Preconditioning premiums growing

Cattle Market & Farm Reports, Editorials
Sep 5, 2005
by WLJ

Preconditioned calves averaged a premium of $20-plus per head over the previous 10 years, according to a recent Colorado State University (CSU) study.
Conducted on behalf of Pfizer Animal Health, the study showed that higher prices consistently go to calves enrolled in value-added preconditioning and animal health programs.
CSU catalogued and examined data from more than 2.7 million lots of cattle sold through the Superior Video auction since 1995. The information was examined for factors such as calf color, breed, size, sex, lot uniformity, location and selected preconditioning program to determine which factors drive the sale price of a lot.
Mike Amos, spokesman for Pfizer, said the study shows that buyers are increasingly willing to pay a premium for backgrounded calves, and seek them out. In fact, many cattle buyers, including those who buy for large cattle feeding operations, will only purchase preconditioned cattle.
“What we saw at first was a premium paid for calves in a preconditioning program. Now that it has become standard practice, it looks like buyers may actually be penalizing producers for not being enrolled in some kind of vaccination program,” he said.
As time passes, more producers are prescribing to a management practice that includes a solid preconditioning program. In 2004, a survey of cattle sold through Superior Video Auction determined that approximately 74 percent of calves marketed in the video auction were enrolled in some such program. That is a significant increase when compared to 1994 when more than 40 percent of cattle sold had no documented vaccination program prior to sale.
Studies of cattle sold through traditional auction markets indicate a lower rate of preconditioning. However, the number is definitely on the increase, said David Lalman, Oklahoma State University extension specialist.
Preconditioning programs add per-head costs to producing cattle and the costs are widely varied by the price of inputs, such as feed, and the cost of the selected vaccination program. Numerous studies have been conducted in the past decade to analyze the cost/benefit ratio to determine whether or not the added costs are regained at the time of sale. The answer appears to be yes.
As more producers participate in preconditioning programs, the premiums are growing both at the video auction and the local sale barn. In fact, many buyers now target sales featuring certified preconditioned cattle.
Lalman believes the premiums offered by buyers will continue to increase. His studies, conducted over several years, show the premium returned to producers averaged approximately $20 per head each year, with a top end of $50 per head premium being paid for cattle that are properly backgrounded.
Lalman’s surveys show the producers who aren’t participating in some sort of preconditioning program tend to be the smaller producers. “A person weaning 20 calves is less likely to want to include the additional labor and costs associated with preconditioning for $20 a head. If the premium was $50, then it might be a different story,” he said.
Amos has also found that producers may be more likely to consider skipping the vaccinations in years when the market is good, particularly in the last two years.
“Some ranchers might consider selling without preconditioning, particularly in an up market, to take advantage of the cost savings, however, studies have shown there is no correlation between calf price and the additional percentage in the premium paid for cattle,” he said.
Amos said cattle participating in Pfizer’s program were subject to an extra vaccination cost of $3-4.50 per head beyond normal inputs. The price variance depends on what type of vaccination program is selected by the producer. The CSU study determined that cattle enrolled in Pfizer’s pre-sale vaccination program brought an added $21 per head premium during the first years of the study.
“That premium topped out last year (2004) at $41 per head,” Amos said.
For feedlot buyers, there is a strong draw to feeder calves which have been subjected to a solid preconditioning program. Calves which are preconditioned have proven to be less prone to stress- related illness and experience lower pull rates and death loss which will reduce the feeder’s cost and improve carcass performance down the line. “Studies have shown that cattle not treated in the feedlot have10-15 percent better carcass performance than cattle pulled for one or more times,” said Lalman.
Despite the many factors in favor of preconditioning calves prior to sale, many producers still choose to send their calf crop to market without the benefits of a preconditioning program. A 2003 Oklahoma State University study found that of 323 cow/calf producers surveyed, fewer than13 percent participated in a preconditioning program. Of the producers who do not precondition their cattle, more than half cited a lack of time and added labor as the primary reasons. A lack of available facilities and know-how also played a factor in the decision.
As more cattle buyers make preconditioning a condition of sale, the premiums will begin to evaporate and producers may find themselves penalized for not preconditioning calves, thereby making the practice much more important. — John Robinson, WLJ Associate Editor

 


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