This paper offers opportunities and direction for the beginning and small cattle producer. Feeder cattle were targeted. Organic production methods which can lead to improved gains are introduced. Marketing ideas and methods for the producer involve targeting commercial buyers, from which the bulk of the sales will come. This paper also offers contingencies and alternatives that can be pursued in the event of market changes. Original article By Jason Neal, USSNEAL@aol.com

INTRODUCTION

Starting a business can be a daunting and risky task. There are hundreds if not thousands of details that have to be taken into account in order to get off on the right foot. Included in that thought process is the manner in which the product will be marketed.

Marketing is usually the least of the worries of a beginning entrepreneur. They are concerned with keeping the lights on as well as trying to turn a profit. However, with out a marketing plan there is no chance of profit.

This paper will look at entry into an agricultural business, organic beef production. It will attempt to give new and small producers tools by which they may be able to take advantage of trends in the consumer markets, primarily the move to organic foods. We will investigate not only production methods but those marketing methods that will yield the most profit and offer the most flexibility.

It is also the purpose of this paper to offer viable alternatives for an operation as it matures. These include direct marketing to consumers as well as contracting with operations to supply beef. We will touch on ethical considerations that must be taken seriously when dealing with the production of an animal for consumption.

CURRENT SITUATION AND TRENDS

With the advent of the low carbohydrate society there is a shift away from grains, i.e. breads and pasta, and into red meat. This can be seen in the popularity of the Atkins diet and the stigma attached to obesity in the United States . As people start to diet and exercise they will also begin to “eat right”. This means watching calorie and fat intake as well as carbohydrates that unless used will turn to stored energy, or fat. There is also a move to more protein in a diet and less fat thus an emphasis on lean beef.

As a small beef producer, this trend is one that needs to be taken advantage of. According to the NCBA, per capita beef consumption for 2003 was 65.2 lbs (Figure 1). This number is on par with the previous ten years of data and will continue.

Average Annual Per Capita Consumption of Meat
(Retail Weight)
									Total
					Total				Red Meat
					Red			Total	and
Year	Beef	Pork	Veal	Lamb	Meat	Chicken	Turkey	Poultry	Poultry
	(lbs)	(lbs)	(lbs)	(lbs)	(lbs)	(lbs)	(lbs)	(lbs)	(lbs)
1993	64.6	51.9	0.9	1.3	118.7	69.7	17.6	87.3	206.1
1994	66.3	52.5	0.9	1.2	120.9	70.3	17.7	88.0	209.0
1995	66.6	51.8	1.0	1.2	120.6	69.5	17.7	87.2	207.7
1996	67.2	48.4	1.2	1.1	117.9	70.3	18.2	88.5	206.3
1997	65.7	47.9	1.0	1.1	115.7	71.1	17.3	88.4	204.0
1998	66.7	51.5	0.8	1.0	120.0	71.4	17.7	89.1	209.3
1999	67.5	52.7	0.7	1.0	121.9	75.9	17.6	93.5	215.5
2000	67.6	51.2	0.7	1.0	120.5	76.1	17.3	93.3	213.9
2001	66.2	50.2	0.6	1.2	118.2	75.9	17.5	93.4	211.6
2002	68.2	51.1	0.6	1.1	121.0	78.3	17.5	95.9	216.8
2003	65.2	50.9	0.5	1.1	117.7	77.0	17.6	94.6	212.4

Figure 1

Another trend to look at is the BSE (Bovine Spongiform Encephalopathy) outbreak that happed in December 2003. This was a blow to the beef industry in the U.S. in that the animal with mad-cow disease was hard to trace and was not recognized and culled before slaughter. The price of beef paid to producers dropped from all time highs seen in October and November of 2003 on the news. This also stalled sales at the beginning of 2004 but futures prices for feeder cattle have stabilized.

BSE has also led to consumers questioning where their food is coming from. They want to have faith that what they are buying and putting into their bodies is healthy and untainted. Consumers want to know how and who is producing their food. They are much more satisfied by being able to see the producer than rely on a conglomerate to take care of things. By offering organic beef these needs can be met.

