Profit strings attached?
Most cattle feeders are pretty shrewd businessmen and women.
They don’t just know how to run a breakeven – they live and breathe them. They study profit opportunities like their future depends on them, because – especially in times like these – it does.
Talk marketing with any longtime feeder, and they’re likely to tell you that they were skeptical of grid marketing at first.
Do you blame them? Base-price discovery has always been an issue, but beyond that, to go from a sure-thing average price up-front to the risk of being paid after everyone could see what the cattle really were under the hide – that was a scary proposition.
Yet, today many of them do just that.
Iowa farmer-feeder Randy Conrad says he does it “so I get paid for what my cattle are worth and not what a packer thinks they’re going to be worth.”
Triangle H owner-manager Sam Hands says there is more risk, indeed, “but in our case we’ve found it to be very rewarding and beneficial financially to capitalize on that quality.”
The Garden City, Kan., feeder continues, “I think as the industry has worked to raise the quality of their cattle, that has been their way to accomplish and realize a return.”
David Trowbridge, manager of Gregory Feedlot, has made a career out of feeding high quality cattle. His ability to get carcass data back to producers, and then explain what it means, has made a niche for the Tabor, Iowa, business.
Grid marketing just fits his business plan, and their customer base demands it. They actually want to participate at that higher level to earn premiums and learn how to avoid discounts.
Aiding in a quality focus, getting paid for what your cattle are worth, increasing profitability – I’d imagine these all sound like good things to you, right? But cow/calf producers often say, “Yeah, but what if we sell at weaning?”
Well, there is this idea of grid marketing for your feeder calves. Haven’t heard of it? To be honest, it hasn’t caught on in a big way out in the country, but that doesn’t mean you can’t be in the first wave of trendsetters. A few short decades ago, grid marketing was new to the feeding world, too.
Imagine selling your calves and then capturing premiums later based on their efficiency, health and carcass merit. There could be a futures base price up front, with incremental discounts and premiums paid at harvest, based on traits as set up in advance of the sale.
Of course, to benefit from a system like this, you must first focus on building a true value-added herd, both with genetics and management.
If that already sounds like your herd, you may think this idea seems like a far-out fantasy, but current programs, with pretty well known industry backers, are already in place.
Still prefer the competition of an auction market? It could be time to lobby your auction manager to start a new series of special “Strings Attached” sales.
Buyers could pay all but five percent or 10 percent of the winning bid on sale day, with the obligation to place cattle where they will get information back to the ranch. Then the final percentage would be a bonus at the end, based on performance and grade. Sometimes, starting out, there would be no bonus, but the education would be worth it.
Such sales could get more complicated than that, too – all the way to percentage partnering in retained ownership on those calves initially valued at the auction.
It took decades for grid marketing to catch on in the cattle feeding world. It went from a far-out concept to real life and routine in many yards.
In the cow/calf segment, today might just be the beginning of that upward slope. Perhaps in a decade or two, this new concept will be a common business practice. For the sake of quality beef production, let’s hope so.
Next time in Black Ink® Steve Suther will take a look at values and prices. Questions? E-mail mreiman@certifiedangusbeef.com.
