Chariton Valley Beef Industry Initiative: Producer Cost Share for Technology Adoption and Market Access

Project Overview

FNC98-227
Project Type: Farmer/Rancher
Funds awarded in 1998: $9,875.00
Projected End Date: 12/31/1999
Region: North Central
State: Iowa
Project Coordinator:
Mike Hunter
Chariton Valley Beef

Commodities

  • Animals: bovine

Practices

  • Education and Training: technical assistance, demonstration, networking
  • Farm Business Management: budgets/cost and returns, marketing management, feasibility study, market study, value added
  • Sustainable Communities: partnerships

    Summary:

    PROJECT BACKGROUND
    The Hunter Brothers operation in Lucas County, Iowa consists of the families of Mike Hunter and Nick Hunter (partners) and father Robert Hunter. The operation currently consists of 2600 acres, with a beef cow herd of 300 cows, beef feedlot with 450 head capacity, corn and soybean acres of 1250, and a Christmas tree farm.

    Hunter Brothers have been involved in cooperative demonstration projects that promote sustainable practices. The partnership was one of 27 cooperators in the South central Iowa Model Farms Forage Demonstration Project conducted in the late 1980’s and early 1990’s. This project gave local producers assistance as they initiated rotational grazing systems and integrated forage pest management practices. Since that time we have continued to adapt grazing management improvements.

    Hunter Brothers currently are cooperating with local conservation groups on a filter strip tree planting along the Chariton River in cooperation with NRCS and Trees Forever. The row crop operations use no tilling farming systems.

    The Chariton Valley Beef organization is a grassroots effort aimed at adding value to beef produced in south central Iowa. This group is targeting various beef markets to add value to the local beef industry. Past cooperative efforts by local producers have focused on production subject areas – integrated farm management, pasture and hay land management, heifer development programs, and beef feedlot demonstrations. The CVB volunteer board members and local producers are looking for assistance as they evaluate the various market options emerging in the beef industry.

    PROEJCT DESCRIPTION AND RESULTS
    Primary goal is to improve the marketing ability of beef production in south central Iowa. Specific goals are to assist 50 producers taking advantage of new and evolving value added opportunities, by accessing, collecting, interpreting, and responding to key information and technology that adds value to beef.

    Process:
    The CVB project was instigated following numerous community meetings, held from July 1997 through early 1998. These sessions brainstormed industry issues and set priorities.

    The CVB group has set specific action areas to assist producers to receive more value for their beef product. CVB has a board of directors that consists of 17 producer representatives from 12 counties. These producers set the direction of the organization. Local lenders, agribusiness leaders, development organizations, commodity groups, and Extension staff provide resources for CVB assistance and guidance. This group includes diverse representation from cow/calf, feedlot and seed stock sectors.

    People:
    The CVB board is the key decision making group in the project. They are assisted by various Extension and industry representatives. Some examples are listed below:
    CVB Technical Staff –
    - Joe Sellers, ISU Extension Field Specialist – education, one to one assistance.
    - Diana Bodensteiner, CVB Data Coordinator – data base management, marketing coordination

    Source Verification Project –
    - Auction market managers (Don Wagner, Clarence Ballenger, Dennis and Sheryl Gomez, Jim Curran)
    - Local veterinarians (14 clinics participating)
    - Randy Beard, source verification technician (Beef Center and Extension 21 funds)

    Fed Cattle Marketing and Grid Value Determination –
    - Local lenders (Don Swanson)
    - Local cattle buyers (Jim Beattie)
    - Precision Beef Alliance (Rich Hall)
    - Angus Gene Net (Ken Conway)
    - Gelbvieh Alliance (Sue Worrals)
    - Angus America (Mark Nelson)

    These grid markets have allowed producers to combine two to three different sets of cattle offered by different producers, delivered on one semi trailer to the harvest facility. This has been a great help to producers with small herbs, and allows producers to market when the cattle are market ready.

    Grids offered by traditional packer buyers – have emerged since more cattle have been attracted to the formula priced grids. Both IBP and Greater Omaha have improved the premiums in their grids in the past year. One advantage of these systems is the base price (price for the base cattle in the grid, or base for USDA Choice, Yield Grade 3 beef) is negotiated with the cattle buyer. Producers can set a base price before committing the sale of the cattle. The actual price will be adjusted by the premiums and discounts generated on load of cattle delivered.

    These grids generally have smaller upside premium potential, and lower downside risks, than the formula priced grids. Traditional packer grids do not allow the producer to set the slaughter date, and generally do not provide for small lots of cattle unless the buyer makes those arrangements.

    CVB producers have used both market outlets in the past year. Some producers are more comfortable with a negotiated base price, even if the price is lower than that provided on the formula grids. Other producers have found the formula grids provide them a premium above the extra freight involved in delivery to the Nebraska plants. Many producers also prefer to market on the formula grids to allow them to set the market date, not wait for the packer to set the schedule. As market situations change, individual producers may need to use many or all of the grids available to maximize income. Cattle on feed reports, holidays, weather changes, etc. all may effect which market choice is best. CVB staff and producer volunteers have provided resources and advice to the producers making these decisions. Value summarization is not complete, but at this time the average premium received per head marketed is approximately $20 per fed calf marketed on the grid. Some producers have received premiums in excess of $50 per head.

    *Create a source verification program for feeder cattle as a base for an information transfer system (part of beef supply network).

    Most cattle produced in south central Iowa are sold as feeder cattle, either directly at weaning time or following a brief back grounding program. There has been very little chance for these producers to receive carcass data or other feedback on the calves they raise. There also has been very limited opportunity for the buyers of these calves to receive and evaluate detailed information about these calves as they are offered for sale at auction.

