Tomorrow’s Profits in Beef
Profits
in the Cattle Business ------
This is
an exciting time to be in the cattle business.
While some claim that there is no money to be made, I disagree. If you look at our carcass data it is clear
that gross sales ("in the meat") per animal vary widely. Some steers are worth $800, some are worth
$1100. A lot of this variation is just
from sheer pounds. But sometimes the
$1100 dollar animal only weighs 950 lbs LIVE.
That is because he was higher quality grade AND higher retail product
(yield grade). The money to be made in
the cattle business is not in producing common meat. EVERYONE does that. The money is in the "choice/select
spread." This is often $15 per cwt
of carcass ($100 LIVE basis). In a
business where a $20 profit per head is acceptable this is a HUGE advantage.
Feeders
have known this for a long time. They
have paid a premium for Angus-based calves because they could realize a few
dollars more profit by selling "in the meat." Consequently, the Angus breed has taken over
the genetic makeup of today's calves.
The problem is that the packer only pays premiums for statistical
OUTLIERS. The packer pays cash bids
(i.e., no premiums)
for average lots of cattle.
Even though today's calves grade better than they did 30 years ago they
don't pay you on the old grade/yield formulas.
They will only part with cold hard cash in roughly the top 20 % of all
the cattle they kill. All the rest of
the cattle are basically just covering their own cost of production. The "gravy" is in those top 20%.
In our
own herd we have an average carcass premium of around $37 per head. This was accomplished largely by using Angus
genetics. We have focused some on
so-called "carcass" traits through EPDs in
our bull buying dollars. We have also
used AI in the same way to multiply the effect of those EPDs. We have done virtually no selection of our
replacement females (ALL are kept as replacements). We have shipped our older genetics off the
ranch. We have ultrasounded
rib muscles in a
minor way, but have not selected very many superior/inferior cattle using that
technology. It could not be said that we
have sought out the "gravy" cattle very hard. Most of our cows are "numbers"
cows that simply built a larger cowherd.
Despite this relatively low selection process we still have a good
carcass herd. In all fairness, a lot of
it is probably due to the Angus genetics and nothing else.
Seedstock
breeders have really started paying attention to superior carcass traits in the
last 5 years. The EPDs
(expected progeny differences) for the Angus are more accurate than for any other breed, simply because the Angus breeders started
collecting data before anyone else.
Obviously, Angus is the breed to look at. (There are many other reasons also.) The carcass EPDs
are still very much in their infancy.
Accuracy levels are only high for a handful of bulls in the entire sire
summary. There are less than 10 bulls
that are in high demand out of over 3000 bulls in the listing (3/10ths of a
percent). The ironic thing is that
every spring at branding time ranchers cut off the testicles (genetic
potential) of at least that many calves who are JUST AS GOOD as those 10
"high demand" bulls. They are
out there somewhere. They are OUTLIERS
who haven't and won't be discovered because of lack interest in finding
them. The registered seedstock
producers won't find them because they only focus on registered cattle and
selling what they have. Commercial
producers won't find them because they don't have the time and mostly just sell
calves at salebarn prices. Feedlots sell feed. Packers sell meat and don't think about
increasing demand for tasty beef (they make too much money to rock the
boat).
Identifying
these cattle is crucial to increasing beef demand. Tasty, consistent beef sells better. Everyone I know would pay a dollar more for
a steak that had a high probability of being tender, juicy, and flavorful
(there's your $100 carcass premium).
Some people think we can leave this searching process to the registered
cattle producers. Many are trying very
hard and are progressive enough to care about this. But a lot of them are too caught up in
registration papers, pedigrees, and weaning ratios. They focus so much on WHO
the cow is rather that WHAT she is. She
is still a BEEF animal. We have to look
at her beef and ask why people do or don't want to eat it.
These
cattle are very difficult to find and propagate. The main reason is because after you find
out how an animal grades on the rail you can't very well breed him to
anything. Grading is a ribeye invasive process.
It helps if you know a superior carcass's sire and dam, but you never know whether they will
"breed true" or if that great carcass was just a fluke. That's why the breed associations collect
data on THOUSANDS of animals. They try
to find tendencies or trends in certain genetic lines of cattle.
The Meat Packer :::
A packer
pays a producer "in the meat" for 5 things --- marbling, ribeye size, fat thickness, dressing percentage and carcass
weight. There are minor things, like
hide premiums and KPH
fat (kidney, pelvic, heart) that are not significant dollars. A USDA inspector (supposedly unbiased and
NOT employed by the packer) judges the amount of intramuscular
fat, called marbling,
in the longissimus dorsi
muscle (ribeye).
