This simply has to do with supply and demand – as a significant percentage of cow-calf producers market their calves in the fall; the supply of feeder cattle often exceeds demand for feeder cattle, driving prices down. This leaves many producers to ask themselves, “How can I get better prices for my cattle?”
There are several options available for producers to market their cattle, each with its own benefits and pitfalls. For example, a producer could use the futures market to place a hedge and “lock in” a higher price. But this option is only available to larger producers. The same goes for using the options market. A producer could also sell his or her calves early, before prices make their annual downturn. This strategy may yield higher prices per pound, but it also means selling a lighter weight calf. From a total revenue standpoint, the higher prices may or may not offset the reduction in weight. Another option many producers are turning to is value-added marketing.
What is value-added marketing?
In its simplest terms, value-added marketing is any management practice implemented by a producer with the intention of capturing a better price for his or her cattle. Some of these strategies can be implemented in the short-term, while others are more of a long-term investment. A few examples of short-term strategies may include a vaccination program, weaning, dehorning or involvement in a certification program. There is extensive research from all regions of the U.S. showing vaccinated cattle, weaned for a minimum of 30 days or dehorned, can bring an additional premium over cattle that are not. Often a producer’s involvement in a certification program can bring additional premiums as well; however, many certification programs have requirements that cattle be weaned, vaccinated and meet other quality standards. With China opening its borders to U.S. cattle meeting certain specifications, traceability may be another value-added characteristic worth considering.
While short-term strategies can usually be implemented with this season’s calf crop, long-term strategies often have to do with the physical characteristics of the cattle themselves and may take several years to fully implement. For example, cattle of certain hide colors, breeds or frame size will often bring a premium. However, these are characteristics that must be bred into the herd, and it can potentially take years before seeing the benefits of making such changes.
While value-added marketing can offer a way to improve prices and receive a premium for one’s cattle, it does not come without costs. For example, if a producer chooses to wean his or her calves for 30 days before marketing, additional costs would include the potential for death loss, additional feed, the potential for calves to lose weight for the first few weeks and more. The cost of vaccinating calves will include the cost of the vaccination, but labor costs should also be included. Changing physical characteristics such as hide color or frame size could mean paying more for breeding stock.
Before jumping in and implementing any changes, it is worthwhile to take the time to pencil out all of the costs associated with those changes. How much additional revenue per calf will be needed to cover those costs? How much higher of a price will be needed to break even? Finally, the most important question to ask oneself when considering value-added marketing is: “Will the additional revenue from value-added marketing cover the cost of implementing those practices?”
- Assistant Extension Professor
- Mississippi State University
- Email Brian Williams
PHOTO: When looking at making changes to add value to your calves, be sure to pencil out the costs associated with those changes to make it worthwhile. Staff photo.