“Take Charge”

National Angus ConferenceSeptember 25, 2003

Manden, ND

Ron LemenagerPurdue University

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How can we compete - - in a commodity market?

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TOP CONCERNS FOR BEEF INDUSTRY:

Aggregate Response from Purveyors, Retailers and Restaurateurs:

Low Overall Uniformity and Consistency

Inappropriate carcass weight

Inadequate Tenderness

National Beef Quality Audit, 2000

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What Do Consumers Want?

Food Safety – it’s expected Implants Antibiotics Disease (E.coli, Salmonella, etc.)

Value-added, convenience products Meal solutions - yes Uncooked pot roasts - no

“Guaranteed tender” Aged 14 to 21 days Process verified

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What Do Consumers Want?

Source verified Now - some

Future - yes

Vitamin E fed cattle RHI trade - no Retail trade - yes

Environmental stewardship

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What Do Consumers Want?

Black Angus (CAB-like programs) Middle meats – maybe End meats – not necessarily

Other “niche” markets “Locally grown” Animal handling/well-being

Demand for our product starts here!

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What Do Retailers/RHI Want?

$ Differentiated product

$ Consistent product

$ Consistent supply

$ Minimal out’s

$ Products that are worth more $$$

$ Portion Control

This group responds to, and affects change.

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Cattle that are part of a system, alliance,

cooperative marketing

arrangement, …

Cattle that are outs, misfits, extras, small

lots, …

WHAT DOES THE FUTURE HOLD?

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The Challenge

We are a “Segmented” Industry with many small-

to medium-sized independent operations

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0

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4

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1978 1982 1986 1990 1994 1998

A Changing Beef IndustryA Changing Beef Industry

2001

Number of new USDA Certified ProgramsNumber of new USDA Certified Programs

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Industry is moving away from producing commodity beef

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1995 1996 1997 1998 1999 2000YEARS

0

5

10

15

20

25

30

35

40

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Percentage of Fed Cattle Movement from:Formula, Contract , Alliance & Packer Fed Cattle

PERCENT

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By 2007

70% of the product will sell through alliances, branded programs, forward contracts or value grids (30% daily cash market)

CattleFax, 2002

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Future Beef IndustryFuture Beef Industry

Growing, Finishing,Growing, Finishing,Processing, MarketingProcessing, Marketing

BrandedBrandedProductProduct

BrandedBrandedProductProduct

BrandedBrandedProductProduct

Cow/Calf ProducersCow/Calf Producers

SEED STOCK

COW / CALF

STOCKER

FEEDLOT

PACKER

Branded BeefCommodity

Beef

Where do You Fit ?

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Value-added Considerations?

As a producer:• Selling seedstock• Considering an alliance• Considering a branded product• Looking into the future

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Companion Programs Vision: Increase Producer Profitability

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Kentucky Department of

Agriculture

5-State Beef Initiative Partners

Office of the Commissioner

of Agriculture

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Stakeholders

5-State Beef Initiative Management Organization

Board of Directors

Exec. Dir. & Universities (5)

MarketingOrganizations (1)

State Dept. of Agriculture (5)

State Cattlemen’sAssoc. (5)

Feedlot, backgrounders (5)

Cow-calf producers (5)

Farm Bureau(5)

Ron LemenagerExecutive Director

Ron LemenagerExecutive Director

Mike BumgarnerUnited Producers

Mark StrawKY Dept. of Ag.

Maralee JohnsonIL Cattlemen’s

Jim CulpFeedlot, IN

Gary WilsonCow-calf, OH

Ernie BirchmeierMI Farm Bureau

Executive Board

How can a partnership help?

By creating the infrastructure that will allow producers to:

target and meet

one market at a time.

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FSBI Action Teams and Chairs

Data Management - Dan Buskirk, MSU

IRM/SPA - Rich Knipe, UI

Certification - Jeff Arseneau, PU Kevin Gould, MI

BQA/Health - Steve Loerch, OSU Patty Scharko,

UK

Genetics - Matt Claeys, PU, Nevil Speer, WKU

CSRM - Steve Rust, MSU

Economics - Lee Meyer, UK

Product quality - Phil Anderson, IBCA

Reproduction - John Johns, UK

Post-Harvest Marketing – Steve Rust, MSU

All Teams Have State and Producer Representation

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ProducerCertification

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Why?

• Market Access

• Marketing tool:– for producers

– for retailers

• Customer trust

• Something to point to

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Certification Includes

1.) BQA/Health

2.) Genetics

3.) Data ManagementPerformance, Carcass, and Financial

4.) Animal Well-being

5.) Environment

Web Certification and Re-certification

www.iqbeef.org

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Goal of BQA

• To ensure that all cattle shipped from a beef production unit are:

– Healthy– Safe – Wholesome– Meet federal management guidelines – Meets or exceeds consumer expectations

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Preconditioning

To increase value

• Viruses x 2 (IBR, PI3, BVD, BRSV)• Clostridia• Deworm• Castration & Dehorning• Weaning• Feed and water broke

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Producer PC Data

1999 2000 2001

Calves - # hd 80 92 100

Weaning Wt. 443# 482# 453#

ADG, Wean to Sale a 1.21# 1.47# 1.91#

ADG, Wean to Sale b 1.48# 1.82# 2.15#

Total Expenses / hd $35.93 $40.19 $32.85

Sale Price / hd $82.66 $83.54 $90.00

Extra Profit / hd $42.00 $9.36 $30.76

a with Shrink

b without Shrink

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Bull Certification

Certification is good for 3 years

Power Scores rank individual bulls using breed specific EPD percentile rankings.

