Plan your path to profit ...

News
Feb 6, 2009
by WLJ

Plan your path to profit...

After several years of unprecedented profitability at the cow/calf sector, ranchers have seen those margins continue to tighten over the past 12 to 18 months. This first caught ranchers’ attention with headline-grabbing increases in corn and fuel prices, and soon expanded into accelerated land values and forage costs. These increased input costs have more recently intersected with market volatility, which often saw 5-cwt. calves bring less per pound than 7- to 8-cwts., and $10 to $12 per cwt. taken off the fed cattle market.

Trade journals have recounted the various factors that are impacting these shifts in profitability: ethanol, increased global demand for grain and fuel, the effect of a strengthening U.S. dollar on trade, and the effect that economic uncertainty has on the domestic demand for our product are a few of the culprits. Most producers see these as direct—or at least potential—threats to the beef industry and are concerned their ranching operation could be collateral damage.

When producers perform an S.W.O.T. (Strengths, Weaknesses, Opportunities and Threats) analysis of their individual beef enterprises, they tend to focus on the threats too much. Because these threats influence the environment ranchers operate in, it’s important to understand and be aware of them, but, for the most part, these are elements that aren’t controlled at the production level. A rancher’s greatest leverage points—albeit opportunities—come from developing strategies that overcome or lessen the impact of the operation’s weaknesses, and take greater advantage of strengths.

In any operation, opportunities exist in numerous areas: herd health, marketing, forage utilization, financial performance ratios, debt management, employee retention ... to name a few. However, with bull sale season right around the corner, genetic inputs are one opportunity that can overcome weaknesses within a beef program and build stronger foundations for years to come.

A rancher should focus on selecting bulls that will enhance his program’s strengths and repair its weaknesses. Once a producer finds the bulls that meet his criteria, he can buy them right for the greatest value.

How bull selection strategies can influences low-cost production

Costs extend beyond the expenses for which a rancher writes a check. For instance:

• A dead calf increases the cost-per-weaned-calf because the producer has already invested winter feed costs into a cow who doesn’t wean a calf.

• Unit labor costs increase with every 2-year-old heifer that requires assistance during calving.

• Grass and feed costs of heifers that palpate open must be distributed among those heifers that are pregnant.

• Cows that are open or unsound and leave the herd before 7 years of age increase the cost of developing more replacement females. They also cost producers the opportunity to cull a low-producing cow because they need to maintain critical mass.

Once a producer recognizes lost-production costs, he can begin selecting genetics to overcome his herd’s observed weaknesses. The most current breed information can help him make those important decisions.

For example, many producers look at a bull’s individual birth weight to determine whether he is a candidate to breed to virgin heifers. In reality, several non-genetic factors can influence a calf’s birth weight. His birth weight EPD includes how that calf compared within his birth contemporary group. He may have had a reasonable birth weight, but still been 10 pounds heavier than average. Was his lower birth weight genetic or caused by an environmental factor that reduced the birth weights of the entire calf crop?

While producers can only speculate on environmental influences, we do know the birthweight EPD includes factual information on how a bull’s half brothers compared in their respective groups all across the country.

Calf shape, head diameter, gestation length and all the other genetic factors in addition to birth weight influence whether or not a calf is born unassisted. Birth weight is only estimated to account for about 65 percent of calving ease. Thus, the Red Angus’ Calving Ease Direct (CED) EPD captures all of those other factors. Red Angus’ CED model also includes a birth weight variation to include selection pressure on birth weight when utilizing the Red Angus CED prediction.

Maternal Calving Ease (MCE) is a valuable EPD for producers who retain replacement heifers.

This EPD predicts the likelihood of a bull’s daughters to have their first calf unassisted. Again, it is a prediction loaded with information. For instance, the MCE EPD of a son of a high-accuracy Red Angus is built using calving ease scores collected on his dam, as well as all of his half sisters in all herds. The female contributes half of the genetics to the calf crop and this bull’s daughters are going to do just that by passing their own Calving Ease genetics on to their calves. Thus, the Red Angus MCE uses not only maternal calving ease scores, but also their 50 percent genetic contribution to factors which affect their calves’ predisposition to be born unassisted, i.e, birth weight, shape, gestation length, etc.

Culling cows in the prime of their life for fertility or soundness problems cost producers. By studying the Stayability (STAY) EPD, producers can place selection pressure on keeping cows in the herd. If a bull’s daughters miss calving in years 3, 4, 5 or 6, or if they leave the herd for a bad udder, bad feet or any reason, they receive a negative Stayability observation. This data accumulated in all the Red Angus seedstock herds across all different production environments sorts out which bulls’ daughters are remaining productive and which are leaving prematurely.

Likewise, Red Angus’ Heifer Pregnancy (HPG) EPD predicts the probability of a bull’s daughters conceiving to calve as a 2-year-old. While there is some correlation between the scrotal circumference of a bull and his daughters’ fertility, that comparison isn’t nearly as meaningful as a tool which allows you to put selection pressure on cutting costs by reducing the percentage of heifers that palpate open.

