  BeefTalk:
Marketing Plans Need to be Formulated Now
By Kris Ringwall, Extension Beef Specialist,
NDSU Extension Service
How many times do we hear the words "break even" in the cattle
business? And, is "break even" enough to sustain an agricultural
enterprise in an ever-competitive market?
A good business plan certainly protects herd finances and avoids catastrophic
loss. Once protected, there needs to be a savvy understanding of the market and
an approach to business that can provide producers with sufficient profit to
meet current family living expenses beyond the operational expenses of the
farming or ranching enterprise. This concept, however, is a real dilemma facing
the young family trying to make ends meet.
Did you raise what you brought to the market? Or are you selling something
you previously purchased? The Pacific Ocean is not wide enough to reflect the
difference in implications behind those two questions.
Real value and worth rests in the basic commodity being marketed -- the calf.
The producer who owns the calf at birth most likely will not own the calf at
harvest. Only the original producer is anchored; future buyers float and work on
margins. What does that mean?
The concept becomes very evident when discussing value-added marketing. A
popular trend is retained ownership: the original owner adds value to the calf
by contracting for subsequent services, which are paid for and guaranteed with a
lien on the cattle. The most the original producer can do is to attempt to lock
in a value that guarantees some value that will come close to what is owed. The
service provider can guarantee a negotiated profit through a contract and by
placing a lien on the cattle. Not all is easy for the service provider, but risk
is significantly reduced.
If you look at trends toward contract production in other livestock, most
notably swine and poultry, the value of the animal is not an issue for those
producers. Their services, feeding livestock, are contracted by the livestock
owners, which in most cases market the final product to the consumer. For the
producer, the cost of feed and labor are the major concerns
In most cases, if the animal breaks even, the service providers still profit.
Poultry and swine owners have an opportunity for added value at the consumer
level, allowing for more flexibility for profit at the different levels of
production.
In the beef business, most producers don’t sell product direct to the
consumer and most processing and marketing companies don’t own cow herds. That
break in the ownership chain limits flexibility in passing profits from one end
of the production chain to the other.
Should the beef business look like the swine, poultry or even the dairy
business? In an increasingly service-orientated industry, what is the value of
the calf? When should you own the calf and when should you sell? There are no
easy answers.
Perhaps a discussion of calf marketing seems out of place at this time of
year. Most of us still have a few cows to calve, bulls to test and cows to
breed. But fall arrives all too fast, and marketing plans need to be in place
well in advance. The decision to retain ownership and feed this year’s calf
crop should be based on an analysis of your enterprises. It is not a
spur-of-the-moment decision.
The North Dakota State University Dickinson Research Extension Center has fed
calves and acquired all the carcass data from those calves. The data is used to
evaluate genetic and management systems at the center. We will continue to
retain ownership and encourage cow-calf production from conception to
consumption. However, the squeeze is on – the producer’s share of the retail
dollar continues to shrink.
According to USDA-ERS, in 1990 the farmer’s share was 60 percent of the
retail value of the calf. In 1998, the share was 47 percent-- a decrease of
nearly 22 percent.
As a cow-calf producer--the one who is anchored--every link in the chain that
is paid out as service leaves fewer links to pay for the calf. Make sure you
count your links before next fall.
May you find all your ear tags.
Your comments are always welcome at www.BeefTalk.com.
For more information, contact the North Dakota Beef Cattle Improvement
Association, 1133 State Avenue, Dickinson, ND 58601 or go to www.CHAPS2000.COM
on the Internet. In correspondence about this column, refer to BT0091.
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Source: Kris Ringwall, (701) 483-2427, kringwal@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu
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Graphic:
The Producer's Shrinking Share
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Year 1990 1998
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Retail price 2.81 2.77
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$/lb net farm value 1.68 1.31
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Producer % of retail value 60 47
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Producer-earned price for 0.79 0.62
feeder steer (5-market value)
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