Cattle Industry Update for the Grass Fed Beef / Grazing Producer

Market Update:

5 Area Weighted Fed Cattle Price – Last week’s 5-Area Weighted Fed Cattle live price was $128.27, with Dressed cattle at $204 - $205.  The average steer dressed weight was 858 pounds, up 14 pounds from this time last year.

Wholesale (Boxed Beef) prices were up from last week with USDA Choice beef trading at $191.69, up $2.79 from the week prior.  USDA Select beef traded at $188.29, down $0.53.  The Choice/Select spread was $4.31.

Feeder and Stocker cattle traded sharply higher again last week, with all classes trading anywhere from $3 to $15 higher.  This was in part due to the USDA Corn Crop Planting report coupled with grass fever.  Slaughter cows and bulls were mostly steady with cutout value at $170.50/cwt.

Oklahoma City feeder cattle prices were $1 to $8 higher this week with prices for medium and large frame #1 steers: 450-500# $158.50-$193, 500-550# $164-$166, 550-600# $162.50-$172.50, 600-650# $151-$162.25, 650-700# $142.75-$152, 700-750# $141-$147.25, 750-800# $137-$143, 800-900# $128.50-$140.75, and 900-1000# $122.25-$126.50/cwt.

Cattle feeding margins improved $30 per head with average losses now at $74.62 per head.  A year ago, fed cattle sold for $121.73 with losses of $58.73 per head.

Average Packer margin declined $10 per head last week with packers losing an average of $45.10 per head.

Industry Updates:

A recent United Nations study states that global land degradation is increasing significantly.  The study warns that without substantial changes in land management, moving towards more sustainable practices, further large scale desertification will occur.  The study notes that about 5% of all global GDP is being lost because of deteriorating land quality.   The UNCCD Executive Secretary stated that “Business as usual is no longer an option”.   According to the economic evaluation in the study, Africa has lost 12% of its Agriculture GDP, while Paraguay has lost 6% and Guatemala up to 24%.

A new report from the USDA Economic Research Service (ERS) examines beef production systems in the U.S. and addresses specific demand niches.  The report, titled “Alternative Beef Production Systems: Issues and Implications”, outlines the specific systems and the challenges and opportunities within each.  The study notes that a growing number of consumers are interested in beef claims that include “Natural”, “Organic”, Grass Finished”, or even “Locally Produced”.    The study notes that some of these new production systems may combine claims to produce products like “All Natural Grass Finished Beef” or “Organic, Locally Produced Grass Finished Beef”.  Producers and branded programs may even bundle additional claims such as “Animal Welfare Approved”, “Humanely Raised”, or claims about environmental stewardship or even healthfulness of the product.  The study estimates that beef from alternative systems represents about 3 percent of the total beef market, but that this segment has grown at about 20 percent annually over the past 5 years.  Major points of the study include:

