economics of alternative beef production systems dr. curt lacy extension economist-livestock the...

Economics of Economics of Alternative Beef Alternative Beef Production SystemsProduction Systems

Dr. Curt LacyDr. Curt LacyExtension Economist-LivestockExtension Economist-LivestockThe University of GeorgiaThe University of Georgia

Economics of Alternative Production SystemsEconomics of Alternative Production SystemsDr. Curt LacyDr. Curt Lacy

Florida Beef Cattle Short-CourseFlorida Beef Cattle Short-Course

Alternative Production Alternative Production SystemsSystems

OrganicOrganic NaturalNatural Grass-fedGrass-fed LocalLocal



Why consider alternative Why consider alternative production systems?production systems?

Changing consumer wants/demands.Changing consumer wants/demands. Higher prices?Higher prices? Current input market conditions warrant Current input market conditions warrant

consider examining alternatives.consider examining alternatives. Portfolio diversification.Portfolio diversification. Long-term “alternative” may become Long-term “alternative” may become

conventional.conventional.



Why NOT consider Why NOT consider alternative production alternative production systems?systems?

Consumer fads come and go.Consumer fads come and go. There is a reason more people aren’t doing There is a reason more people aren’t doing

this.this. The input market could change considerably.The input market could change considerably. Lack of technical information.Lack of technical information. Keeping records is not your long-suit.Keeping records is not your long-suit. You are successfully producing and marketing You are successfully producing and marketing

conventional beef even in today’s business conventional beef even in today’s business climate.climate.



Major considerationsMajor considerations

1.1. Do you have a market?Do you have a market?

2.2. Do you have a market?Do you have a market?

3.3. Can you market in a timely manner?Can you market in a timely manner?

4.4. Are there additional costs?Are there additional costs?

5.5. Are there premiums?Are there premiums?

6.6. What’s the downside?What’s the downside?



General ObservationsGeneral Observations

Consumer’s are mostly concerned aboutConsumer’s are mostly concerned about AntibioticsAntibiotics HormonesHormones

They are also concerned about animal welfare.They are also concerned about animal welfare. They want to help the “small/local” producer.They want to help the “small/local” producer. They are willing to pay They are willing to pay somesome premium for premium for

these products.these products.



Common Threads of Most Common Threads of Most Alternative Production Alternative Production SystemsSystems

Reduction or complete elimination of:Reduction or complete elimination of: AntibioticsAntibiotics ImplantsImplants Growth promotants (ionophores/ beta-Growth promotants (ionophores/ beta-

agonists)agonists) Animal derived proteinsAnimal derived proteins

Increased record-keeping requirementsIncreased record-keeping requirements More planning for marketingMore planning for marketing



Some Economic “Truths”Some Economic “Truths”

Long-term the price of a commodity will Long-term the price of a commodity will approach the total cost of production.approach the total cost of production.

Most times there is a reason why others Most times there is a reason why others are not in a certain enterprise.are not in a certain enterprise.

Anything can be profitable if you can Anything can be profitable if you can charge enough.charge enough.



Presentation OverviewPresentation Overview

1.1. Alternative ProgramAlternative Program

2.2. Description/ConsiderationsDescription/Considerations

3.3. EconomicsEconomics

Natural BeefNatural Beef




Consumer’s definition of “Natural” is Consumer’s definition of “Natural” is different from current USDA definition of different from current USDA definition of minimally processed.minimally processed.

Approximately 20 different lines of natural Approximately 20 different lines of natural beef being offered.beef being offered.

Natural is essentially grain-fed beef Natural is essentially grain-fed beef without antibiotics, hormones or without antibiotics, hormones or ionophores.ionophores.




All natural beef programs place All natural beef programs place limitations on:limitations on: AntibioticsAntibiotics Implants Implants Ionophores/Beta-agonistsIonophores/Beta-agonists Animal derived proteinsAnimal derived proteins

Usually fed in selected feedlotsUsually fed in selected feedlots

Economic TradeoffsEconomic Tradeoffs

Cow-calfCow-calf Reduced implant and antibiotic costsReduced implant and antibiotic costs Lower weaning weights (possibly)Lower weaning weights (possibly) Increased vet expenses?Increased vet expenses?