An Electronic Identification system is also being discussed at the Federal level as a result of the most recent BSE outbreak. It can offer traceability of any beef animal that is born in or enters the U.S. By implementing an EID program all animals would be traceable back to birth along with pertinent information about the previous owners, health records, and place of origin. However, this is an issue that has many producers up-in-arms, but is something that needs to be embraced as a marketing tool. It offers safety as well as first-mover status and lets customers know that a producer has nothing to hide. One caveat to being a first-mover is that the system has not been standardized. By moving quickly to capitalize on a differentiation opportunity, much time and income may be lost if the system used is not compatible or accepted by the government. However, Kentucky is a leader in animal tracking and is being watched by the Federal government for insight and ideas.

It appears from other markets that consumers are moving increasingly to organically produced food. According to a report from the USDA, organic products are sold in seventy-three percent of all conventional grocery stores (2002). This trend is very important to notice because consumers obviously want these types of items. As they become more main-stream, retailers will be looking for new suppliers that can meet their customers demand.

These growth trends are also applicable to organic beef. Less that one tenth of the beef produced in the U.S. is certified organic. This can be a huge boon to small producers as consumers learn more about the product offerings and demand increases. By running a good clean operation they will be able to take advantage of consumers’ needs to be informed and trustworthy of their producers. There is also a trend away from mass production and into locally grown and organically produced items. It is also important to note that many consumers want their money to stay in the community. With local producers, they may be more willing pay more for a superior product in order to support a local enterprise.

Another interesting trend is that thirty-four percent of all beef comes from small operations where agricultural is not the main source of income (ERS, 2002). This means that those producers work off the farm at a regular job. This shows that there is opportunity to use a small operation to generate profits. Another benefit is that producers can use this group of co-workers to expand knowledge of their products. Samples can be supplied on a trial basis in order teach about the benefits of organic production. It allows a try-before-you-buy opportunity and can bring in sales along with word of mouth recommendations.

ORGANIC BEEF PRODUCTION

Organic beef production is generally defined as cattle being grown without the use of antibiotics, growth hormones, and raised on natural feed with plenty of good pasture land to move about on. In this case we will be looking at the feeder (aka stocker) cattle market and the production methods used. These methods will apply to the marketing of the end product.

Feeder cattle operations buy weaned calves when they are around five hundred pounds and raise them on pasture until they are in the eight hundred to nine hundred pound range. Then they are sold off to feedlots to be finished out before going to slaughter (Thomas, 1998).

This process is called back grounding and is a good place to start for new producers. The reason has to do with the amount of time the animals are on the property: forty to sixty-five days. This can be very helpful if a new producer wants to start small and work up. There is also a lot of turn-over of stock when doing business this way which means a producer can stagger their buying and selling to get the most gains out their pastures. This staggering effect allows the producer to take advantage of different price points throughout the year. It offers more selling opportunities as opposed to a traditional cow-calf operation in that the calves are about nine months old before they can be sold or 18 months before they are large enough to sell to a feed lot.

By only having a certain number of animals on pasture for that amount of time, the production costs are minimal because they are being raised on pasture and not being fed more expensive grain. Also, by being on pasture the beef are grass-fed, which is part of the organic production process.

Another interesting item about the back grounding process is the pasture themselves. If a program of intense grazing is undertaken, moving cattle frequently to well-defined smaller pastures, there is less chance of infection or sickness thus a reduced chance of having to cull a production animal to sell in usual channels as non-organic. This keeps your herd fully organic and keeps with the marketing plan to go organic.

It also forces the producer to practice pasture improvement and management. A conscientious producer will try to naturally improve the growing capacity of the land as well as the quality of the forage in an attempt to post better gains on their animals. This not only improves the health of the cattle but lowers the production costs in the long run. Posting better gains more quickly with better forage is of particular advantage in that more animals can be turned (sold) in less time. More importantly a program of pasture improvement and intense grazing shows consumers and other producers that good stewardship is the most desirable way to do business.

