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THE FINANCIAL BENEFITS OF MARKETING
FEEDER CATTLE THROUGH THE USE OF
ALTERNATIVE MARKETING AND GROUP SALES
A Research paper Presented for the Master of Science in Agriculture and Natural Resources Degree
The University of Tennessee at Martin
Adam M. Hopkins 2014
ii
Acknowledgments
I would like to thank everyone who has helped not only with this project, but with
my entire academic career. I would like to thank in particular Dr. Mehlhorn and Dr.
Darroch for their help and direction with this project. I would also like to extend a thank
you to my colleagues, David Bilderback, Steven Huff, and Anthony Shelton, for helping
with the project and data collection.
iii
Abstract
The importance of being aware of inputs, outputs, and different types of
marketing is imperative to the success of modern beef producers. The first objective of
this study was to determine if there were differences between the prices received at a
value-added video sale and weekly cattle auctions. In each year of the study,
producers did in fact receive greater payment for preconditioned animals in the HCCA
sale, on average $35.43 per 700lb animal. However, the cost of the preconditioning
program was higher than the added value of the cattle.
The primary objective, however, was to find if producers were creating more
profit for their operation through the use of the sale. Sale data from the Hawkins County
Cattlemen’s Association monthly video sales were compared to average weekly prices
from weekly markets in Tennessee. Data were collected from 2008 to 2013. The cost
of preconditioning greatly varies among producers so a standard cost was taken from
an Oklahoma State Budget and was inflated to the value for each given year. This cost
of preconditioning was then used to create three subgroups of producers. The first
subgroup, average producers, spent $67.81 during the 45 day preconditioning program.
The second subset, those producers spending more than average, were represented by
increasing costs by 15% to $77.98 and the third group, the limited cost group, were
considered to be those spending 15% less than average or $57.64 for the same
preconditioning program. While on average there was no additional profit, greater
benefits might be realized to those producers who carefully control inputs into the
operation.
iv
TABLE OF CONTENTS
Introduction ........................................................................................................ 1
Objectives ........................................................................................................ 2
Literature Review ............................................................................................... 4
Value-Added Marketing ..................................................................................... 4
Value-Added Practices ...................................................................................... 4
Marketing Agreements ...................................................................................... 5
Selling Cattle in Groups ..................................................................................... 6
Value-Added Sales ............................................................................................ 7
Results of Value Added Practices ..................................................................... 8
Remaining Flexible and Diligent ........................................................................ 9
MATERIALS AND METHODS………………..…..…………………………………11
RESULTS .......................................................................................................... 13
CONCLUSIONS AND DISCUSSION ................................................................. 23
v
List of Tables
Table 1. Paired t-Test for Hawkins County Cattlemen’s Association Video
sale and Weekly Auction prices ......................................................................... 14
Table 2. Cost Return for Preconditioning Calves for the Hawkins County
Cattlemen’s Association Video Sale in 2013. ..................................................... 17
Table 3. Cost Return for Preconditioning Calves for the Hawkins County
Cattlemen’s Association Video Sale in 2012. ..................................................... 17
Table 4. Cost Return for Preconditioning Calves for the Hawkins County
Cattlemen’s Association Video Sale in 2014. ..................................................... 20
vi
List of Figures
Figure 1. Cattle Prices at Hawkins County Cattlemen’s Association video
sales and weekly auctions in Tennessee During 2008 to 2013. ......................... 15
Figure 2. Added Value of preconditioned cattle at Hawkins County Cattlemen’s
Association video sales and weekly auctions in Tennessee During
2008 to 2013. .................................................................................................... 15
Figure 3. Average Price Received at Hawkins County Cattlemen’s Association
Video Sale and Weekly Cattle Auctions in Tennessee During 2013 .................. 16
Figure 4. Cost Return for Preconditioning Calves for the Hawkins County
Cattlemen’s Association Video Sale in 2013. ..................................................... 17
Figure 5. Average Price Received at Hawkins County Cattlemen’s Association
Video Sale and Weekly Cattle Auctions in Tennessee During 2012 .................. 20
Figure 6. Cost Return for Preconditioning Calves for the Hawkins County
Cattlemen’s Association Video Sale in 2012. ..................................................... 20
Figure 7. Average Price Received at Hawkins County Cattlemen’s Association
Video Sale and Weekly Cattle Auctions in Tennessee During 2010 .................. 22
Figure 8. Cost Return for Preconditioning Calves for the Hawkins County
Cattlemen’s Association Video Sale in 2010. ..................................................... 23
1
Chapter 1.