• About 80 percent of U.S. beef comes from steers and heifers finished in feed yards, with the remaining “non-fed” beef coming from older cows and bulls.
• Higher quality grass-finished beef comes from younger steers and heifers finished on high-quality forages under careful management and genetic selection. These cattle can reach Choice or Select grades.
• One study found that, when fed to the same level of back fat thickness, there was no statistically significant difference in tenderness scores between beef from cattle fed grass and silage and those fed grain. Another study reported, however, that feeding grain to cattle reduced the length of the feeding period by 21 percent which generally lowers per-unit production costs.
• Only about two-thirds of organic beef is grain-fed because of the high costs of organic feeds compared with conventionally grown feeds. One study found premiums for organic feeds were 57 percent above conventional feeds. In some years, organic grains may only carry premiums of 25 percent or so, but in other years more than 100 percent higher, helping account for the higher cost of organic beef.
• One study found that conventional grain feeding was 52 percent more profitable than natural grain feeding and 5.6 times more profitable than organic grain feeding, due to production efficiencies, shorter feeding period and lower feed costs. Grain feeding was more profitable than grass feeding for both organic and natural production, and natural grass feeding was the least profitable technology by a wide margin, largely as a result of the small premiums associated with its products.
• In one feed yard study, use of technologies such as implants and antibiotics resulted in efficiency gains of 17 percent in average daily gain (ADG) and 9 percent in weight-gain-to-feed ratios (G:F) from a single hormone implant. Further results indicated a 53-percent reduction in morbidity and a 27-percent reduction in mortality from mass treatment upon the arrival of cattle at the feedlot. These efficiency gains and other resulted in simulated cost advantages of conventionally produced cattle over others of $77 per head over non-implanted control groups and $349 per head over organically fed cattle. A 10-percent increase in the price of organic feed increased costs by $54 per head.
• Consumers will pay premiums for beef from alternative production systems; although those premiums vary and researchers find what people say they will pay on a survey and what they actually will pay do not always match up. One study found consumers willing to pay a premium of $0.76 per pound for beef produced without hormones. Another found consumers in Oklahoma City, Tulsa, and Denver paid average premiums of $1.45 per pound for ground products and $5.87 per pound for steak products labeled as for attributes such as no antibiotics, no hormones or all natural. In a survey of companies that purchased and marketed naturally produced cattle, researchers found 84 percent of the companies were willing to pay a premium of $5.95 per hundredweight for products that qualified.
• Grass-finished beef has a different flavor profile than grain finished. Some consumers prefer it and some do not. One study found 23 percent of U.S. consumers surveyed preferred Argentine grass-fed beef over U.S. grain-fed beef and were willing to pay a premium of $1.36 per pound for it. Another found consumers were willing to pay a premium of $3.44 per pound for grass-fed over grain-fed beef.
• However, consumers discounted grass-fed beef based on flavor and sensory attributes by an average of $0.36 per pound in one study and $0.55 to $0.82 per pound in another. One found that 62 percent of U.S. consumers who preferred U.S. grain-fed beef over Australian grass-fed beef were willing to pay a premium of $1.61 per pound for domestic beef.
• Cattle in grain-finished systems generate less greenhouse gas emissions than those on pasture, and efficiency gains in both dairy and beef production that have further reduced environmental impacts per unit of meat output.
• More land is needed to produce a given quantity of grass-fed beef, or less beef production will occur per unit of land, than conventional beef because of the extended periods on pasture, meaning higher ownership costs per unit of beef produced.

View the full report from USDA/ERS.

 

Allen's Take:  Most of the data used in this study were either outdated or the assumptions were taken from small subsections of grass fed beef producers.  The truth is, grass fed beef production has come a very long way in the past 15 years and the grass fed sector now has significantly better genetics, better forages and grazing methodologies, and better overall infrastructure.  This has resulted in most finishers of grass fed cattle being able to effectively achieve 55%+ USDA Choice or better on every load harvested.  This is on par with the percent Choice or better in the feedlot sector.  While it is absolutely true that cattle finished on a high concentrate ration (i.e., grain fed) will reach a similar degree of finish more rapidly than grass finished cattle, the cost of that gain and the profitability are certainly debatable.  According to the literature cited by this study, the only profitable finishing system is one in which aggressive hormone and feed grade antibiotic programs are used.  However, many producers are transitioning to All Natural and grass fed production.  Why? Economic incentives.  Cattle Fax reported that feedlots lost an average of $100 per head for fed cattle in 2012.  Moreover, they are predicting those same losses to reach $125 per head for 2013.  In contrast, data compiled from several sources, including the Pasture Project and Michigan State University, show that average profit for grass finished cattle in 2012 ranged from $110 per head to over $420 per head.  That is a swing of from $200 to over $500 compared to the feedlot sector.  Moreover, Dr. Greg Hallich, Ag Economist at the University of Kentucky, states that in his analysis of the feedlot system vs. pasture finishing, the feedlot system loses any competitive advantage when corn prices exceed $4.50 per bushel.  How long now have corn prices exceeded $4.50 per bushel? 

The authors of this study state that some studies indicate grass fed beef has a less desirable flavor profile and can be tougher than grain finished beef.  The truth is for every peer-reviewed study producing unfavorable results in eating quality for grass fed beef, there are numerous peer-reviewed studies stating just the opposite.  One thing that must be kept in consideration is the date of the studies in question.  As I stated earlier, grass finishing techniques and genetics have improved significantly over the past 10 years and with those positive changes, the overall quality characteristics of grass fee beef have improved greatly.  Can we find grass fed beef that is tough and has an off flavor?  Absolutely!  However, can we also find the same in grain fed beef?  Absolutely!  If less than 60% of grain fed beef grades USDA Choice or better, where does the other 40% grade?  USDA Select and Standard.  Do we encounter tough grain fed beef?  Of Course.  Do we encounter flavor profile issues with grain fed beef?  Of course.  Are all grain fed cattle finished on the same diet?  Of course not. 

