HIGH RIVER, Alta. – Figuring out how much cattle are worth is one of the challenges facing those interested in value-based marketing.
Rather than selling a pen of cattle at an average price, value-based marketing involves pricing cattle individually based on carcass merit.
Live cash basis that calculates price on 100 pounds of live weight is still the most widely used system in North America, says Glen Dolezal, a meat scientist from Oklahoma State University.
When selling on the average, pricing reflects last week’s market.
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Average pricing is not always the most beneficial to producers who are trying to improve their herds. When cattle are sold on an average price per pound, there are probably many in the pen that are worth more.
“If you tried to invest in superior genetics or in some progressive management strategy to try to do the thing positively in the best interest of the beef industry, then you’re actually getting discounted,” said Dolezal.
“Cash may reflect the trash,” because many good cattle may already be priced on a grid, he said.
Interest is growing in grid or formula selling, especially among those interested in high-end beef production. Marbling and red meat yield are calculated using grid quality grades and pricing. If the animal falls outside the criteria because of a lower grade, being overweight, thin or a dark cutter, discounts are applied. There are variations in the types of grids offered.
Grid parameters are quite tight, yet people seem to remember the high prices paid and ignore the discounted end.
In the future, Dolezal hopes to see a true value-based pricing system across the board, but is concerned it will happen only within branded beef programs or other speciality products.
Right now, overweight carcasses are a major problem facing the industry. They add more beef to the mix when demand is already low.
But producers have known for years that payment for edible meat content would curb the problem of overfeeding animals now sold by weight, said Dolezal.
Oklahoma State is developing a computer software spreadsheet to calculate the value price of boxed boneless beef that could go into a grid. It did not calculate the packer or processor margin in this spreadsheet, preferring to compare one steer to another or one feed to another.
Plugging the prices into the spreadsheet is difficult because price reporting is voluntary and complicated, said Dolezal.
However, proposed legislation is before the American senate to make price reporting more open. The proposal calls for a three-year pilot program requiring all buyers, sellers and marketers to report price and terms of sale for livestock and livestock products as well as meat and meat products.