One common thread that ties the value of all these genetic predictions together is they are all based on data collected through Total Herd Reporting. Red Angus is the only beef breed with multiple generations of data built through the requirement that the offspring of every cow be reported annually. That includes dead calves, cows that came up open, cows that were culled from the herd, etc. It also requires that the weaning performance of every calf—even the fuzz balls that don’t warrant the purchase of an AI certificate—be reported as a requirement for keeping the dam actively registered. The result, therefore, is Red Angus’ standard growth EPDs are based on the most complete, non-biased data available, and Red Angus has been able to establish EPDs for many "whole herd" measurements such as heifer pregnancy and stayability.

Some cattlemen will argue that non-genetic factors influence fertility—specifically anything that influences energy intake. Others producers claim, "If you don’t have 5 to 7 percent of your cows come up open, you are not challenging them enough,"—meaning, the cows are getting too much to eat. Producers constantly need to ask themselves, "Are we really making genetic progress with fertility, or are we just ignoring that our feed bill is increasing?

Enter the mature cow Maintenance Energy (ME) EPD. This prediction tool uses mature weight, milking ability and body condition score to establish the energy required for mature cows to maintain their body weight. Among the variations in this trait, producers are discovering bulls that sire low maintenance energy requirements yet above average growth and milk. Also, bulls that excel in improved Stayability and Heifer Pregnancy can also offer lower ME values.

When ranchers start combining selection pressure on these traits—low ME, higher STAY, HPG, MCE and CED – the herd tends to be an easy-keeping herd with lower feed costs, low replacement rate, calving chains rusting from lack of use, and excess replacement heifers to sell. But there’s more to building a profitable cow herd.

The formula for profit has more than one definition, but for a profitable cowherd, the equation is: Value of Production—Cost of Production.

Red Angus bulls come with selection tools to allow producers to make progress on the second half of the above equation—the cost of production. However, the resulting product must be marketable or profitability remains a struggle. Fortunately, Red Angus bulls come with added-value extras as standard equipment—some by design and others inherent—but the value of these benefits is growing more important.

During the highest cattle markets there is often little incentive for producers to change. If they are paid a premium price for commodity cattle, few go to the trouble to enhance their product. However, as market volatility increases, so does the differentiation in value, and the gap widens between "reputation" cattle and the masses.

This is where Red Angus comes in. The breed wakes up every morning with advantages that make them desired by the feeders who buy ranchers’ calves. USDA Meat Animal Research Center (MARC) data shows that Red Angus bulls sire a higher percentage of USDA Choice grade than any other major breed. That means more Choice cattle with fewer days on feed, which translates to more premiums with less corn.

But how much waste is acceptable to produce a high percentage of choice carcasses, or carcasses that are good enough to earn branded product premiums? Apparently, not much. The Angus America grid data below shows that not only can Red Angus-sired calves produce enviable levels of Choice and Premium carcasses, but with minimal Yield Grade 4 discounts and substantial Yield Grade 1 & 2 premiums.

Red Angus’ inherent benefits aren’t limited to just carcass traits. Many feeders comment that the breed’s docility is a major advantage impacting how quickly the cattle go on feed, how well they stay on feed, and their low incidence of carcass discounts for handling-related defects such as bruises and dark cutters. In addition, they come genetically dehorned, have a solid red hide color that handles heat better in summer feeding situations, and breeds true—without producing grays or "rat-tails" when mated to some Continental breeds.

But capturing value isn’t just a matter of genetics. Red Angus-sired calves are eligible for premiums through the Red Angus Feeder Calf Certification Program (FCCP)—an economical solution to many producer challenges. FCCP is a USDA-approved program for Source and Age Verification, and cattle enrolled in FCCP under 21 months of age are eligible for export markets—another excellent opportunity for premiums.

The value of export market eligibility varies, but U.S. Premium Beef announced it will continue to pay a $35 per head for Age and Source premium through May of 2009; other programs are following suit. FCCP is also a genotypic verification of Angus and can make cattle eligible for available premiums through the supply of certain Angus product lines. USDA has stated that process-verified programs such as FCCP are approved methods of substantiating Country of Origin Labeling claims.

The FCCP tag adds value well beyond compliance—the tag proves to the buyers that calves are Red Angus, not just red-hided. And finally, the Red Angus Assocation of America (RAAA) provides a host of free marketing services that come with using Red Angus bulls and participating in the Red Angus FCCP. Visit the Red Angus Web site, redangus.org, or call 940/387-3502 to learn how you can use Pro-Cow and the Feeder Fax.

As ranchers confront the challenges of the dynamic beef cattle industry, Red Angus’ value-added programs offer a practical and profitable strategy to market Red Angus-sired calves. Red Angus’ genetic predisposition to reduce costs while increasing value can build a herd’s foundation of profitability from the ground up. Furthermore, the Red Angus breed is committed to the success of the commercial cow/calf producer and the Red Angus Marketing Programs offer value-added services designed to help cattlemen reap a higher return on their investment through superior Red Angus genetics. — Greg Comstock, RAAA Executive Secretary

—Become a low-cost producer of a high-value product.

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