The authors go on to state that grain fed cattle are more efficient and emit less greenhouse gas emissions (GHG) than grass fed cattle, therefore, grain finishing is more favorable to the environment.  However, the studies they are citing to “prove” their point are highly questionable and contain assumptions that are incorrect.  These studies cited are modeling studies and with any modeling study “data out” is only as good as “data in”.  They are using selected data from outdated grass fed beef studies and not taking into account improvements made in the grass fed sector.  Moreover, they are not accounting for all environmental factors, instead concentrating primarily on GHG emissions in the form of methane from ruminants.  They do attempt to account for the impact of GHG emissions from wild ruminants and how those might compare to domestic ruminants.  The studies also do not account for soil organic matter loss generated through increased row crop farming.  The fact is, if you carefully read the studies the authors are citing, one would have to come to the ultimate conclusion that the best thing would be to rid the world of ruminant animal production. 

 The authors also state that it would take significantly more land to produce high volumes of grass fed beef.  According to the USDA Economic Research Service (ERS), the U.S. has a total land mass of 2.3 billion acres.  Of those 2.3 billion acres, 651 million acres are in forest, 587 million acres are in grassland pastures and rangeland, and 442 million acres are in cropland.  There are also 27 million acres in the USDA NRCS Conservation Reserve Program (CRP).  The other remaining land mass is in National Forests and Urban land use (R. Lubowski, et. al. 2006. Major Use of Land in the United States.  Economic Information Bulletin No. (EIB-14) 54 pp, May 2006.  USDA ERS).

Therefore, with 587 million acres of pasture and rangeland in the U.S., how much acreage would be required to finish 35 million head of beef cattle annually for harvest?  According to Dr. Jim Gerrish, retired Forage Agronomist for the University of Missouri and current Owner of American Grazing Land Services, LLC, it is quite possible to produce all the beef we consume and export in the U.S. entirely from pasture.  According to the USDA Cattle on Feed Report, April 2012, the total commercial cattle slaughter in the U.S. totaled 34.1 million head for 2011, with an average live weight of 1277 pounds.  If we assume that we would need to harvest 35 million head annually to meet all U.S. domestic and export beef demand and that the “finishing” phase typically takes cattle from 800 pounds to a finished weight of approximately 1250 pounds, we would need to put 450 pounds of gain on each animal through forage consumption.  A conservative “forage to beef” conversion rate is 14 pounds of forage (dry matter basis) per pound of gain.  Therefore, it would take 6300 pounds of forage on a dry matter basis to finish each individual animal.  Depending on region and climate, pasture dry matter forage yields in the U.S., under managed grazing, range from 1ton/are to over 10 tons/acre.  The average harvestable pasture dry matter forage yield is 3.15 tons/acre.  This means it would take an average of one acre to finish one beef animal. 

Again, if we require an average of one acre per animal at a forage dry matter yield of 3.15 tons/acre, it would require 35 million acres of grassland.  Many areas in the Midwest and Upper Midwest are capable of producing an average of 5 tons/acre forage dry matter annually with well-managed grazing.  With this average production, forage finishing capacity would improve to 1.5 head per acre annually.  This would require only 23 million acres to finish 35 million head of cattle annually, with the entire U.S. beef demand being met in the Midwest region alone.  From a different perspective, with 27 million acres of grassland currently enrolled in the USDA NRCS CRP, simply putting CRP acreage into production would supply enough forage resources to finish 35 million head annually.

These grasslands, managed properly, have the ability to produce cattle that average 60% USDA Choice or better in terms of carcass quality grade.  The U.S. average for USDA Choice or better cattle in the feedlot industry is 58%.  Under this system, there would be no sacrifice in beef quality grade and the end product would be far healthier for the consumer and the environment. 

