Marshall: Producers should focus on the top line to create and capture valueWritten by Christy Martinez
“Creating value isn’t very exciting, because it’s pretty simple,” says Marshall. “Put the best genetics with the best management in nutrition, and market the calves as effectively as possible. The tough part is how to go about capturing that value.”
“It won’t be hard for cow/calf producers to garner high prices in the next several years,” says Marshall. “We’re in a situation where there’s a tremendous amount of over-capacity in the industry, which is good news for cow/calf producers.”
However, he says there’s a lot of competition for only a few calves, which creates a challenge in capturing value.
“The feeders have to have the lower-end calves, too, and they’ll pay to acquire them, so the better cattle will be caught subsidizing them,” explains Marshall. “We’re in a sellers’ market, with good prices, and it’s easy to sell calves to many willing buyers.”
Market demands uniform, consistent cattle
At the production level, Marshall says producers know what they need to do in terms of genetics, efficiency and production, both on the maternal and terminal side of things.
“With higher input costs, pounds continue to rule,” he says. “They will continue to feed these cattle to high weights, so we’ll have to have efficient growth that’s compositionally right, and I think we’ll see more heterosis and use of breed complimentarity.”
Marshall also expects to see more AI and shorter breeding seasons to reach a goal of uniformity and consistency, which he says will become more crucial to help manage risk and slot cattle to the right outcome groups.
He also says, on the feeding side, health is important in creating value.
“It affects performance, carcasses and the bottom line all the way through,” he notes. “Proper vaccination, nutrition and mineral programs are crucial.”
Price spreads will widen
Marshall questions whether price spreads will increase.
“They haven’t up to this point, but as we move through the cycle and start to see herd numbers expand again, and as the industry gets rationalized from a supply and demand standpoint, we’ll start to see the price spreads widen again,” he predicts, adding, “The value differences between the good and bad cattle have literally exploded.”
“I was really excited 10 or 15 years ago when we started moving to grid marketing and seeing the value differences in cattle,” says Marshall. “That revolutionized the industry and sparked the whole carcass movement and selection for carcass merit. While we all read the reports of the set of calves that brings $96 per head premium, the average feedyard guy is pretty happy getting a $20 to $30 premium on those cattle when he sells them on a grid basis. Those are significant dollars, and they changed the industry. We’ll see those targets continue to tighten down, and see more price differentiation, so there will be more potential marketing on these grids.”
In addition to grids, Marshall says he also sees a shift to program cattle.
“These aren’t cattle that are superior in any way, but they’re cattle that fit the programs for retailers, the export market, etc. The program cattle see premiums run around $100 per head, so there is a lot of opportunity and there are value differences, so if we do a good job there’s potential to capture it,” he explains.
Efficiency whittles down costs
Where there used to be a $300 difference between the high and low in a set of cattle, Marshall says that now pens of cattle placed at the same time on the same market and going out on the same market now may see the average value differences in a pen approach $300.
“I can hardly remember 45-cent costs of gain in the pre-ethanol days, even though they weren’t that long ago,” he notes. “Then, if we put 800 pounds on a calf, it cost about $360. If we put that same weight on today, we’re seeing costs of gain projected at $1.20.”
However, Marshall says value can be added with just a 10 percent increase in feed efficiency.
“With that increase, we’re seeing a value difference of $30 per hundredweight on a five-weight steer,” he notes.
However, he says those values bring added risk.
“At CattleFax the rule of thumb is that in a year prices will vary by 21 percent from high to low,” he states. “When we go from $80 to $110 per head in the fat market, that increases the amount of risk by $75 per head, which is pretty dramatic. Our customers and the people down the supply chain will look for ways to mitigate that risk, and uniformity and consistency will be big components.”
Spend time on the top line
“This market is changing and we have to remain flexible,” continues Marshall. “There’s a lot of difference between three-dollar corn and a five-dollar Choice/Select spread and seven-dollar corn and a $20 Choice/Select spread, in terms of what kind of cattle you want. We saw that spread go from four dollars to $19 in just a 60- to 70-day window this fall. This market has changed dramatically several times on us.”
“We in the industry spend a lot of time on the cost side of things, and on lowering our costs, which will remain crucial, but in the future we’ll spend more time focusing on the benefits and the top line to capture and create value in the future,” he predicts.
Execution is key to marketing
“Even though there’s more opportunity to capture value, there’s also more competition, and we as producers will have to do a very good job if we’ll capture it,” says to Troy Marshall of Marshall Cattle Company in Burlington, Colo.
“Marketing is not rocket science, but it comes down to execution,” he continues. “How many producers spend 20 to 30 hours per year working on waters and chopping ice? How many spend that much time designing marketing programs and marketing their calves? That tells us a lot about our mindset – we’re very production-oriented and we have to put more time into differentiating ourselves, putting more into customer focus and asking ourselves what it will take to make a satisfied customer.”
Marshall mentions a quote from a former GE CEO: “The only truly sustainable competitive advantage is the ability to learn and adapt faster than your competition.”
“The key there is information,” he notes. “To capture value, we’ll not only collect information on cattle all the way through the system, but we also have to have the means to provide that information back to ourselves.”