Finishing PhaseFinishing Phase Reduced implant and antibiotic costsReduced implant and antibiotic costs Slower growthSlower growth Higher feed conversionHigher feed conversion Higher feed expenseHigher feed expense Increased vet expenseIncreased vet expense ““Fall-out” rate around 20%Fall-out” rate around 20% Higher percentage of cattle grading Choice (10-Higher percentage of cattle grading Choice (10-

15%)15%)



Short-storyShort-story

Cow-calf producers need Cow-calf producers need $4.00-$6.00/cwt. premium for weaned $4.00-$6.00/cwt. premium for weaned calves.calves.

Backgrounded/preconditioned cattle Backgrounded/preconditioned cattle need $7.00-$9.00/cwt. (depending on need $7.00-$9.00/cwt. (depending on morbidity and feed conversion).morbidity and feed conversion).

Slaughter cattle need $12-$15 carcass Slaughter cattle need $12-$15 carcass cwt. ($7-$9/cwt. live).cwt. ($7-$9/cwt. live).



Real-world data from Real-world data from South and North GeorgiaSouth and North Georgia

North GeorgiaNorth Georgia AN and ANx cow-calf pairs from NW GA Experiment AN and ANx cow-calf pairs from NW GA Experiment

Station (Calhoun) divided into two groups prior to Station (Calhoun) divided into two groups prior to calving (2007).calving (2007).

One group treated conventionally the other group One group treated conventionally the other group treated as natural (no implants, no antibiotics).treated as natural (no implants, no antibiotics).

Both groups weighed at weaning, preconditioned for Both groups weighed at weaning, preconditioned for 60 days and sent to SW IA to be fed in GA Beef 60 days and sent to SW IA to be fed in GA Beef Challenge.Challenge.



Results from NW GA Results from NW GA Cattle (2007)Cattle (2007)

DateDate NaturalNatural ConventionalConventional DifferenceDifference

WeaningWeaning 360.5360.5 372.5372.5 11.511.5

Weaning +30dWeaning +30d 445.4445.4 468.0468.0 22.622.6

Weaning +60dWeaning +60d 508.0508.0 537.9537.9 28.928.9

16% fall-out in calf phase from foot-rot on natural calves.16% fall-out in calf phase from foot-rot on natural calves. At weaning needed $4.08/cwt. to cover difference in weight.At weaning needed $4.08/cwt. to cover difference in weight. After 60d precon needed $6.34/cwt. to cover difference in weight.After 60d precon needed $6.34/cwt. to cover difference in weight. Carcass data should be available tomorrow Carcass data should be available tomorrow



Real-world data from Real-world data from South and North GeorgiaSouth and North Georgia

South GeorgiaSouth Georgia Cattle fed in Southwest IA as part of GA Cattle fed in Southwest IA as part of GA

Beef ChallengeBeef Challenge AN and ANx calvesAN and ANx calves Same producerSame producer 2 years2 years

Results from Feeding South Results from Feeding South GA Cattle in Natural GA Cattle in Natural ProgramProgram

ItemItem 2006-20072006-2007

67 head67 head

2007-20082007-2008

71 head71 head

Steers Steers (44)(44)

Heifers Heifers (23)(23)

SteersSteers

(46)(46)

HeifersHeifers

(25)(25)ADGADG 2.852.85 2.782.78 2.512.51 2.392.39

Feed:gainFeed:gain 7.137.13 7.117.11 8.128.12 7.997.99

%Choice%Choice 77%77% 100%100% 93%93% 86%86%

%Prime%Prime 5%5% 17%17% 0%0% 12%12%

% Y3 or less% Y3 or less 100%100% 100%100% 100%100% 92%92%

BackfatBackfat .47.47 .46.46

Average age Average age at slaughterat slaughter

765 d765 d 653653

Results from Feeding South Results from Feeding South GA Cattle in Natural GA Cattle in Natural ProgramProgram

ItemItem 2006-20072006-2007 2007-20082007-2008

SteersSteers HeifersHeifers SteersSteers HeifersHeifersCarcass weightCarcass weight 702702 645645 694694 624624

Feed cost of Feed cost of gain ($/Cwt.)gain ($/Cwt.)