Introduction
Alternative marketing strategies and the use of value added practices is a topic
that has become more popular in recent years, and is of great importance to producers
of agricultural products. The financial benefits of marketing feeder cattle through
marketing alliances and group sales is both an important and timely topic to research
and discuss. It was not until recently that the market’s structure was conducive to value
added practices. For some time, producers have been adding value to animals, but it is
now easier than ever to capture that value (Dolan 2011). Alternative marketing can be
defined as pursuing marketing strategies or positions other than those traditionally
followed. Alternative marketing strategies include direct marketing of products, group
marketing, or simply taking advantage of value added practices. For producers in East
Tennessee, beef cattle are a major agricultural commodity bringing in millions of dollars
each year. In the current economic environment, with increasing production costs and
returns that simply have not inflated at the same rate as production rates, producers
must increase their overall profit using whatever avenues possible.
There are many avenues producers can use to market their cattle, and producers
have been successful creating new marketing channels in the last several years. One
channel that has become increasingly popular is the use of marketing groups and
selling truckloads of cattle instead of simply offering cattle from only one producer.
Typically these loads are made of preconditioned and vaccinated animals that are
grouped according to certain characteristics. The grouping of the animals provides
2
buyers with a uniform load lot that can then either be backgrounded or fed out for beef.
One example of this practice is a video sale at Wilson Livestock in Newport, TN.
(http://www.hodgelivestocknetwork.com/, unpublished data, 2013). Producers from
several counties in East Tennessee have participated in the sale as well as some
producers from surrounding states including North Carolina. While the value added
through this practice is not consistent each year, or even sale by sale, long term trends
show that producers have indeed been able to capture value through the sale.
Objectives:
Value added practices have been developed to create extra value in agricultural
commodities and products to increase the overall revenue and profit that a producer
might receive for a product. These practices are used throughout agriculture in both
animal and plant products by producers who are willing to put effort into building value
as compared to simply selling a conventional product at conventional prices. This
project will focus on the beef cattle market and will highlight some local sales data to
determine if producers are finding benefits in value-added practices and video sales.
This project will:
1. Determine if there has been a statistical difference between prices received at
weekly cattle auctions and the Hawkins County Cattlemen’s Association (HCCA)
video sale.
2. Determine average costs of preconditioning cattle for a minimum of 45 days
(requirement for HCCA sale).
3
3. Compare average costs of producers who manage their operations and have
outflows:
a. Less than average producers
b. The same as average producers
c. More than average producers
4. Compare average preconditioning costs to additional value gained at the HCCA
sale.
4
Chapter 2. Literature Review
Value Added Marketing
The topic of marketing is one that includes more than just the cattle industry or
even agriculture in general. Marketing topics have long been a concern for various
industries and have been studied in great detail. While an abundance of academic
articles relating to value-added marketing of cattle might not exist, several pieces can
be located and create strong evidence for the practice of value added marketing.
Dolan (2011) raises several good points about alternative marketing practices in the
cattle industry. It is not only about creating value, but also capturing the value those
animals already have. Local markets are often a place where producers can receive
premiums for their value-added cattle, but premium pay is not freely given (Dolan 2011).
The idea of capturing value is not a new idea, but it is an idea that is often overlooked
by producers. So often, extra time and money is spent creating value, but a lack of
effort is put into actually receiving the full value of those animals. Dolan (2011) also
discusses topics including genetics and preconditioning, both important when trying to
reach the full marketing potential of a calf crop.
Value-added Practices
Value added practices can also include fairly simple management decisions
including dehorning, castrating, and implanting animals. Some practices include a
change in overall farm management, but the use of preconditioning programs, and
vaccination protocols can be another method of adding value to a product. Many
preconditioning protocols exist, but typically these programs include some combination
5
of other value added practices (i.e weaning, vaccinating, dehorning). Preconditioning
programs exist to reduce the likelihood that animals experience health problems during
and after being sold (Parish, Rhinehart, and Boland 2010). One of the largest benefits to
preconditioning cattle is the improved health or perceived improved health of the
animals (Avent, Ward, and Lalman 2004). More dedicated and management intensive
value added practices also exist and include certified naturally grown, organic, and
grass-fed beef. Certified naturally grown and organic are somewhat similar in the
practices producers use to raise the animals, but the certification and inspections
processes are much different. The Certified Naturally Grown certification is based on
the USDA National Organic standards, but has some modifications (Certified naturally
Grown 2013). While many of the same management practices can occur with a
traditionally raised animal and an organically raised one, these more intense practices
require different overall management and marketing strategies. Typically, buyers are
willing to pay more for animals that have had value-added management practices, the
fact still remains that the animal is only worth as much as someone will pay for it.
