Background: Several preceding columns have focused on the cowherd rebuilding process and ensuing implications for the business:
- The first column highlighted a distinct shift coming out of the previous cycle; that is, the ensuing rise in cattle eligible for an A-stamp and subsequent improvement in the grading mix.
- Much of the shift discussed in the first column is the direct result of producers responding to market signals. Accordingly, the second column zeroed in on the seeming divergence of beef demand across the respective quality grades.
Bigger: Meanwhile, stating the obvious, there’s an ongoing trend within the slaughter mix: cattle are getting bigger. To that end, the table below outlines annual carcass weight (heavy) discounts during the past 20 years.
A couple of items of importance:
- Coming out of the last down cycle, amidst short supply, and enduring need for throughput (for both feedyards and packers), heavy discounts shifted upwards.
- The discount for 1050+ lb carcasses has been incrementally moving lower over time.
- Given the rewards for quality grade discussed in the previous columns, cattle feeders have incentive to push weights to the very edge. (Especially important in time of waning supply, it prolongs turnover and hence need for replacement inventory.)
Contrast: Now, let’s put that discussion in some context relative to the cowherd. The graph below highlights running five-year averages for two variables:
- Marketing weight (selling calves off the cow sourced from the Kansas Farm Management Association - KFMA).
- USDA federally inspected slaughter weights.
The data is clear. Marketing weights haven’t budged in twenty years – cattle producers consistently sell calves weighing ~580 lb. Yet, slaughter weights have consistently been on the rise (~10 lb/yr). (see table)
Several years ago, Dr. Dave Lalman, Oklahoma State University, authored an Angus Journal column noting progress in weaning / marketing weight has flattened over time. The explanation being likely a result of production limitations and further confounded by traditional marketing / management practices.
Capturing Upside Revenue Potential: Tying this together, there are some important implications when it comes to marketing the calf crop. Most importantly, cow/calf producers have successfully manifested improved genetic potential for both growth and marbling – as witnessed by the trends within the slaughter mix.
However, many operations simply wean and/or ship calves at a specified time and/or weight. As a result, they forfeit much of the value potential they’ve worked to create.
Circling back to Dr. Lalman’s column, he summarizes this way: “…efforts to enhance profitability should focus on reducing cost of production [Go Through The Middle] and/or capturing value of genetic potential for post weaning performance and carcass value.”
Given the realities of upside revenue potential (see Real Money For Real Value), many producers would be well served to rethink their current (i.e. traditional) marketing practices and explore a variety of different options available across the business.