$69.19$69.19 $69.02$69.02 $76.20$76.20 $75.00$75.00

Total cost of Total cost of gain ($/Cwt.)gain ($/Cwt.)

$84.70$84.70 $84.85$84.85 $94.46$94.46 $93.14$93.14

% Individually % Individually treatedtreated

6%6% 36%36%

Average Average Carcass Price Carcass Price ($/Cwt.)($/Cwt.)

$167.55$167.55 $163.94$163.94 $157.24$157.24 $157.26$157.26

Profits ($/head)Profits ($/head) $56.01$56.01 $18.71$18.71 ($112.53)($112.53) ($127.05)($127.05)



Other Considerations on Other Considerations on Natural CattleNatural Cattle

Often no CAB premium.Often no CAB premium. Probably no Prime premium.Probably no Prime premium. Select discount may not be as severe.Select discount may not be as severe. Delays in slaughter can increase Y4s.Delays in slaughter can increase Y4s. Heifers can be a problem Heifers can be a problem Light Light

carcass discount = $20-$30/cwt. vs. $15 carcass discount = $20-$30/cwt. vs. $15 in conventional.in conventional.

Grass Fed Beef Grass Fed Beef EconomicsEconomics



Producing and Marketing Producing and Marketing Grass-fed BeefGrass-fed Beef

Can be marketed direct to consumers. Must Can be marketed direct to consumers. Must develop a market and get the cattle killed and develop a market and get the cattle killed and processed.processed.

There are a few companies buying/procuring There are a few companies buying/procuring grass-fed beef.grass-fed beef.

Usually marketing is arranged well in advance Usually marketing is arranged well in advance of slaughter (6-9 months).of slaughter (6-9 months).

Base carcass price around $175/cwt.Base carcass price around $175/cwt. Usually require at least a semi-load.Usually require at least a semi-load. Trucking can be an issue.Trucking can be an issue.




Many have breed requirements (AN or ANx).Many have breed requirements (AN or ANx). May or may not “pre-enroll” finishing animals.May or may not “pre-enroll” finishing animals. Some allow minimal supplementation (0.5% Some allow minimal supplementation (0.5%

BW), others none.BW), others none. NO sub-therapeutic antibiotics. Some allow NO sub-therapeutic antibiotics. Some allow

minimal treatments.minimal treatments. NO implants or other growth promotants.NO implants or other growth promotants.




What is your forage base?What is your forage base? What are your forage management skills?What are your forage management skills? What are your supplementation options when What are your supplementation options when

grass is short?grass is short? If marketing direct to consumers:If marketing direct to consumers:

How are your people skills?How are your people skills? Can you retail the product?Can you retail the product? What are your slaughter and processing options?What are your slaughter and processing options?



Example Budget of Grass-Example Budget of Grass-fed Beef Finishingfed Beef Finishing

Weaned 500-550# pound calf in July.Weaned 500-550# pound calf in July. Placed on bermuda/millet pasture until Placed on bermuda/millet pasture until

fall (2 head/acre)fall (2 head/acre) Grazed on winter annuals until late spring Grazed on winter annuals until late spring

(1 head/acre).(1 head/acre). 1% of BW Soyhulls1% of BW Soyhulls Hay for 90 days during transition periods.Hay for 90 days during transition periods.



Example Grass-fed Beef Example Grass-fed Beef Finishing BudgetFinishing Budget

Item UnitsNumber of

Units $/Unit Cost

Calf Cwt 5.25 100.00$ 525.00$ Procurement Head 1.00 -$ -$ Bermuda pasture Acres/calf 0.50 150.00$ 75.00$ Millet pasture Acres/calf 0.50 200.00$ 100.00$ Winter annual Acres/calf 1.00 200.00$ 200.00$ Soy hulls Tons 1.07 250.00$ 268.31$ Hay Tons 0.72 125.00$ 89.44$ Vaccination, dewormer, etc. Head 1.00 5.00$ 5.00$ Mineral Lbs. 67.50 0.30$ 20.25$ Labor Head 2.00 9.00$ 18.00$ Repairs Head 1.00 5.00$ 5.00$ Land rent Acres 1.00 -$ -$ Miscellaneous Head 1.00 5.00$ 5.00$ Operating Interest % 655.50$ 7.50% 36.37$ Death Loss % 1,311.00$ 2.00% 13.11$ Trucking Cwt. 10.65 10.00$ 106.50$

