Livestock: August 2001

Throughout the past decade, cattle producers have seen changes?some good, some bad?that have dramatically altered the beef industry. Marker-assisted selection techniques, expected progeny differences, individual identification, vertical integration, and value-added products (the list goes on) are prevalent issues that have evolved from seemingly far-fetched ideas of yesteryear.

These changes, to an extent, are a product of concerted research efforts that have resulted in new and better production practices. However, a portion of this change is due to modifications that cattle producers have made in their management and marketing philosophies. Consequently, cattle producers now have many more marketing opportunities than producers of the past, if they are willing to take advantage of them.

To say that the beef industry has been segmented and oftentimes opportunistic is an understatement. Understandably, each entity's number one concern is its bottom line. For all segments of the industry to be profitable, a majority of the calves we produce have to make money four, and sometimes five, times (figure 1). This situation is rarely the case and is the reason the "get while the getting is good" attitude is so prevalent.

Throughout the past few years, we have heard a tremendous amount of talk about beef cooperatives and alliances. These terms are generic and often confusing: exactly what are they and what benefits do they offer the industry? Textbooks define a cooperative as an organization for the production or marketing of goods and an alliance as a close association for a common objective. Regardless of the definition, both are alternative marketing approaches compared with some of the industry's other, more traditional marketing programs, and both require more input by the producer. However, depending upon your operational goals and objectives, adopting these programs could add dollars to your bottom line.

A good example of a cooperative that is available to Oklahoma cattle producers is the Oklahoma Quality Beef Network (OQBN), offered by the Oklahoma Cattlemen's Association and the Oklahoma Extension Service. Participants are required to follow association-defined, process-verified protocol regarding weaning management, health regimens, and individual identification. Animals consigned to this program will be marketed to meet a specific demand for preconditioned calves that perform better and have lower health costs during subsequent phases of production. Industry benefits from these programs include consumer assurance and increased production efficiency; producer benefits are the ability to market smaller lots of calves as bigger, more uniform production units and the opportunity to receive compensation for on-farm management practices that may already be in place. The first OQBN sale is slated for November 7 at the Oklahoma West Livestock Market in El Reno, Oklahoma.

An alliance is generally formed to meet certain breed, health, management, carcass, or niche market specifications and involves coordination among industry segments through retained ownership. These specifications depend upon the marketing objectives of the alliance, and premiums and discounts are given according to how well a calf meets these specifications. Alliances that target multiple specifications such as cutability, quality grade, and organic production are available to producers with either small or large enterprises because there is a wide range in the minimum number of head required to participate.

The key to taking advantage of this marketing option is finding an alliance that fits the calves you produce and then consistently producing those calves. Therefore, questions you have to answer in order to participate in an alliance are, Do I know how my cattle perform when they leave my ranch? and, Am I willing to receive payment according to this performance? If the answer to the first question is no, then the answer to the second question should be heck no. However, if the answer to the first question is yes, then the answer to the second question could be maybe, depending upon what your best marketing option is. For example, according to the USDA Market News Service (week ending 6/17/01), the return for steers expected to grade 80 percent choice (sold live) and those known to grade 80 percent choice (sold on the rail) was $953.69 and $993.59 per head, respectively. You can use this information, along with the knowledge of whether you produce calves that do or do not have the ability to marble, to make about $40 per head by selectively marketing the type of calves you produce.

Participation in an alliance is not a good idea when you have no information regarding the quality of calves being produced. Services such as the Noble Foundation's Retained Ownership Program (ROP) and Texas A&M's Ranch to Rail Program are available to enable you to collect benchmark information pertaining to calf performance and help you determine which alliance is right for you. The number of cattle in the ROP has increased dramatically throughout the last five years (figure 2), and the information that has been collected has helped producers and foundation livestock specialists make decisions regarding genetic, health, and breeding management.

Figure 2. Number of cattle consigned to the Noble Foundation's
Retained Ownership Program (ROP) during the last five years.

Regardless of whether you market through a beef cooperative or an alliance, the price you receive will depend upon how you use knowledge. In a cooperative, you are paid for providing knowledge that pertains to on-farm management practices and is beneficial to upstream segments of the industry. Conversely, in an alliance success depends upon obtaining knowledge from upstream industry segments and implementing management and marketing strategies that complement this knowledge. In either case, there are risks that do not accompany traditional marketing methods, and information has to be exchanged within the beef industry. However, both of these marketing approaches remove you from selling on the averages and will allow you to be a knowledge-based price negotiator instead of a price taker when it comes time to make a marketing decision.