    Due to these issues CVB has worked with local Livestock Auction Centers to sponsor the sale of source verified calves at local auctions. In 1999 over 4000 source verified calves were sold at 11 sales at four auction centers. These calves met specific health and management requirements, and information about the calves was promoted to potential buyers prior to and at the auction. In 1999 these calves averaged $2.11 more than the average of all calves offered for sale at the auction.

    The lack of unique identification created problems for sellers hoping to get feed back from the buyers. In the current marketing year, all CVB source verified calves will have a CVB ear tag with a specific ID number for each calf. This tag also has the CVB contact phone number. CVB producers also have the opportunity to add an electronic ear tag. This technology may help more producers get the data they need to evaluate management decisions for their herds.

    There also are other challenges to this transfer of information. It seems critical we continue to market feeder cattle at the local auction centers. These markets provide price discovery at some of the best prices in the Midwest. Many calves sold in these sales are purchased by order buyers, who provide a service to feedlot customers from several states. In general we have little or no chance to follow up on cattle bought by the order buyers. The process of creating this as a reliable system of information transfer will be lengthy and difficult. Hopefully progress will be made as the industry continues to move to more value based marketing systems.

    *Network to other groups with similar goals; educate producers on changing marketing issues.

    Technology transfer and education are key components of the project. Partners such as Precision Beef Alliance, Iowa Farm Bureau, the Iowa Cattlemen’s Association, and the Iowa Beef Center have helped CVB make rapid progress.

    PBA has provided carcass data collection services to help producers get the data they need. PBA also is reaching out to new markets that are benefiting some CVB producers.

    Iowa Farm Bureau and local county Farm Bureaus have provided financial and technical assistance to CVB. Farm Bureau staff have helped create the structure of the CVB organization. Farm Bureau is currently entering a web based beef marketing program with E-Markets of Ames, Iowa. CVB will be part of the pilot program of this exciting marketing opportunity.

    The Iowa Cattlemen’s Association is currently working on a joint venture with Excel Corporation to build a beef harvesting facility in Iowa. Producer share holders will deliver cattle to this plant on a value based grid. CVB participants who are currently marketing on grids or studying grid markets will be better prepared to make a decision to join in this project. ICA also is very supportive of the CVB source verification program. These cooperative efforts will be more essential as the harvesting facility becomes reality.

    The Iowa Beef Center has provided tools that speed up the process of evaluating data and making key management decisions. IBC will help evaluate the success and challenges of the source verification program. IBC is working with CVB staff to create a domain for the CVB web page to allow easier access to market information and decision aids. The continued cooperation of state and field Extension staff and local cattlemen to demonstrate ultrasound carcass evaluation at local county fairs.

    Results
    Primary topic areas are listed in this section. Progress has been noted for each issue.

    *Collect and analyze carcass data and other characteristics of beef produced, to evaluate relative value in different markets.

    Producers cannot evaluate value based markets without knowledge of their cattle and carcass traits they exhibit. The primary effort of CVB in Year 1 has been assistance to local producers collecting carcass data.

    The group has joined the Precision Beef Alliance as a “Secondary Alliance”, allowing local producers to receive PBA carcass data services at the member rate. This has provided easy and dependable carcass data collection at three key harvesting facilities in western Iowa and eastern Nebraska. These outlets are the current market venues of many CVB participants.

    Carcass data collection also has been coordinated at four other Midwest beef packers, contacting with service providers at those locations. Three of these plants are specifically involved in offering value based grids.

    The data collected on local cattle is entered into a database for current and future evaluation by CVB producers. A grid comparison software program developed by the Iowa Beef Center (Iowa State University Extension) is utilized to show value comparisons of specific producers’ cattle into specific grid markets. This allows producers to use current data to better evaluate future market choices.

    Several workshops were conducted to explain the various data that is returned to producers receiving carcass data, and to help producers evaluate the markets available.

    To date CVB has collected and interpreted data on 5135 head of cattle for 68 producers.

    *Target specific grid based fed cattle markets and coordinate access by local producers.

    As more producers have collected and analyzed carcass data, they have rapidly converted to marketing in value based grids. Producers have marketed into two general market methods described below.

    Formula priced grid markets – generally are provided by independent alliances harvesting beef at plants in Nebraska (Monfort at Grand Island, or Excel at Schuyler) or Kansas (US Premium Beef). These grids establish a base price using a weighted average for cattle marketed in the region. The premiums and discounts for the various grids are defined prior to marketing. The base price and select discount are established the week after the cattle are committed (week prior to slaughter). This market approach allows producers to set a specific date of delivery. Some producers are uncomfortable with the floating formula base price and perceived lack of price discovery. In general the potential rewards for high quality cattle are higher, and the potential risks for low quality cattle are greater, with this system.

    OUTREACH
    CVB has worked independently and with its partners to get information and education out to producers in the region. Field days and seminars on identification, source verification and carcass data interpretation were conducted throughout the region. One to one technical assistance was provided on marketing alternatives. Direct mailings on key issues were targeted to 250 producers. Decision aids were provided to producers seeking answers. Fiber optic video conferences on the Iowa Communications Network provided real time opportunities for dialog. Numerous news articles and releases have reached local media.

    The adoption of new marketing methods is a very specific issue that must be individualized to each operation. It is difficult to provide the one to one assistance needed. CVB needs to continue to work with more multipliers (agribusiness, producers, Extension staff) to get the message to more producers.

    CVB board meetings – 6 meetings
    Carcass evaluation workshops – 8 locations, 83 participants
    ICN video-conferences – 3 events, 12-15 sites each, 371 attended
    Source verification workshops – 9 events, 230 attended
    Two tours, 104 attended
    Eight direct mail pieces (250 producers in database)
    Targeted fact sheets and interpretation reports to specific producers
    Six new releases and articles

    Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.