Why retain ownership of cattle?

Feb 12, 2010
by WLJ

The phrase “from farm to fork” has been well used to trace food products from the farmgate to the plate and to demonstrate the interest of many farmers in showing their concerns about quality to the consumer. But the same vertical supply chain may be financially beneficial if farmers are able to share in the profitability the entire route as well. Vertical integration is more prevalent in the pork and poultry industries, but what about beef?

A variety of factors has resulted in a declining share of the consumer market for the beef industry. Per capita consumption is not what it used to be for cowboys, and larger shares have been claimed by other meats, say a group of University of Missouri (MU) economists in a study of retained ownership for cow/calf producers. Supply chain marketing has accompanied changes in consumer demand for specific products, unseen and unheard of a couple decades ago. The economists say tighter vertical coordination has been adopted to address production quality, animal quality, price risk, product consistency, and consumer friendly retail prices. They suggest that cow/calf producers are an important part of the beef supply chain who are responsible for starting the process toward quality beef and may be interested in participating in the rewards for the risk in boosting their genetic investment.

The MU economists studied 188 cattle producers to analyze the economic linkages and found that younger producers and those with registered cattle are interested in performance-based management using feedlot and carcass data and are more interested in retained ownership. Using studies that indicated premiums of $31 to $75 per head could be obtained for “producers of cattle with known feedlot performance, carcass potential, or both might be better off retaining ownership of their calves or marketing them in a way that communicates the information … directly to the buyer.” Of the 188 cattlemen, 36 percent were interested in retaining ownership through a feedlot and 20 percent had registered cattle. Over half of the sample was interested in using carcass and feedlot data in cow herd management decisions. They assume that higher quality cattle enhances one’s interest in retaining ownership, finding it was used the least by those with less than 19 head and used the most by those with more than 100 head.

They also discovered:

• Registered cattle significantly increases interest in retained ownership.

• Purebred cattle have a significantly negative impact.

• Purebred producers may not emphasize quality as much in their management.

• Producers interested in feedlot and carcass data for herd management decisions are more interested in retained ownership.

• Interest in retained ownership through a feedlot increases the length of actual retained ownership.

The economists conclude that cattle quality, as measured by ownership of registered cattle, significantly increases interest in retained ownership, as does interest in performancebased livestock management. They say the results are similar to the character of the pork and poultry industries and explain the vertical organization of the supply chains.

Looking at the parallels with the pork industry, the MU economists say those pork alliances demonstrate that claims to price premiums should be shifted from finishing units to farrowing units, which is the stage that most impacts the profits throughout the integrated system.

Quality from the start increases the chance for quality at the end, and good beef genetics from the cow/calf herd will mean quality livestock leaving the feedlot.

Cow/calf producers have a stake in the output at the end, and may be interested in retaining some degree of ownership after calves are weaned. Those producers who may be more interested than others in retained ownership are those who have registered cattle, which shows higher quality genetics, as well as younger producers and those who have interest in performance data generated at the slaughter plant. — University of Illinois Extension