Herd health is another area in which new producers need to pay attention. The reason is that healthier cattle are easier to sell, they are bigger, experience reduced stress, and keep gains during transport. By undertaking a health program producers are able to grow a better individual animal on pasture without the use of hormones or antibiotics. It develops the immune system of the animal and strengthens it to the point where antibiotics are not needed. Looking at Figure 2 it can be seen that over the years beef production has fallen by the numbers produced; however the cattle are much bigger in production weight. This can be direct attributable to better health and genetics as well as better herd management.

	Total		Beef	Production
Year	Cattle	Cows	Production*	Per Cow
	(000)	(000)	(mil lbs.)	(lbs.)
1990	95,816	42,470	22,634	533
1991	96,393	42,485	22,800	537
1992	97,556	42,735	22,968	541
1993	99,176	43,023	22,942	537
1994	100,974	44,110	24,278	564
1995	102,785	44,672	25,117	569
1996	103,548	44,739	25,421	568
1997	101,656	43,776	25,420	581
1998	99,744	43,084	25,634	595
1999	99,115	42,878	26,400	616
2000	98,198	42,759	26,777	626
2001	97,277	42,590	26,108	613
2002	96,704	42,229	27,090	639

Kentucky uses a program called CPH-45. It stands for Certified Preconditioned for Health for forty-five days. The weanlings that a backgrounder purchases will need to go on this program for the full forty-five days or more and are then able to be certified. This can affect sale prices in a positive way and lets buyers know that they are getting quality cattle that will perform well in the feedlot.

KEY ISSUES

With a brief understanding of the feeder cattle operation as well as current trends, we need to look at key issues that may affect either positively or negatively the marketing of feeder cattle.

Most backgrounders will market their cattle to buyers from the large beef processors or feedlots. Buyers are looking for the healthiest animals that have the best ability to put on finishing weight in the feedlots. This is the same for regular beef or organic production. However, where the organic producer has the marketing advantage is in product differentiation. Not only can they sell to the regular buyers (feedlot/commercial) they also are able to sell to niche players like Laura’s Lean Beef or Colman Natural Beef. These are producers that specialize in organic beef for retail sale. As mentioned earlier in the report, as the demand for organic items rises there will also be more opportunity for producers to capitalize.

There may also be opportunities to supply small lots of organic cattle to specialty meat shops that will do their own processing. This can showcase a local producer and open doors in the community for more sales to other businesses and grocery retailers. And by being raised organically, the consumer knows the producer has their best interest in mind.

Continuing in this vein, it is imperative to build trust with the consumer base whether it’s commercial buyers or local. There is a tremendous opportunity for producers to emphasize their commitment to growing a superior product.

There are opportunities to become certified with the state as an organic producer. While these are really guidelines to follow, it is another marketing tool for the producer. With this certification truthful claims can be made as to the production of the beef. The Federal government is also working on guidelines for organic beef production. They mirror state guidelines but require data from the previous three years and that data be collected for the five years post-certification. There will also be inspections by federal and state officials to check production methods and make sure they are up to standards. This should be seen as a learning opportunity when the producer can ask questions as to the best way to do things. Once again, if the producer wants to grow and market organic beef, the inspections will not be a problem because the producer wants to do it correctly.

There are, however, some threats that need to be addressed. Commercial buyers are looking for high quality, healthy animals. They want animals that will finish out correctly and yield good carcass weights. They also want to buy like-sized animals because they can calculate the gains they can count on for particular group. If a producer cannot meet these requirements then they will not be in business very long. It is of the utmost importance for a new producer to go to the sales and see what is being bought. See what the buyers, your customers, want in an animal. Ask several about their preferences and see if there are any similarities between their requirements. Not only will this broaden your knowledge but also give you more avenues in which to market your animals.

