Justin Sexten
On Target
Starting at the end.
The great success stories in business, manufacturing and agriculture have at least one strategy in common. They identify what potential customers want and need — often within a predictable price or premium range — before setting out to provide it.
That used to be obvious and easy in agriculture — just produce the necessities for food and clothing. In the cattle business, you simply produced and sold calves, stockers or finished cattle to the next buyer. However, the market has become more transparent, with price signals differentiating some cattle as more desirable.
Defining the customer is a critical component in developing production that fits your farm or ranch resources and environment. Producing for your target customer improves efficiency, while failing to match your crop to customer demand results in below-average returns. Over time, you either improve or modify the product or exit the business.
Applying this to the beef supply chain means starting at the consumer level and working back to the ranch. We can’t afford to consider the person or segment we are marketing to as the ultimate consumer, even though most buyers today channel some degree of consumer demand. To make sure the demand for your calves continues to grow at every link of the chain, start with the end product in mind. That’s beef, of course, and not just any beef, but the kind most able to command premium prices in consumer markets.
You may not buy beef in town all the time, but you can identify with other beef consumers. Eating satisfaction is linked to the components of beef flavor, tenderness and juiciness. Research and experience all say the potential to deliver that begins at the cow herd level. That’s where genetic, health, nutrition and management decisions set the limits or open the heights to each of the next buyers all the way to the consumer.
With each buying decision that leads to a meal starring beef, the consumer matches value to cost. The beef product market says they value higher quality above all. You might think a premium of Choice over Select beef of only $4.90 in February is a sign that quality doesn’t make that much difference anymore. Wrong. You simply have to look where consumers are looking: at the higher quality of premium Choice. The Certified Angus Beef® (CAB®) brand boxed-beef cutout was reported at $14.90, or about three times more than the Choice-Select spread in February.
Price premiums for quality cattle continue to hold, even with current cattle genetics and management systems producing a greater percentage of Choice and Prime product than ever. Have you noticed that 76.4% of U.S. cattle are grading Prime and Choice? As DNA-backed selection tools provide genetics more capable than ever, the market responds as the University of Missouri (MU) research says it should. Premiums for high-quality beef are less influenced by a growing supply than is the price of Select beef in the face of increased supply.
As we all work to increase the supply of beef profitably, the clear signal from consumers calls for making sure most of your cattle can achieve at least the low-Choice grade. Start with that awareness of consumer demand, then enable the next segments of the beef community so that the market shares in the CAB premiums of more than $50 million per year.
Feeders are buying calves at a premium to capture the higher prices offered by packers. The premium for Angus calves at weaning has increased from $3 per hundredweight (cwt.) in the fall of 2000 to nearly $7 per cwt. in fall of 2014, compared to other calves of similar weight and condition, according to Iowa State University’s analysis of long-term auction market data. That’s in addition to any management premiums offered for preconditioning programs.
Those vary by location and supply, it’s true, but market logic seems to point higher in any case. Leaving health to chance risks your reputation from repeated pulls, increased cost of gain and reduced carcass quality — ultimately unfulfilled genetic potential. Pair quality genetics with quality management to capitalize on the success strategy of starting with the end in mind.
Editor’s Note: Justin Sexten is the supply development director for Certified Angus Beef LLC (CAB).