We will soon surpass a half-million Health Track tags issued since the program started in January 2000. This milestone deserves attention for its impact. Some 2,600 producers have enrolled calves with us through 10,300 applications. The average size of calf crops enrolled is a little over 50 head per Health Track application, and they range from less than 10 head to over 1,000 head.
We take pride in knowing that few, if any, other programs with the comprehensive value-added protocol of Health Track have enrolled as many calves in the same period of time.
Specifically, few programs have rolled Vac 45, nutrition and age-and-source verification requirements into one program. Considering Health Track has collected disease and death-loss data on most of those calves, our program doesn’t really have any peers. I know that sounds like bragging, but it really isn’t if you can back it up. Health Track’s third-party verification process and our extensive database are the backup we need to support our claim.
As Health Track grew, we adopted technologies associated with individual animal management. This took us through the RFID tag revolution and all of the growing pains involved with trying to figure out how to make RFID work in the real world. The fact is, it didn’t work very well and still doesn’t today. We tried several techniques including cages and fixed panel readers in alleys. We soon discovered that the tags wouldn’t read groups of cattle moving down an alley very well, but they would reliably read the Ford truck key in your pocket. And it would read that truck key over and over. We also discovered that metal was the enemy of the sensor’s reading range. Unsurprisingly, most auction facilities weren’t interested in re-building with wood to accommodate RFID readers. There is a hard-learned lesson here: new technology shouldn’t necessarily drive livestock processes. We need to stay focused on whether or not a new practice has value and then determine if there is technology that can improve it.
I’ll give you another example of such a challenge. We worked with a couple of auction locations in commingling Health Track cattle into (hopefully) well-sorted and load-lot sized drafts. The EID tags worked well when we caught calves individually and used the computer to record factors used in sorting decisions. That doesn’t happen at the speed of a normal sale, and it takes a lot of time and effort. That project also showed how much diversity exists in the cowherd. It was difficult, even with a couple thousand head, to build many ideal 50,000-pound loads. We even used video technology that graded cattle on height and thickness.
Information is valuable
Through the entire course of Health Track we have worked to collect health data on all of the calves during the 45-day preconditioning process. In my view this has been one of the primary measurable values of Health Track for our customers. It has given us a massive amount of repetition to test the Vac 45 protocol and to come up with management advice that is backed up with hundreds of thousands of verifications.
For example, we know reliably that the risk of a calf getting sick post-weaning following the Health Track protocol is about 2 percent. That’s not much risk when you compare it against the normal pull rates of 20 to 30 percent at backgrounding. And consider stocker operations where they pull naïve cattle in from multiple sources.
I can also tell you by sorting the data that, although the average sick rate is 2 percent, the range is from 0.3 percent to 5 percent based on the timing of the vaccinations. The bottom line is the more processing and vaccination you can get done before weaning, the lower your pull rate will be post-weaning. Statistically speaking, you can nearly eliminate disease during preconditioning if the calves receive two rounds of vaccine prior to weaning (including modified live virus 4- or 5-way respiratory vaccine).
Another issue we discovered is that a high level of immunity is achievable even if the first round is at the traditional “branding” time—as long as the youngest calf is at least 60 days old. These are things we wouldn’t know without access to the type of data that we collect every day.
Standardized nutrition is an important factor to Health Track’s results. Every one of the program’s 500,000 calves has been exposed to a diet of Cattle Charge or Full Throttle for at least the first 14 days of preconditioning. I can find no debate in the industry regarding the role of good nutrition in developing high levels of immunity. Feedlot managers tell me that, of all of the requirements in our protocol, the standardized nutrition requirement might have the most value. In my mind, we have established that as fact. The reputation Health Track calves enjoy is directly related to the nutrition component of the program.
We are confident there is value in successful preconditioning with cost-effective weight gain. We are confident there is value in the reduction of sale-day shrink. Still, Health Track tends to be judged most often by sale prices observed in the ring. One of the areas we have failed is being involved in interpreting sale price and producer net return after the sale.