To combat the competition and help with your marketing it may be advantageous to look to matched lots of animals (Rawe). Matched lots are groups of animals with similar size and shape that should finish out the same. Buyers at sales like to purchase several of the “same” animals; you as a producer putting together matched lots are just helping them along. The advantage here is that the trailers are already there. If the buyer purchases one animal the cost of the trip was prohibitive. However, if you can sell a lot of five or ten animals it is worth the buyers’ time by lowering transportation cost per animal and is marketing boon to you.

As a producer, going back through your documentation on each animal can indicate which animals are growing at similar rates and reaching the correct size at a certain time. These groups can then be broken into subgroups and marketed in lots of five, ten, or even fifteen animals. By doing this you are able to take advantage of price upswings because you don’t have to sell all the lots at once. Also, you are more likely to sell the lots if they have the correct assembly of individual animals, as a buyer is more apt to purchase a lot of similar animals.

This process can create good demand for a given producer. That is because as more of his/her animals are sold, buyers come to depend on the quality. This goes back to the health program and pasture improvement.

MARKETING STRATEGY

As with any other product, a small producer needs a marketing strategy. It allows for focused use of resources and provides a plan from which measurements of success can be taken.

In the case of organic beef, the target market will be commercial buyers. The reason for this is simple: they will buy the bulk of your production. An argument to this is that if organic beef can bring premium prices in the grocery, why are we selling them at market prices at the stockyards? Remember that this is an exercise in perspective: small producer. A small producer that wants to get started cannot undertake all that is necessary to deliver premium priced beef in a consistent way to a retail outlet and make a profit. There is processing costs that have to be considered as well as other time consuming items that take away from the production of organic beef.

Another question then arises: why undertake an organic production program if cattle are only going to be sold at market prices? The answer is product differentiation. The commercial buyer is looking for a good deal and animals that will make him money. They make money by finishing out cattle and selling them to processors and packers. By going to the trouble of undertaking a health program, pasture improvement, and organic production methods a producer can make a buyer larger profits. This then makes your cattle very marketable and will move them very quickly with little fuss.

By practicing back grounding on a forty to sixty-five day interval a producer has a steady supply of quality animals. That means sales at least six times a year. As a producer you are now adding consistency to the buyers’ list of satisfied needs. Buyers are more apt to purchase from a steady supplier because they know they can count on the producer. This can be seen in ordinary retail transactions. Consumers will go to the places that consistently have what they want whether that be bread or shoes.

As time passes and the producers cattle have proved themselves on the feedlot, there may be opportunities to contract directly with buyers and sell entire inventories in one lump several times per year.

Back grounding also offers flexibility, another part of the marketing strategy. As demand from consumers change, buyers’ needs for certain animal types and qualities can change. To meet those needs the back grounders are able to move faster that traditional cow-calf producers. By moving inventory every forty to sixty-five days a new group of weanlings can be moved into production very quickly thus meeting short-term demand trends.

By being a consistent producer with year-round inventory, rewards can be had. This comes in the spring when prices are consistently higher due to low supply. Most cow-calf operations are set up to calve in the spring and sell in fall. This means unmet demand (i.e. higher prices) in the spring and a glut (i.e. lower prices) in the fall. Producers can level out revenues by being able to sell all year. This also helps the buyers in that they can also take advantage of higher prices in the retail market.

CONTINGENCIES AND ALTERNATIVES

Small operators always have to be prepared for the worst but must also position themselves for movement into viable new areas.

After the producer is comfortable with his/her production method and has proven the cattle sold are of good quality, they may want to branch out into retained ownership.

Retained ownership takes the commercial buyer totally out of the picture. Instead of the buyer taking the feeder cattle to the feedlot, the producer sends a group to the feedlot where they are finished out for a price per head per day. Then the cattle are sold directly to processors and packers. This method lends itself to higher quality animals that will add weight more efficiently on a prescribed ration of feed. This method also makes health more important for the reasons mentioned earlier: less stress, easier to sell, bigger, etc.

Another alternative is Internet auctions. Bluegrass Stockyards offers an Internet auction the last Friday of each month. Producers supply video of the cattle to be sold that is taken on their farm. The video along with a description (Appendix I) of the lot is then sent to the stockyards where the auction is broadcast over the internet. Buyers from all over the country participate and can bring higher than market prices.

