Differentiate for profitWritten by Jennifer Womack
In today’s markets of escalating inputs, product differentiation is more important than ever if you ask Stuart. “Cow-calf markets are going to be lower this year,” says Stuart, but says long-term declining cattle inventories will insulate the market. “We’re looking at long-term profitability for a smaller industry. Ranchers will need to become more business focused.”
Business-focused is also the advice of Laramie-based economist Dr. Harlan Hughes, a North Dakota State University professor emeritus who now operates Western Edge Consulting. He says producers can best spend their time figuring out how to be low-cost producers instead of considering retained ownership. “Sell at weaning,” he says. “I’m still having trouble adding value to calves beyond weaning.”
Hughes adds, “For ranchers, I don’t think they need to play that game, the cattle feeding game is just too risky. Let the professional feeders do it and ranchers should concentrate on lowering their cost of producing a calf.” He says he does have some rancher clients who retain ownership and are making it work financially.
Sharpen your pencils, advises Stuart, and take advantage of opportunities to earn a buck here and there. “It’s going to be a tougher market to make money in the cow-calf world,” he says. “There are some companies that will pay you for paperwork,” he says noting that U.S. Premium Beef is paying a $50 per head premium at the feedlot level for source and age verified fed cattle. “It’s a pretty simple process,” he says. He’s aware of another group offering $100 premiums for hormone free cattle for the European market.
“If I’m selling calves on the commodity market I’m going to break even,” says Stuart. “Only when you beat the average long-term can you make money in the commodity market.”
Hughes says his numbers suggest a market reasonably close to last year. “I don’t understand, but the market just hasn’t adjusted to high corn prices. I think it’s because the feedlots have two choices – overpay or shut the feedlot down, and they’d rather overpay.” He is predicting smaller losses for feedlots in 2008 than they saw in 2007.
“Feeder cattle prices are moving ever so slow, but in the right direction to add profit to the cattle feeding sector,” says Hughes.
Recapturing the remainder of overseas markets lost during the BSE crisis of 2003 is another key component to ensure profitability in the cattle industry. While between 70 and 80 percent of markets lost have been regained, Stuart says work remains in two key countries – South Korea and Japan. Fully open without the now in place 21-month age limits, the Japanese market can add $64 per head to U.S. cattle. Just one cut of meat, the short rib, sold into South Korea can add $15.00 to every animal.
While a segment of the industry eyes limiting imports Stuart says, “We can stop imports and it’s not going to do much for domestic markets. There is a huge anti-trade movement out there, but that’s a dead end road. The only way we’re going to compete is grow our niche markets and expand our international trade reach.” Stuart says export opportunity for the beef industry is a factor of income and population.
“I would encourage ranchers, particularly those with quality cattle, to seriously consider the video auction, which means they’re pricing them a little earlier,” says Hughes. “I cannot show any profit in backgrounding calves and trying to grow them.”