To begin with, when the ring empties, we are not usually the resource sought to analyze how your cattle sold. At Health Track, our approach would always be analytical and comparative. To do a thorough job, we would want to review your settlement sheets from previous sales to determine the actual sale price was compared to the weighted average for the week. We seldom get the chance to do that. More often, analysis comes from peers at the coffee shop. Auction managers are another source of analysis, and since they are the usual and historical source of such information, they are seldom questioned. I don’t want to cast stones, but there are disparate motivations floating around in that pool of influence.
It is common knowledge that there is normally at least a $25 per hundredweight spread in price for every class and weight range of cattle. You are familiar with what drives that spread–draft size, color, flesh, frame, fill, muscle, etc. Most producers who have told me how much premium it would take for them to participate in Health Track say it would take no more than $5 per hundredweight. I have watched tens of thousands of cattle sell over the years, and I would defy anyone at a regular sale to see a $5 premium within a $25 price swing. The sheer volume of the different combinations of all of the value factors listed above (and a few more probably) is the reason I dropped statistics in college.
Sure, you can get calves too fleshy or bring them too full, but if you weaned them right before you brought them to town, the extra shrink at today’s prices offsets those potential discounts. And finally, it really isn’t possible for every seller to top the sale.
I know I need to be careful when discussing individual animal management, data transparency, downstream feedback and animal ID. Yet producers often ask me about performance and carcass data. For producers who believe that consumer demand trends are going to determine the future value of beef, EPDs and other genetic-merit technologies are becoming the basis of bull and semen buying decisions. Confidence that those decisions help achieve herd goals would dictate that the price of calves should reflect their future carcass value. To keep that value, up to this point, producers either have to sell calves to a feeder (making compensation for the additional carcass value a term of sale) or retain at least partial ownership through the feedlot. If you can then fill a 200-head pen with these calves that will all be slaughtered on the same day, you should be able to capture the entire premium available for the genetic merit of your calves. What I have found is that there aren’t many producers who can or want to do that on their own.
Thus, critical mass is an obstacle in our business, and you can’t overcome it with any set of quality attributes. Cattle still have to be transported, fed and harvested in the most efficient units of scale. This has caused a frustration that I am confronted with on a regular basis. We have tried different ways to facilitate these logistics and, as of yet, haven’t found any that don’t cost about the same amount they return. Auctions are still the most efficient method of accumulating calves from typical herds. Buyers build loads and build critical mass with their checkbooks.
I have already talked about the appropriate use of technology and individual animal management. Combine those ideas with recent efforts to create branded consumer products. In that combination, we may eventually see an opportunity to participate in an even higher level of value capture based on some type of genetic measurement—no matter how you market your calves.
For now, we will concentrate on what we do best—collecting the data you give us and using it to demonstrate the value you have added to calves. That is a benefit for the seller, and it continues to build the value of the Health Track brand. Going forward, I hope that we can continue to grow our standardized record keeping capabilities to help producers.
Beef cycle pushes return
With the way the market has developed, Health Track has proven its worth, and participants are getting the best returns from the program since its inception. We are in the midst of a beneficial “perfect storm” for Health Track, and it’s going to be around for a while. We should see weaker grain and feed prices and record prices for cattle flesh of all categories. The feed products required for Health Track are highly efficient (in a conversion range of 3.5:1 to 4:1). Thus, we see cost of gain as low as $0.65. In this scenario, with high beef prices and lower feed prices, cost of shrink spirals upward. Health Track, with its proven reduction in shrink loss, returns more money.
For some, it is hard to resist the temptation of selling those $2-per-pound calves early. It’s the old bird-in-the-hand theory. But selling before preconditioning will cost an extra 2 percent in shrink. On a 500-pound calf, that’s $20 per head. Let’s assume a cost of gain at $0.70, and a slide of $10 per hundredweight (600-pound calves worth $190 per hundredweight and a $10 slide). Today’s market math looks like this: $140 gross revenue ($1,140 sale price for the calf minus the pre-weaning value of $1,000) plus $20 in saved shrink comes to $160. Subtract $70 for cost of gain. You still get $90 per head of net profit without investing a dime on any new overhead (cows, trucks, tractors, etc.). This math doesn’t include the $13 per hundredweight Superior Livestock data show was paid for Vac 45 calves in their sales in 2012. And that’s a premium that has been growing the last several years.
What else can you do on your cattle operation to increase your net return so dramatically? Look for these prices to remain steady or grow for several years. Cattle’s long breeding cycle means rebuilding the herd will take some time.