Total Variable Cost 1,466.98$

Breakeven Sales Price Liveweight 137.74$ Breakeven Sales Price Carcass (60% dressing) 229.57$

Total Cost of Gain 174.44$ Feed-Only Cost of Gain 135.69$



Main PointsMain Points

Producers should carefully pencil grass-Producers should carefully pencil grass-fed beef production.fed beef production.

Key items are:Key items are: Sales weight Sales weight Forage availability and costsForage availability and costs Allowed supplementsAllowed supplements Market accessMarket access

Organic BeefOrganic Beef



Organic BeefOrganic Beef

Rapidly growing market,…recent high Rapidly growing market,…recent high prices may have tempered demand prices may have tempered demand some.some.

Can be grass-fed or grain-fed.Can be grass-fed or grain-fed.

Organic Beef Cliff NotesOrganic Beef Cliff Notes

No antibiotics, no growth hormones.No antibiotics, no growth hormones. Organic pastures (no pesticides, no Organic pastures (no pesticides, no

commercial fertilizers, no sewage sludge, commercial fertilizers, no sewage sludge, no GMOs and no ionizing radiation).no GMOs and no ionizing radiation).

Pastures must be free of prohibited Pastures must be free of prohibited products for 3 years.products for 3 years.

Cattle must receive 100% organic feed Cattle must receive 100% organic feed but can receive certain vitamin and but can receive certain vitamin and mineral supplements.mineral supplements.



Organic StandardsOrganic Standards

Animals must be raised under organic Animals must be raised under organic management from the last third of gestation.management from the last third of gestation.

Must have access to pasture.Must have access to pasture. Before being labeled organic, government Before being labeled organic, government

approved inspector inspects the farm. approved inspector inspects the farm. Handling or processing facilities must also be Handling or processing facilities must also be certified organic. Certified through AMS.certified organic. Certified through AMS.



Organic Beef EconomicsOrganic Beef Economics

Slightly higher weed management costs Slightly higher weed management costs ($2-$4/acre).($2-$4/acre).

Lower fertilizer costs (about $25/acre).Lower fertilizer costs (about $25/acre). Lower total costs ($7-$12/acre).Lower total costs ($7-$12/acre). Similar forage production*Similar forage production* Higher calf cost (+9-11%) compared to Higher calf cost (+9-11%) compared to

conventional cattle.conventional cattle.

Comparison of Organic and Comparison of Organic and Conventional Cow-Calf (Central Conventional Cow-Calf (Central Florida) – 500 cowsFlorida) – 500 cows

ItemItem OrganicOrganic ConventionalConventional

Projected Weaning Projected Weaning WeightWeight

475475 550550

Acres RequiredAcres Required 1,6251,625 1,750 (125 for hay)1,750 (125 for hay)

Tons of hay Tons of hay purchasedpurchased

625625 0.000.00

Cost/CowCost/Cow $479.04$479.04 $490.71$490.71

Cost/calf marketedCost/calf marketed $598.80$598.80 $613.39$613.39

Cost/cwt. producedCost/cwt. produced $132.70$132.70 $122.98$122.98



Comparison of Grass-fed Comparison of Grass-fed and Grain-fed Organic and Grain-fed Organic Cattle Cattle

ItemItem Organic Organic Grass-fedGrass-fed

Organic Grain-Organic Grain-FedFed

Slaughter Slaughter weightweight

1,0301,030 1,2501,250

Profit ($/head)Profit ($/head) $378.92$378.92 $180.65$180.65

Breakeven Breakeven ($/Cwt.)($/Cwt.)

$155$155 $185.65$185.65



Oh, BTWOh, BTW

Assumes land already in production.Assumes land already in production.

ASSUMES ACCESS TO ORGANIC ASSUMES ACCESS TO ORGANIC FEEDSTUFFS AND HAY.FEEDSTUFFS AND HAY.