Marketing Agreements
Various types of marketing agreements are made when selling cattle. These
arrangements can be made as cash sales or executed at a later date. The primary
types of cash sales include auction barn sales (both live and video), the use of cattle
brokers, and direct trade (negotiations directly between the buyer and seller). Contracts
executed at a later date include a forward contract (an agreement to purchase the cattle
two or more weeks in the future) or a long term agreement between buyer and seller.
The long term agreement can be on-going for any length of time (Muth et al. 2008).
6
In the same study, Muth et al. (2008) noted that there are price differences
among marketing channels. Prices received at the auction market are often higher, but
are also associated with a greater risk of price fluctuation and risk to the seller. Prices
received under forward contracts and long term arrangements were lower than direct
sales, but carry less risk. These alternative marketing agreements tend to be the best
tradeoff between price and risk (Muth et al. 2008). The volatility in payback might play a
role in producer’s willingness to participate in certain programs. For many years,
educational efforts have been made to educate producers about the benefits of
castrating and dehorning cattle, but still each week a great number of cattle are
marketed without these practices. Often when talking to producers the reason for not
performing said practices include “I didn’t have time” or “it’s not worth my time.” Sadly
these producers are failing to pick up some of the easiest and most reliable value added
practices, potentially reducing their return on the cattle.
Selling Cattle in Groups
In the United States there are a great number of opportunities for cattle
producers to participate in group sales. Whether this be through a marketing alliance,
an agreement among neighbors, or an organized group load lot sale, opportunities are
available. The purpose of selling in load lots is fairly simple: to capture extra value. The
loads are often organized ahead of time and lots will vary greatly. One load of cattle
might be red hided and average 600 lbs, while another is black hided with an average
weight of 800 lbs. Group loads can also be divided by the sex of the animal. Often
steer lots and heifer lots are separated (http://www.hodgelivestocknetwork.com/,
unpublished data, 2013). The purpose and value of the load is not always in what type
7
of cattle are present, but the consistency of the cattle in the lot. While lot weights vary,
typically a load is described as a certain weight of animals to fill a transfer trailer,
typically about 50,000 lbs. In the example of the video load sale in Newport, TN, cattle
are separated according to only weight and sex with varying colors within any given
load.
Value-added Sales
The use of video sales to market cattle is fairly common and has been studied.
One study included a sale at the largest market in the United States, Superior Livestock
Auction (Zimmerman et al. 2012). At Superior the sale is run much like that at Newport,
TN. The cattle are sold through the video auction and are represented by a video of the
cattle and a written description. No cattle are present at the time of the sale. The week
following the sale, cattle are shipped, collected, and grouped at the facility before being
loaded for shipment to the purchaser. In the value added programs at this Superior
Livestock Auction “Buyers preferred weaned calves with at least two rounds of
respiratory vaccinations compared to the base non-vaccinated and non-weaned calves.
Premiums for calves receiving a VAC45 protocol were typically $2 to $4 per cwt for
steers and $1 to $2 per cwt for heifers” (Zimmerman et al. 2012). The VAC45 protocol
used includes both a vaccination regiment and weaning calves at least 45 days prior to
shipping.
The research conducted by Zimmerman et al. (2012) not only addressed the
issue of the use of video sales but also demonstrated the impressive results and added
premiums that can be gained through value-added practices. Cattle producers should
8
first look at weaning calves before marketing as a way to capture extra value ($3-$5 per
cwt; Zimmerman et al. 2012). Beyond weaning, producers should take a look at their
vaccination programs and consider starting a predetermined regiment designed
specifically for a sale. These health programs were also seen to add value to the cattle
being sold at Superior (Zimmerman et al. 2012) and can be seen at other markets as
well (Williams et al. 2012). Not all value added sales are conducted by video. Sales
can be conducted through video, live, private treaty, and even over the internet. The
producers are responsible for choosing the best route to market their animals and the
best protocols to follow. The work at Superior shows that there is extra value created
when following the proper value added management practices (Zimmerman et al.
2012).
Results of Value Added Practices
The addition of value added premiums has led to several certification
programs throughout the United States. The certification is typically done by a third
party and ensures the animals are receiving the proper treatment and practices.
Oklahoma has a certification program that is supported by both the Oklahoma Cattle
Producers and the Oklahoma Cooperative Extension Service (Williams et al. 2012).
This third party certification is designed to ensure quality, and also to assure buyers that
they are getting what they paid for. A group of Oklahoma researchers studied
determinants of the price differentials in value added feeder cattle auctions (Williams et
al. 2012). The research showed that there is value to additional management practices
for small lots of cattle, and also analyzed the value of the certification program.