Health Track will capitalize. Look for more emphasis to be placed on cowherd management and stocker/backgrounding data management. Until now, we have concentrated almost exclusively on the calf crop, but I believe we can add significant value by standardizing cowherd production measurement. We already have a huge database on the calves that you have produced. With just a few additions, we can add fields that will measure some industry standards such as conception rate, calving rate and weaning rate. Adding these to the weight-per-day-of-age and 205-day-adjusted-weight indexes will help producers keep additional value at the stocker/backgrounder level as well.
We can then benchmark those results among our participants to give you an idea where you stand against your peers. This data could help pinpoint areas in your operation that need specific attention. In this process we can easily produce calving, preg check and procurement/processing worksheets for data entry. Our ability to digitize and manage that data for you is well established. We have been entering data into the database from smartphone pictures, faxes and scans attached to emails for a long time. If you let us do that for you, we will take advantage of what we all do best!
There will be opportunities to use new technology as well. One example: We are testing an app that can collect data and send it directly over a cell signal or wireless connection.
We will also pay close attention to market signals. There are efforts in the works to add value from specific genetics to your operations. Some will use DNA, some will use EPD indexes, and others will use technology not yet available. I believe these efforts will help create higher value more consistently in both feeder cattle and replacement breeding stock.
Change has arrived
The beef industry is at a significant crossroad. Historically competing segments have created the market that exists today, and up to this point the primary benefactors have been those who could manage cost-effective quantities of commodity product. This specifically includes those who broker sales, provide consolidation and transportation, and purchase the discounted majority of the cow/calf sector’s supply.
In the transaction-margin world, anonymity is king. Traceability is often perceived as the potential destroyer of kingdoms. The much publicized differences in carcass value do exist. The price of beef in the consumer market is the only genuine determining factor in that value. Right now, the industry meets quality demand mostly with cooler sorts—pulling different products from the supply that is delivered. Consequently, value fluctuates wildly due to our inability to plan ahead. We have no genetically based plan to deliver on seasonally specific product quality demand. I suggest that the best chance of strategically planning for a desired carcass endpoint occurs almost four years before it can be delivered. That is how long it takes from the time the mating is planned that produces a heifer that will deliver a calf with a reasonable chance of hanging on the rail with the target quality measures.
There is a disconnect between cow/calf producers and consumer beef vendors. It’s a gap that our competitors use their quicker breeding intervals to exploit.
I witness the struggle to protect the commodity system from identity preservation and value-capture system every day. Yet, the critical-mass economies of scale still win most of the time—and probably should in a free market economy. However, technology is rapidly adding tools producers can use to measure and communicate the genetic merit of their cattle. In my perfect world, there would be a way for a small cow/calf producer to invest in the best genetics, plan their matings for the market timing they believe will garner their best return and then protect that price. They could deliver their calves to the local market, and then receive feedback when the actual value is determined at the consumer level. That would help producers guide their future genetic decisions. I work every day to move Health Track toward that perfect-world scenario. For those of you who have or will sign on for the ride, thanks for your support.
Age and source no longer critical to exports
We have experienced a specific change to the Health Track protocol. USDA Verified Age and Source Verification has been a mandatory component of Health Track since trade was reestablished with Japan in 2005. It was necessary to verify that animals were less than 21 months of age to satisfy export verification requirements to ship any beef products to Japan. Since Japan was our largest trading partner prior to the discovery of BSE in December 2003, the industry was willing to jump through hoops to keep that export business. In 2003 that trade amounted to $1.4 billion dollars.
Early in 2013 the Japanese agreed to change their import requirements to match the Scientific Commission for the World Organization for Animal Health’s guidelines. These rules allow U.S. beef products from animals under 30 months of age (or “A” maturity carcasses) into Japan. Determining “A” maturity happens much earlier in the processing chain and will allow more U.S. beef products from the head and offal (tongue in particular) to qualify for export to Japan. Simply put, this means that age-and-source verification is no longer required. We have made it an option rather than a requirement. I am not aware of any U.S. packer paying premiums for that certification. However, I am confident that branded-product programs will continue to want the same third-party-verified information. Consumers continue to request more information about where their food comes from, and that’s a trend that seems steady.