Assumes no health problems.Assumes no health problems. $200/liveweight = $2,000 plus per slaughter $200/liveweight = $2,000 plus per slaughter

animal,.. Are you kidding me??animal,.. Are you kidding me?? How many of these can you sell?How many of these can you sell?

Organic SummaryOrganic Summary At today’s fertilizer prices, organic may not be such a At today’s fertilizer prices, organic may not be such a

big adjustment.big adjustment. Probably more potential for grass-fed organic vs. grain-Probably more potential for grass-fed organic vs. grain-

fed organic.fed organic. Three-year transition period still a big deal!!Three-year transition period still a big deal!! Overall cow-calf costs can be very similar between Overall cow-calf costs can be very similar between

organic and conventional.organic and conventional. Vet costs and forage production are likely major cost Vet costs and forage production are likely major cost

variables.variables. Finishing costs are considerably more than Finishing costs are considerably more than

conventional.conventional. Definitely want a market before venturing too far down Definitely want a market before venturing too far down

this path.this path. May be some potential for organic calf producers to May be some potential for organic calf producers to

supply organic grass and grain finishers.supply organic grass and grain finishers.

Local BeefLocal Beef



Local Beef and Food Local Beef and Food ProductsProducts

Increasing numbers of consumers want to Increasing numbers of consumers want to know where their food comes from.know where their food comes from.

Consumers want “local” for different reasons:Consumers want “local” for different reasons: Protest against “industrial agriculture” and “factory Protest against “industrial agriculture” and “factory

food”,food”, Believe it is fresher,Believe it is fresher, Believe it reduces fuel consumption (fossil fuel Believe it reduces fuel consumption (fossil fuel

emissions, etc),emissions, etc), Believe it is safer,Believe it is safer, Desire to help “Family Farms”Desire to help “Family Farms”



Local Beef and Food Local Beef and Food ProductsProducts

Increasing number of food-service Increasing number of food-service requests for local food:requests for local food: Local school boardsLocal school boards CollegesColleges RestaurantsRestaurants



Local Marketing Local Marketing ConsiderationsConsiderations

May allow producers to direct-market May allow producers to direct-market finished beef.finished beef.

Access to slaughter and processing Access to slaughter and processing facilities?facilities?

Live vs. retail trade?Live vs. retail trade? Can you meet the demand?Can you meet the demand? How are your people skills?How are your people skills?



Why NOT Consider Why NOT Consider Marketing LocalMarketing Local

Usually requires dealing direct with Usually requires dealing direct with customers.customers.

Payment could take longer.Payment could take longer. No P&S bonding requirements on No P&S bonding requirements on

individuals buying your beef.individuals buying your beef. Possible increased expectations of the Possible increased expectations of the

“Ranch Experience” as opposed to “Ranch Experience” as opposed to simply a transaction.simply a transaction.



Why Consider Marketing Why Consider Marketing LocalLocal

No label requirements.No label requirements. However, can use other labels to add However, can use other labels to add

value, e.g., “Local Natural”, “Local Grass-value, e.g., “Local Natural”, “Local Grass-fed”, “Local Organic”, etc.fed”, “Local Organic”, etc.

Market development can be less Market development can be less expensive.expensive.

Possibly lower transportation and Possibly lower transportation and marketing costs.marketing costs.



Overall Summary for Overall Summary for Alternative Production Alternative Production

MethodsMethods Alternative production methods offer increased Alternative production methods offer increased

marketing opportunities.marketing opportunities. Allow larger producers to diversify.Allow larger producers to diversify. Allow smaller producers to find a niche.Allow smaller producers to find a niche. Usually have higher costs and breakevens Usually have higher costs and breakevens

than conventional production.than conventional production. Marketing and processing usually major limiting Marketing and processing usually major limiting

factors.factors. In today’s input market, probably worth In today’s input market, probably worth

considering.considering.



FOR INFORMATION CONTACT:

Dr. Curt Lacy

Extension Economist-Livestock

The University of Georgia

229-386-3512

[email protected]

economics of alternative beef production systems dr. curt lacy extension economist-livestock the...

Documents

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marketing conventional

total cost of production

marketing slide

university of georgia

animal welfare

consumer wantsdemands

consumer fads