Producers marketing lightweight cattle (350 lb) received the greatest value from the
9
certification (+$2.81), while larger animals in the 750 lbs category had a negative
premium (-$0.09; Williams et al. 2012). There could be several reasons for this
difference, but buyers likely see the additional monies paid for the younger certified
calves as a type of insurance policy against possible health problems.
Remaining Flexible and Diligent
Today’s agricultural environment is one that becomes more competitive and
unpredictable as time goes on (Riley 2013). For this reason, the education of producers
has become paramount to the success of many operations. As traditional as agriculture
is, the fact remains that producers must be willing to accept new norms and remain
flexible in their strategies. This change not only affects producers, but also agricultural
extension educators and economists. The current market and market volatility demand
managers become better aware of the challenges in agriculture. They should also
become more adept at managing their business and risk, seizing opportunities when
presented (Riley 2013). Riley (2013) also noted that using futures prices as a price
predictor can be a misstep for producers as this information is less correlative than in
the past. The correlation that was once seen between prices of certain commodities is
now less reliable. While change can sometimes be disconcerting, Riley’s (2013) study
echoes the importance of flexibility and education, and the importance of producers and
educators remaining alert while searching for new marketing information. The
successfulness of farmers is no longer guaranteed by the agricultural producers, but by
the drive and business savvy they exhibit.
10
The use of alternative marketing strategies and value added practices have
become more prevalent as time goes on. The list of value added practices is fairly
extensive, but includes fairly simple management practices that increase an animal’s
value. “Pre-conditioned calves are healthier, with a stronger immune system, and so
are more valuable to feeder cattle buyers than are non-preconditioned calves.” (Avent,
Ward, and Lalman 2004). The value added to these animals is not always realized with
a typical weekly market and cannot always be seen by the phenotypic appearance of
the animal. The inability for a buyer to visually see all value-added practices performed
on an animal are the reason that certification programs have become more popular, to
reassure possible buyers of the cattle’s quality. The use of a certification proved more
beneficial to those selling smaller weight calves, but the value gained through the
practices of dehorning and preconditioning can be reaped by producers of calves at any
age (Williams et al. 2012).
Regardless of what practices have been completed, it is essential for sellers to
pursue the correct marketing channels to reap the greatest benefits. Cattle producers
might also realize extra profit by selling livestock in group lots. The size of the lots can
vary, whether it be three animals or an entire truck load, but regardless of size, groups
of quality cattle can bring a premium from the buyer. Value-added practices can
increase profits in any operation, but the results are somewhat variable. Cattle
producers that choose to seek greater value for their animals must be willing to pursue
opportunities that allow them to properly market their cattle and fully take advantage of
the added value. In the end, producers can receive additional dollars per hundred
weight of cattle for value-added practices.
11
Chapter 3.
Materials and Methods
Data were collected from each monthly video sale at Wilson Livestock in
Newport, TN during 2008-2013. This video sale is hosted by the Hawkins County
Cattlemen’s Association and includes producers from all over East Tennessee and in
Western North Carolina. Cattle in this sale were preconditioned for a minimum of 45
days before the sale. The preconditioning protocol included a modified live respiratory
and black leg vaccines. The cattle are co-mingled at Wilson livestock before being
shipped to their respective buyers. The data that were collected included the weight,
lot, and price of the animals. While each animal was not weighed individually, a slide is
used to bring all animals to the base weight. The average price (per cwt) of the animals
was used to compare the prices at the weekly markets. The weekly sale data were
collected from the Tennessee Department of Agriculture and include the overall weekly
average prices. This group of data was then matched up with the respective week,
weight, and sex of the lot loads created in the video sale for comparison. A paired t-test
was used to determine if there was a difference between the value-added video sale
and the weekly auction.
To address the question of “can preconditioning programs pay for themselves?”
the price differences between the value added and weekly auction were compared to
estimated preconditioning costs. The costs were estimated using an Extension Bulletin
from Oklahoma State University, Publication AGEC-247 “Costs and Benefits Associated
with Preconditioning Calves.” (Donnell, Ward, and Swigert, 2005) The costs quoted in
12
the publication were developed in 2004-2005 and included cattle interest costs. To
make the costs more relevant to East Tennessee producers in 2014, the figure for cattle
interest was removed and the costs were then inflated using an inflation calculator from
the US Bureau of Labor Statistics. “The CPI inflation calculator uses the
average Consumer Price Index for a given calendar year. This data represents changes
in prices of all goods and services purchased for consumption by urban households”
(http://www.bls.gov/data/inflation_calculator.htm). The inflated costs were averaged to
create a cost figure to be used in the comparisons. Producer interviews were also
conducted to determine the accuracy of the figures as compared to producer costs in
East Tennessee. Producer interviews confirmed the inflated costs as accurate for
production in 2014. Two additional figures were then created to take into account
varying management styles of cattle producers. The two additional groups, intensive
management operation and limited management operation, were created by increasing
15% of preconditioning costs and subtracting 15% of preconditioning costs,
respectively. Finally, costs were compared to the total added valued realized in the
2013-2014 HCCA sale to determine if producers were indeed finding additional value
over additional costs of preconditioning.