The video showcases the cattle in their natural environment without the stress of being handled and transported. The weight loss due to this stress is also reduced and buyers are more apt to bid up cattle that look good as opposed to those at the stockyard that are wide-eyed and covered in manure.

Contingences also need to be addressed. These are the what-if scenarios of the worst that could happen. In reality, the worst thing is that cattle prices tank and it is unprofitable to continue or cattle prices rise to the point that feeder cattle are cost prohibitive for the small producer.

There are a couple of silver linings that can be ascertained. Remember all that pasture management and improvement that was undertaken? With no cattle grazing, there is an opportunity to supply feed to those producers that are still in business due to either reason formerly mentioned.

High moisture content haylage along with traditional baled (round, square) hay should be in good supply from former production land. It is not hard to switch to hay production and requires only limited equipment outlays. Also, with documentation on weight gains from former cattle production it would be relatively easy to build a case for another producer to buy your forage. This is a win/win in that the new producer can put more cattle on the same amount of land resulting in volume gains and more weight being put on the animals resulting in higher carcass yields. This also puts the hay producer in a position to leverage past pasture improvement.

There is also an opportunity to run a herd on your land for another producer. If the latter scenario (high prohibitive prices) happened the infrastructure is already there for use by another producer. A profit sharing scheme could be worked out that will pay the land owner for use of the land and also for any work done by the land owner in the production, handling, etc. of the cattle.

Cattle transportation may be a viable contingency. If a former producer had their own equipment to move cattle it would be possible to offer that service to others in the area. This is risky with low margin due to fluctuation in fuel prices as well as distance covered. The marketing slant needed would be to show that the price of the transportation costs less than the customers’ expense in time, fuel, wear, etc.

CONCLUSIONS

Any business is risky, especially those in agriculture. However, beef has always been a staple of the American dinner table and the trend appears to be continuing. These risks can be mitigated by undertaking a detailed level look at the industry of cattle production and practicing methods that accentuate the positive: quality animals, pasture improvement, health, organic certification.

The best way to do this is through a marketing strategy that focuses on feeder cattle and commercial buyers. For a beginning or small producer this is the most efficient use of time, labor, and land. The marketing can be tailored to any resource level and can be done incrementally with the progressive improvement in overall herd management. This program will result in extra income, revenues, and profits as well as marketing alternatives based on organic production.

BIBLIOGRAPHY

Adam, K., Balasubrahmanyam, R., & Born, H. (1999). Direct marketing. In ATTRA Business Management Series. 1-33.

Born, H. (2000). Alternative Meat Marketing. ATTRA Livestock Technical Notes, May. 1-23.

Cash II, J. A. (2002). Where’s the Beef? Agricultural Outlook, 21-24.

Cooperative Development Services, Inc. (2002, August). 2001 Economic Impact of Directly Marketed Livestock in Iowa . 1-20.

Dimitri, C. & Greene, C. (2002). Recent Growth Patterns I the U.S. Organic Foods Market (ERS/USDA Publication No. AIB-777). Washington , D.C. : Author.

Earles, R. & Fanatico, A. (2000). Alternative Beef Marketing. ATTRA Livestock Technical Notes, May. 1-20.

Hartsook, C. (2003). Direct Market Beef Industry Profile [Abstract]. Agricultural Resource Center , March. 1-2.

Lambert, C. (2001). Producer Share Remains at Less Than Fifty Percent. [Electronic Version]. BEEF, 5, 1-3.

McKinnon, B.R. (2002). The Cattle Business- Retained Ownership. [Electronic Version]. Livestock Update, 2, 1-3.

Rawe, V. (2004, February). Going Beyond the Tradition Feeder Cattle Market System. Paper presented at the meeting of the Ohio River Valley Farm Marketing Conference, Erlanger , Kentucky .

Swanson, P. (2001). Direct Sales of Beef. [Electronic Version]. NetGuide, 3, 1-5.

APPENDIX I

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Categories: Farm and Field, Livestock