​How US cattle producers are realising end-point value

How US cattle producers are realising end-point value


Commercial
The inaugural Australian Registered Cattle Breeders Association scholarship winner Brad Cavanagh has just returned from a study tour of the US with some interesting insights.

The inaugural Australian Registered Cattle Breeders Association scholarship winner Brad Cavanagh has just returned from a study tour of the US with some interesting insights.

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ARBCA scholar Brad Cavanagh outlines US program with potential here.

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THE trailblazing United States Premium Beef program which has cow calf producers retaining ownership of progeny far further down the track has big potential in Australia, says a young NSW producer who has just returned from an industry scholarship study tour looking at overseas meat supply chains.

USPB is allowing breeders to realise the additional end-point value that comes from  breeding investments focused on eating quality.

“The only way Australian producers are realising that end point value is through relationships with niche brands,” the Australian Registered Cattle Breeders Association’s inaugural scholarship recipient Brad Cavanagh said.

“This US program is allowing it to happen on a large scale and it is allowing the small-scale producer access to a premium grid.”

It is the value based marketing Australia’s beef industry is talking so much about in action.

Mr Cavanagh, who runs the Hardhat Angus stud at Dubbo and Harden, spent four weeks in the US and gave a fascinating overview of his learnings at ARCBA’s annual general meeting in Brisbane last week.

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Based in Kansas City, USPB was formed in 1997 via capital to the tune of $35m raised by a group of producers, which allowed them to borrow another $35m.

The catalyst for its inception, Mr Cavanagh explained, was the distinct lack of premiums for quality.

“It was a pretty harsh reality for beef at that time. These producers knew they were putting so much effort into genetics to improve meat quality but we’re not getting paid for it,” he said.

“They basically said if we can’t make this better we’d best find an exit strategy and they sold that idea to like minded producers all around the US.”

The funds raised bought them a 15 per cent share in National Beef, the fourth largest packing plant in the US, which gave them a seat on the board and input into the grid.

“They talked about buying an abattoir outright but this option meant producers could stick with their core competency of growing good beef and still have access to a premium market,” Mr Cavanagh said.

“The packer pays the most for the cattle that make the most. So the producer is paid according to value - a premium for marbling, yield grade and brand.

“At the time, the meat buyers were wanting the big mobs and the small blokes had to cop a reduction just to have a buyer, regardless of value.

“The other thing they were able to stipulate was that carcase data had to be supplied back to the producer.”

The program is non breed specific - no dairy - which has made it very inclusive, and effectively means financial incentives are driving genetic and management improvement, according to Mr Cavanagh.

The average premium paid above the cash market last year was $49 a head, with the top 50pc of producers receiving a $66 a head premium and the top 25pc over $100.

“USPB now has more than 2000 suppliers and the interesting part of the business is the two types of shareholders,” he said.

“Class A shareholders have delivery rights - one share equals one head - and receive a 10pc dividend.

“Class B are equity partners - no delivery rights and 90pc dividend.”

The last dividend paid was $71 a share.

A United States feedlot heavily involved in the USPB program.

A United States feedlot heavily involved in the USPB program.

USPB has a list of qualified custom feed yards which specialise in preparing fed cattle for their value based grids.

Feedlots, and seedstock producers, have become shareholders and provide their customers with kill space.

That is, if you buy their bulls, you are leased their delivery rights and likewise if you are a custom fed client.

“Both the custom feeders and seedstock producers involved also promote electronic identification to assist in production records - electronic ID is still rare in the US,” Mr Cavanagh said.

Angus stud breeder Brad Cavanagh speaking at the ARCBA conference in Brisbane last week.

Angus stud breeder Brad Cavanagh speaking at the ARCBA conference in Brisbane last week.

Improved meat quality drives demand up

PRESENTATIONS at the 2018 Beef Improvement Federation Conference in Loveland, Colorado, showed that improving meat quality delivers an increase in demand.

Mr Cavanagh attended the premier beef industry event as part of his ARCBA scholarship.

“One presentation that really stuck with me outlined how in 2007, 55pc of beasts killed in the US graded Prime and Choice (the two top categories in the States) and by 2017 that had increased to 78pc,” he said.

However, the $40 market spread between Choice and Select (the next category down) was maintained.

“It shows if we do produce a lot more high quality beef we’ll still get paid for it,” Mr Cavanagh said.

“It’s unlikely there will be an oversupply of that higher quality product.

“This is how an economic incentive can drive genetic incentives to produce what the consumer wants.”

Mr Cavanagh also highlighted a presentation arguing the importance of a balanced breeding program as a critical component of maintaining value realisation throughout the supply chain.

“When indexes are created, there are traits involved which can creep things in the opposite way and create a less profitable situation,” he explained.

“For example, between 1980 and 2017 the average beef dollar value of US Angus cattle has risen $103 a head.

“At the same time, average mature cow weights have increased 4.5 kilograms a year so the cost of running the average cow has lifted $57 a head a year.

“The point is a cow calf producer might be putting a lot of effort into buying high indexing bulls to breed a product the consumer wants but if he is dropping them in at the saleyards as weaners he might be copping the $57 penalty and not realising the $103 at the end point.

“It highlights we really need to keep an eye on some traits not considered as often when we push index values towards genetic gain on certain attributes.”

The story ​How US cattle producers are realising end-point value first appeared on Farm Online.

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