13
Chapter 4.
Results and Discussion
Results from a paired t- test confirmed that there was a significant difference
(P<0.001) in the prices received through the video sale and the weekly cattle auction
(Table 1). The mean price per/cwt at the Hawkins County Cattlemen’s video sale was
$110.16. This was $5.08 higher than the prices seen at the weekly auction ($105.08).
Cattle prices have been increasing for the last six years for both preconditioned cattle
and those sold at the weekly auction (Figure 1). Data from 2008-2013 showed that
producers can indeed receive higher prices for cattle that were sold in the HCCA video
sale (Figure 2). In rare instances the price was close to, or below weekly cattle market
levels, but this was infrequent. On average a producer saw an additional revenue of
$35.43 per 700lb calf throughout the entire time period. The highest average additional
value was seen in 2012 at $54.66 per 700lb calf. In contrast the lowest average
premiums were experienced in 2009 at $28.22 per 700lb calf.
Table 1. Paired t‐Test for Hawkins County Cattlemen’s association Video sale and Weekly Auction prices 2008 to 2013
HCCA CA
Mean 110.1585846 105.0785
Variance 394.7782439 361.8296 Observations 71 71 Pearson Correlation 0.986400934 Hypothesized Mean Difference 0
df 70
t Stat 12.90814316 P(T<=t) one‐tail 1.72621E‐20
t Critical one‐tail 1.666914479
P(T<=t) two‐tail 3.45242E‐20
t Critical two‐tail 1.994437112
14
Figure. 1 Cattle prices 2008-2013 experienced at Hawkins County Cattlemen’s Association video sales and weekly auctions in Tennessee.
Figure. 2 Added value of preconditioned cattle at Hawkins County Cattlemen’s sale over weekly auction price in Tennessee.
$60.00
$70.00
$80.00
$90.00
$100.00
$110.00
$120.00
$130.00
$140.00
$150.00
$160.00
2008 2009 2010 2011 2012 2013
Average Price (per cwt)
Year
Hawkins County Cattlemen's Association Video Sale Weekly Auction
0
10
20
30
40
50
60
2008 2009 2010 2011 2012 2013
Added
Value ($ per 700lb calf)
Year
15
When evaluating the results to the question, “can a producer make more money
at these sales?”, an analysis and comparison of costs and prices were done for multiple
years because 2013 results indicated a loss of total profit even though higher prices
were received for the cattle in the video sale when compared to weekly prices. The
additional revenue ranged from -$3.48 to $100.98 and on average, producers received
an extra $37.40 for a 700lb animal in 2013 at the Hawkins County Cattlemen’s Video
Sale (Figure 3).
Figure 3. Average price received at Hawkins County Cattlemen’s Association sale and Weekly auction during 2013 in Tennessee.
$100.00
$110.00
$120.00
$130.00
$140.00
$150.00
$160.00
Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.
Average
Price (per cw
t)
Month
Hawkins County Cattlemen's Association Video Sale (per cwt) Weekly Auction (per cwt)
16
The average cost of preconditioning was set at $67.81 per animal for a 45 day
preconditioning program. This cost included labor, vaccinations, feed, etc. For
producers that choose to manage their operation more intensively, an extra 15% was
added to this average, making the intensive management costs $77.97 for the same 45
day program. Those individuals that limited their management and inputs costs were
estimated to be 15% below the average, $57.64. The return of preconditioning cattle
was calculated by subtracting the cost of preconditioning from the additional value
gained from the video sale. All months in 2013 showed a negative return for all styles of
production (average, intensive, and light) except for the month of December which
showed additional value of $33.17, $23.00, and $43.43, respectively (Figure 4). The
negative return on the investment of preconditioning cattle was greatest for those
individuals managing their cattle more intensively, as to be expected, and ranged from
-$81.46 to -$20.17 in the months of January through November (Table 2). The average
additional value per 700lb calf was -$40.58 for the intensive managers during 2013.
The average management costs resulted in an average return of -$30.41 per 700lb calf,
while those investing the least amount, limited management, experienced an average
return of -$20.24.