Finally, there must be something to this whole grass fed deal.  In 1998, domestic grass fed beef sales were less than $5 million in retail value in the U.S.  There was a significant amount of imported grass fed beef coming in, but it was used primarily in blending with domestic grain fed beef to “cheapen up” ground beef.  However, by 2012, there was over $350 million in retail sales of domestically produced grass fed beef with another $1 billion+ in imported grass fed beef.  The market demand by the consumer has grown exponentially and is continuing to grow at a pace of 20-30% annually.  We now see stores such as Target, Costco, Kroger, and many others carrying grass fed beef at many of their retail locations.  Target has plans to take grass fed beef to more than 1,000 retail locations in 2013.

 

The Small Farms Institute has published online resources for farmers who wish to raise and market grass fed beef.  The resources were compiled from a series of workshops in Ohio that were funded by a USDA grant titled, “Building a Grass-Fed Beef Production Infrastructure to Support Marketing and Serve Consumer Demands”.  The online resource provides information intended to identify opportunities and barriers to grass fed beef production and marketing, grazing systems, processing, nutrition and carcass quality, and consumer interest.  The resource can be accessed through:  http://smallfarminstitute.wordpress.com/grass-fed-beef-notebook/

Several consumer survey studies over the past few years have indicated that consumers are confused and wary about food and food production.  Marketing agency, Sullivan, Higdon & Sink recently released a report titled, “Building Trust in What We Eat”.  The report outlines what consumers know or think about U.S. food production, and the information sources they trust.   The report revealed that just 40% of consumers rated their food production knowledge as good to excellent.  However, 69% of all consumers stated they want to know more and 77% of moms said it is important to learn about food production.    Only 19% believe food companies are transparent about how food is produced and 22% believe the Ag community is transparent.  Of those who did rate their knowledge as good to excellent, a majority did express trust in the Ag community or the food companies or both, indicating education can help in this regard.  The majority of consumers felt that farm visits had a positive impact on their perception of food.  They also wanted to know whether animals had been given hormones or antibiotics and were interested in learning about the living conditions of the animals.  Almost 66% of all consumers feel that family and friends are trustworthy sources of food information, while 53% consider farmers trustworthy sources.  The authors state that food marketers could benefit significantly by having farmers and ranchers tell their stories directly to the consumer.

The full report is available for download from Sullivan, Higdon & Sink.

A recent survey of farmers, who direct market beef at local Farmer’s Markets, are asked two primary questions by consumers inquiring about their products.  One of the first questions posed will generally be an inquiry about animal welfare.  How were the animals raised on that individual’s farm, what were the animals fed, were they treated humanely, were they given antibiotics or growth hormones, were they fed any GMO based feedstuffs, are they raised on pasture or get to spend time on pasture and are they actually raised on the farm?  In addition to questions about animal welfare, the consumers also wanted to know about beef cuts and proper preparation of each cut.  The survey found that the farmers who provide very specific information about each cut, how to best prepare and recipes for each cut, tend to fare better with the consumer.  In other words, be the knowledge leader for your product(s) and do a great job of “Telling your story”.

 

Joey’s Take: These last two items from SHS and the FM survey are quite obviously both related to marketing of your product as a producer. What marketing strategies should you as a producer take away from these two studies? The first is that the consumer is becoming more and more educated and they WANT to be more educated. Obviously, as producers we have to be knowledgeable about our products and share that knowledge with our customers and potential customers. Assuming we have this vital information, the question then becomes, how do I deliver it to my customers?  In today’s business climate, producers have to start with a quality WEBSITE.  Your ranch/farm website is the FIRST and many times only, sales brochure that most folks are going to read.  Your site must deliver the information the customer is already looking for when they land on your site.  It must be easily found by those already looking for the products you offer. 

If you are not comfortable building a website yourself, it is not only very important you find someone who demonstrates competence in online marketing to do it for you but that they also understand your market and what your customers are looking for.  A “pretty” site does not equal a professional, useful, profitable site that works for you 24/7. 

If your farm/ranch does not currently have a strong website that accomplishes these goals and you are marketing direct to consumers, make a website a priority TODAY.

If you need help building a website, we can help you with that through our consulting practice at Rockin' Double J Consulting. Prices vary depending on the scoop and need of your project but we are almost always cheaper than a new bull.