) diversion from keeping the tanbark picked clean.

I doubt we'll publish an Ohio BEEF Cattle letter next week . . . see you a the Fair!

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.

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