Video sale prices in 2012 showed more promise than 2013 with some
positive return on investment. The highest return was seen in June 2012 with intensive,
average, and limited producers receiving an additional $35.35, $45.52, and $55.69,
respectively (Table 3). However, the overall average return for 2012 was -$23.32, -
$13.15, and -$2.98 for each of the respective types of managers. Prices received for
cattle during 2012 at the HCCA sale were again higher than those received at weekly
17
Figure 4. The cost return of preconditioning cattle and being sold at Hawkins County Cattlemen’s Association video sale in 2013.
Table 2. Cost return for preconditioning calves for the Hawkins County Cattlemen’s Association (HCCA) Video Sale in 2013.
‐$100.00
‐$80.00
‐$60.00
‐$40.00
‐$20.00
$0.00
$20.00
$40.00
$60.00
Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.
Cost Return of Preconditioing
2013 Month
Intensive Cost Return (Average +15%) Average Cost Return ($67.81) Limited Cost Return (Average ‐15%)
HCCA Video Sale.
(per cwt)
Weekly Auction
(per cwt)
Difference (per cwt)
Value for
700lb calf
Intensive Cost
Return (Average
+15%)
Average Cost
Return ($67.81)
Limited Cost
Return (Average
-15%) Jan $136.41 $128.97 $7.44 $52.08 -$25.90 -$15.73 -$5.56 Feb $130.25 $129.54 $0.71 $4.99 -$72.99 -$62.82 -$52.65 Mar $122.89 $122.68 $0.21 $1.48 -$76.50 -$66.33 -$56.16 Apr $122.60 $123.09 -$0.50 -$3.48 -$81.46 -$71.29 -$61.12 May $126.48 $118.30 $8.18 $57.28 -$20.70 -$10.53 -$0.36 Jun $121.39 $113.56 $7.83 $54.81 -$23.17 -$13.00 -$2.83 Jul $130.99 $124.07 $6.92 $48.41 -$29.57 -$19.40 -$9.23 Aug $134.65 $130.51 $4.14 $29.00 -$48.98 -$38.81 -$28.64 Sep $137.85 $132.80 $5.06 $35.40 -$42.58 -$32.41 -$22.24 Oct $141.21 $135.68 $5.53 $38.73 -$39.25 -$29.08 -$18.91 Nov $142.33 $138.18 $4.15 $29.06 -$48.92 -$38.75 -$28.58 Dec $149.65 $135.23 $14.43 $100.98 $23.00 $33.17 $43.34
18
Table 3. The cost return of preconditioning cattle being sold at Hawkins County Cattlemen’s Association (HCCA) video sale in 2012
auctions with the exception of May 2102 which saw -$1.48 as compared to those
weekly auctions (Figure 5), but there prices were not high enough to offset
estimated costs of preconditioning during most months in 2012 (Figure 6).
Data from 2010 were also examined to see if lower cattle prices had an
impact on the total return of preconditioning. Overall cattle prices were lower in
2010 as compared to recent years and an average premium of $29.34 per 700lb
calf was paid when selling preconditioned cattle. All management costs were
adjusted to 2010 levels. The average cost of the 45 day preconditioning
program adjusted to 2010 levels was $62.37. The intensive management cost
was $71.73, and the limited management cost was $53.01. In spite of higher
HCCA Video Sale
(per cwt)
Weekly Price
(per cwt)
Difference (per cwt)
Value for 700lb calf
Intensive Cost
Return (Average
+15%)
Average Cost
Return ($67.81)
Limited Cost
Return (Average
-15%)
Jan $135.14 $123.13 $12.01 $84.05 $6.07 $16.24 $26.41 Feb $140.70 $129.86 $10.84 $75.89 -$2.09 $8.08 $18.25 Mar $145.55 $139.63 $5.92 $41.45 -$36.53 -$26.36 -$16.19 Apr $135.70 $133.55 $2.16 $15.10 -$62.88 -$52.71 -$42.54 May $127.64 $129.12 -$1.48 -$10.34 -$88.32 -$78.15 -$67.98 Jun $142.17 $125.98 $16.19 $113.33 $35.35 $45.52 $55.69 Jul $131.65 $123.82 $7.83 $54.81 -$23.17 -$13.00 -$2.83 Aug $118.85 $111.58 $7.27 $50.89 -$27.09 -$16.92 -$6.75 Sep $129.71 $122.62 $7.10 $49.68 -$28.30 -$18.13 -$7.96 Oct $128.91 $120.39 $8.52 $59.64 -$18.34 -$8.17 $2.00 Nov $129.14 $120.63 $8.51 $59.58 -$18.40 -$8.23 $1.94 Dec $130.54 $121.70 $8.84 $61.86 -$16.12 -$5.95 $4.22
19
Figure 5. Prices received at Hawkins County Cattlemen’s Association video sale and weekly cattle auction 2012.