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Power Score System

2 Score System

1) Performance Power Score (BWt, WWt, YWt, MM)

2) Carcass Power Score (Marbling/%IMF, %RP)

As in golf a lower number potentially indicates a more desirable bull.

(Over 1500 bulls certified from 6 states)

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Importance of Data Management Building Résumés for your Cattle

“Want access to the competitive value-based market of the future? Better start getting together a résumé for your cattle.”

John Sticka, CAB Dir. Packer Feeder Relations

What’s in a resume?

Documentation of :• Genetic history• Source verification• Management practices• Feedlot and carcass history

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The Emerging Age of Beef Informedaction

Value of Product

Value of Information

Beyond data

Beyond information

Building knowledge

Integrity

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Survey of Certified Angus Beef LLC licensed feedlot operators Trait

Like to know before buying

Pay more, if known?

What % of cattle do you know?

GENETICS Breed composition 93.5 74.2 49.3 Sire & perf. data 87.1 79.3 31.1 HEALTH/MANAGEMENT Vaccination schedule 93.5 83.3 55.5 Implant history 93.5 53.4 48.7 Nutritional management 96.8 53.3 46.0 FEEDLOT/CARCASS Feedlot gain 96.8 76.7 36.6 Quality grade 96.8 80.0 29.5 Yield grade 100.0 70.0 30.1 Tom Field and Ken Co nway, CAB Peak Performance conference, April 6, 2000.

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Cow/Calf

Auction Market

Feeder

Packer

Retailer

Consumer

Seedstock

A Responsive Beef System

Product

Flow

Inform

ation F

eedback

Foodservice

“Listens” “Trusts”

Info

rmat

ion

Profit

Flow

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Data Management

FSBI has partnered with eMerge Interactive to accommodate data collection, data warehousing, and information sharing

CattleLog ME was created for “us”

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Apply Unique Identification

• All FSBI animals are required to be tagged with an EID tag and a visual tag

• Tags can be obtained through FSBI State Coordinator

• Bulls and cows should have a permanent, unique identification within herd (unique ear tag)

• (C.O.O.L. and Mandatory National ID)

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2001 FSBI n = 2332

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2001 FSBI n = 2332

Value of Financial InformationValue of Financial Information

>$170 Total Cost reduction per Cow

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$? ?

How can producers get rewarded for enhanced quality?

“The lion’s share of producer value in their alliance comes

from having the information to make improvements.”

Don Schiefelbein, Monfort

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Fed Cattle Feeders Calves

Larger Premiums

Larger Discounts

As fed cattle prices show more differentiationSo will feeder and calf prices

New Market

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Receive carcass information on cattle (résumé)

This Yield Grade 4is typically worth $20per cwt. of carcass less than

this Yield Grade 2

This Select is often worth $5 to $15 per cwt. of carcass less than

this Mid Choice

What’s in it for me?

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Carcass weight and steak size.

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600-800 carcass

REA, sq. in. Ribeye steak size, oz.

10.5 8.7

11.75 9.8

13.0 10.8

15.5 12.0

Carcass Weight and Steak Size

Iowa State University

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Frame Size Live Wt Carcass Wt

1 750 475 2 850 540

3 950 600 4 1050 660 5 1150 730 6 1250 790

7 1350 850 8 1450 920 9 1550 985

Importance of Frame size

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Eliminate “Outs” by Avoiding Extremes

• Carcass size

• Quality grade

• Yield grade

• Defects

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Importance of Animal Well-being

• An industry issue• A consumer’s issue• A retailer’s issue• An animal issue

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Perception of animal agriculture

• Perception

is reality

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New Perception of Agriculture

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• Consumers/Retailers are going to expect it

• Early adopters should benefit financially

• The future is now

Guidelines, Audits and Certification

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Staying a step ahead!

• EPA

• IDEM

• AFO / CAFO

• WASCOB

• TMDL

Environmental Stewardship

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Why Vertical Coordination?

• Profit– Partners to work with– Market access (value added, niche markets)– Bargaining power - strength in numbers– Consumer confidence– Database, reports, benchmarking = KNOWLEDGE

• Performance• Carcass• Economic/Financial

• Increased predictability– In the feedlot – On the rail– On the plate

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Challenges

• Moving beyond tradition• Working together• “Special” sales• Getting feedlots involved and committed• Getting carcass data back on a large scale• Year-round supply chain• Business structure and plan• Expertise beyond the supply chain• “Herding cats”/Commitment

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Commercialization of Programs

• United Producers, Inc. (mktg. coop)– Managed Beef Alliance (MBA)– End user relationships

• Indiana Farm Fresh Beef (IFFB)– Certified Freezer Beef– Carcass data

• Premium Indiana Beef (PIB)– Independent restaurants and retail– Carcass data

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PEOPLE

PRIDE PRODUCT

PARTNERSHIPS

PROFIT

This is what it is all about!!!