This fat adds flavor in a steak and is thought to make it more tender. It is
not external fat, which is entirely unwanted by the packer (and consumer). He mentally assigns a numeric value from 1
to 10 for these "flecks" of fat in the meat, 1 being Standard and 10
being Prime. The middle numbers are
levels of Select and Choice. He then
judges the yield grade of the carcass.
He estimates the area of the ribeye muscle,
usually between 9 and 15 square inches on most cattle. Comparing the ribeye
size with the fat thickness that is on it, he assigns a number between 1 and
4. A yield 1 carcass has a large ribeye (say, 13 inches or larger) with very little fat
(less than 1/4 inch). Retailers only buy
"close trimmed" product and so the packer has to pay his employees to
cut the excess fat off carcasses with more than 1/4 inch backfat. A yield 4 carcass might have a 9 inch ribeye and 6/10 inch of fat. A Standard Yield 4 carcass is worth the
least of any graded carcass (ungraded, hardbone, and dark cutter carcasses are worth even less and
aren't even graded). The highest value
carcass would be a Prime Yield 1, but these are exceptionally rare. Most cattle yield grade 2 or 3 and quality
grade Select or low
to middle Choice." Consequently,
there are few
discounts or premiums for these cattle. About 70 % of the "A" maturity
(young) cattle are in this group.
After the
carcass is graded it is weighed and stamped with a bar code identifying it as a
unique product. A computer scanner
calculates its value according to a formula.
On one day a "high Choice, yield 3" might be worth $127.38 per
hundredweight. The computer multiplies
the formula price times the weight and assigns a price for that carcass. After all the cattle in a given producer's
pen are graded, weighed, and priced, the computer totals the carcass
weights. Rancher A might have 63,000
lbs of carcass on his "formula" or "grid" sheet. This number is divided by the "in"
weight or live weight taken just before the cattle were unloaded off the truck.
(They aren't weighed individually as live cattle). If Rancher A had 100,000 lbs of live cattle
he would have a "dressing percentage" of 63%. Almost all cattle dress between 62 and 65 percent. The missing 37,000 lbs. (called "the
drop") consists of the head, hide, hooves, blood, viscera (gut), and
paunch ("fill" or stomach contents).
The computer keeps track of the "plant average dressing
percentage" in a given week and compares it to each producers
grid sheet. The producer gets a premium
if he exceeds this number or a discount if he doesn't meet the number. Dressing percentage varies with the weather,
time of year, and other conditions.
During a muddy winter the packer has to buy cattle laden with lots of
mud. This mud which he pays for in live
basis is lost in "the drop".
Those cattle will
"dress low".
Sometimes cattle can "dress high" because they are kept on a
truck without feed (fill) and not slaughtered for a period of time. "Continental" or
"Exotic" cattle breeds (Charolais,
Simmental,
marbling and external fat).
Most of them will yield 1 or 2 with less than 30% 3's, compared to 60 %
yield 3's for Angus. Angus have slightly less muscle and double the fat. This should come as no surprise when you
consider they evolved in a cold climate.
Fat insulates the body from the cold and provides emergency food storage
to survive in desolate environments.
The
rancher distrusts this whole grading process because it goes on behind closed
doors. He has no say
in how, or even if, his cattle are graded.
A typical USDA inspector, working an 8 hour day, might grade 1500
cattle. Most of the
time he is twiddling his thumbs, waiting for the next carcass to roll down the
track. He grades a carcass and stamps
it as fast as he can ink his stamper. He makes a split-second decision that might
be a $100 bill for the rancher OR for the packer. Understandably, the rancher is convinced that
the packer is "in his pocket".
Here you have a major corporation that has more dollars in its office
coffee budget than the net worth of most ranchers. Who do you think the inspector wants to
please?? Don't you think the packer
keeps track of which inspectors are "making" them the most money in
premiums/discounts?? All it takes is an executive from Iowa Beef
Packing to walk out and leave a hundred dollar bill under the wiper of the
inspector's car. Then he could track
that inspector's performance on the computer in the next few weeks. He might leave him a new car next
time.....or he might make his life miserable.
The potential for abuse is ridiculous.
Many cattlemen have called the packer to task, asking for an automated,
impartial grading system. Prototypes of
these systems have been built with university research dollars. The packer refuses to use them, claiming
that it costs too much. This only
infuriates the rancher more. He has
appealed to the Congress to get the government out of the meat-grading business
(private sector). But the packers are wealthy
corporations headed by a handful of individuals. The cattlemen are an independent sort of
people, not organized into any one way of thinking. And so the government stays in the
meat-packing plants.
marbling
ribeye size
fat thickness
dressing percentage
carcass weight
ultrsound
epds
selection
ai
et
carcass testing