Figure 6. The cost return of preconditioning cattle and being sold at Hawkins County Cattlemen’s Association video sale in 2012.
$100.00
$105.00
$110.00
$115.00
$120.00
$125.00
$130.00
$135.00
$140.00
$145.00
$150.00
JAN. FEB. MARCH APRIL MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
Price (per cw
t)
2012
Hawkins County Cattlemen's Association Video Sale (per cwt) Weekly Price (per cwt)
‐$100.00
‐$80.00
‐$60.00
‐$40.00
‐$20.00
$0.00
$20.00
$40.00
$60.00
$80.00
Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.
Retrun from preconditioning
2012 Month
Intensive Cost Return (Average +15%) Average Cost Return ($67.81) Limited Cost Return (Average ‐15%)
20
prices for the HCCA video sale throughout 2010 (Figure 7), the average style
management producer in 2010 was unable to find additional profit by preconditioning
(Table 4, Figure 8). The producer in this management group saw an average return
from preconditioning and selling at the HCCA sale of -$33.03. Those individuals
choosing to manage more intensively saw an average return of -$42.38 while those in
the limited management group saw an average return of -$23.67. During 2010, only
those using a limited management style saw a positive return and only during the month
of December with a return of $6.26 per 700lb calf.
Figure 7. Prices received at Hawkins County Cattlemen’s Association video sale and weekly cattle auction in 2010.
$70.00
$75.00
$80.00
$85.00
$90.00
$95.00
$100.00
$105.00
$110.00
Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.
Price (per cw
t)
2010 Month
Hawkins County Cattlemen's Assocation Sale Weekly Auction
21
Table 4. The cost return of preconditioning cattle being sold at Hawkins County Cattlemen’s Association (HCCA) video sale in 2010.
HCCA Video Sale
(per cwt) Weekly Auction
Difference (per cwt)
Value for 700lb calf
Intensive Cost
Return (Average
+15%)
Average Cost
Return ($62.37)
Limited Cost
Return (Average
-15%)
Jan $84.30 $79.67 $4.63 $32.41 -$39.32 -$29.96 -$20.60 Feb $87.51 $82.47 $5.04 $35.30 -$36.43 -$27.07 -$17.72 Mar $92.62 $89.26 $3.36 $23.53 -$48.20 -$38.84 -$29.49 Apr $101.29 $97.23 $4.06 $28.39 -$43.34 -$33.98 -$24.63 May $105.11 $101.50 $3.61 $25.24 -$46.48 -$37.13 -$27.77 Jun $99.17 $94.09 $5.08 $35.57 -$36.16 -$26.80 -$17.45 Jul $102.43 $100.60 $1.83 $12.83 -$58.90 -$49.54 -$40.19 Aug $105.50 $101.75 $3.75 $26.27 -$45.46 -$36.10 -$26.75 Sep $103.72 $99.80 $3.92 $27.46 -$44.27 -$34.91 -$25.56 Oct $96.00 $90.56 $5.44 $38.09 -$33.63 -$24.28 -$14.92 Nov $95.94 $94.83 $1.11 $7.77 -$63.96 -$54.60 -$45.25 Dec $107.49 $99.02 $8.47 $59.27 -$12.45 -$3.10 $6.26
Figure 8. Cost return for preconditioning cattle and selling at HCCA Video Sale during 2010.
‐$70.00
‐$60.00
‐$50.00
‐$40.00
‐$30.00
‐$20.00
‐$10.00
$0.00
$10.00
Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.
Return for Preconditoning
2010 Month
Intensive Cost Return (Average +15%) Average Cost Return ($67.81)
Limited Cost Return (Average ‐15%)
22
Chapter 5.
Conclusions and Discussion
Regardless of what practices have been completed, it is essential for sellers to
pursue the correct marketing channels to reap the greatest benefits. Cattle producers
might realize extra profit by selling livestock in group lots or in specialty sales. The size
of the lots can vary, whether it be three animals or an entire truck load, but regardless of
size, groups of quality cattle can bring a premium from the buyer. Value-added
practices can increase profits in any operation, but the results are somewhat variable.
Cattle producers that choose to seek greater value for their animals must be willing to
pursue opportunities that allow them to properly market their cattle and fully take
advantage of the added value. In the end, producers can receive additional dollars per
hundred weight of cattle for value-added practices, but must be aware of the costs
associated with each practice. While costs are extremely variable not only from year to
year, but also between producers, the inputs in an operation can often affect the bottom
line. The data collected over the past several years of HCCA Video Sales provided
great insight into the importance of farm and financial management. A producer who is
cognizant of his/her inputs can easily turn a situation that may lose value to one that
increases overall profits. The importance of financial management goes beyond
keeping records of costs, and must be used as a tool by producers to truly take
advantage of any opportunities that may exist within their market. Simply
preconditioning and selling cattle through the video sale did not translate into greater
profits. In the end, the question for producers might not be is preconditioning worth the
23
money, but does preconditioning create better cattle and improve the cattle industry by
providing a better product?
24
Literature Cited
Avent, K.R. , C. E. Ward, and D.L. Lalman. 2004. “Market Valuation of Preconditioned Feeder Calves.” Journal of Agricultural and Applied Economics 36(1): 173‐183.
Certified Naturally Grown. 2013. Livestock Standards. Certified Naturally Grown. http://www.naturallygrown.org/programs/livestockstandards (accessed 22 Nov. 2013).
Dolan, T.G. 2011. “Alternative Marketing Strategies for Cattle Producers.” The Cattleman 98(5):82‐84,86,88.
Donnell, J., Ward C., Swigert S. 2005. “Costs and Benefits Associated with Preconditioning Calves.” Oklahoma Cooperative Extension Service Publication AGEC‐247.
Inflation Calculator: Bureau of Labor Statistics (U.S. Bureau of Labor Statistics) http://www.bls.gov/data/inflation_calculator.htm
Muth, M.K., Y. Liu, S.R. Koontz, and J.D. Lawrence. 2008. “Differences in Prices and Price Risk Across Alternative Marketing Arrangements Used in the Fed Cattle Industry.” Journal of Agricultural and Resource Economics 33(1):118‐135.
Parish, J. A., J.D. Rhinehart, and H.T. Boland. 2010. “Beef Cattle Preconditioning Programs.” Mississippi State University Extension Publication No.2578
Riley, J. M. 2013. “Extension's Role in Commodity Marketing Education: Past, Present, and Future.” Journal of Agricultural and Applied Economics 45(3): 537‐555.
Williams, G. S., K.C. Raper, E.A. DeVuyst,, D. Peel, and D. McKinney. 2012. “Determinants of Price Differentials in Oklahoma Value‐Added Feeder Cattle Auctions.” Journal of Agricultural and Resource Economics 37(1): 114‐127.
Zimmerman, L. C; T.C. Schroeder, K.C. Dhuyvetter, K.C. Olson, G.L. Stokka, J.T. Seeger, and D.M. Grotelueschen. 2012. “The Effect of Value‐Added Management on Calf Prices at Superior Livestock Auction Video Markets.” Journal of Agricultural and Resource Economics 37(1): 128‐143.
25
Appendix
Table A1. Partial budget comparisons used in estimating preconditioning management costs (from Donnell, Ward, and Swigert, 2005).
Noble Foundation
Oklahoma Quality Beef
Network
Kansas State
Universit
OSU Revised
Traditional management Weaning weight (lbs)
560 500 550
550
Shrink (%) 8.5 4.0 4.0 6.0Sale weight (lbs.) 512 480 528 517Price ($/cwt.) 118.97 95.00 94.07 110.00Gross revenue ($/head) 609.60 456.00 496.69 568.70
Preconditioning management revenue Weaning weight (lbs.)
560 500 550
550
Days from weaning to marketing 52 45 45 45ADG (lbs./day) 1.4 1.5 1.3 1.4Ranch (marketing) weight (lbs.) 633 568 610 613Shrink (%) 2.5 2.0 2.5 2.5Sale weight (lbs.) Weaning day price from
traditional management ($/cwt.)
617
118.97
556
95.00
595
94.07
598
110.00
to marketing ($/cwt.) Price slide for heavier weight ($/cwt.) Price discount for increased flesh ($/cwt.)
2.00-8.00-0.99
1.00 -6.00 0.00
2.41 -4.95 0.00
4.00 -6.00 -1.00
Management premium ($/cwt.) 4.28 3.50 4.50 4.25Final price ($/cwt.) 116.05 93.50 96.03 111.25Gross revenue ($/head) 716.01 520.00 571.00 664.91
Preconditioning management costs Interest rate (%)
7.0 8.0 6.5
7.0
Cattle interest ($/head) 6.09 5.00 4.42 5.45Health supplies and medicine ($/head) 8.25 8.00 10.00 9.00Death loss (%) 0.00 0.50 0.25 0.50Death loss ($/head) 0.00 2.60 1.43 3.32Labor and equipment ($/head) 2.00 6.00 6.75 8.00Feed, hay, and pasture ($/head) Additional marketing costs (tags,
33.00
22.50
35.00
5.00
35.00
3.00
35.00
5.00 Total cost ($/head) 49.09 61.60 60.60 65.78