AgDM newsletter article, December 1999

The Iowa Quality Beef Supply Network--Should I invest?

John LawrenceBy John D. Lawrence, Extension Livestock Economist and Director Iowa Beef Center, 515.294.6290, jdlaw@iastate.edu

It is an exciting time in the Iowa beef industry. Cattle prices are stronger than expected. Feedlots and cowherds are out of the red and looking forward to profitable times ahead. Most interestingly, Iowa producers have an opportunity to move closer to the consumer.

The details of the Iowa Quality Beef Supply Network--a beef harvesting facility--are in development as I write this article, but there appear to be two levels of questions a producer must address before joining this effort. The first questions are philosophical and technical, and unique to your operation. The second questions are purely economical and require more specific details.

First, philosophically, do you believe producers can benefit from controlling their products beyond the farm gate? If you answered “yes,” is this the right opportunity? Do you think the vision, the partner, the size, the timing, and other factors are right for you, or are there other opportunities?

Next, do you produce cattle that do well in a quality-based grid marketing system, which is proposed for this facility? If you don’t know, work with Iowa Quality Beef or Iowa Beef Center (IBC) staff to collect and analyze carcass data from your cattle. This can help you evaluate your cattle, production system, and marketing practices to determine if or how you could benefit from belonging to the Iowa Quality Beef Supply Network.

If you answered “yes” to the first set of questions, pay the application fee, but options for shares of stock on the cattle you plan to deliver, and wait for more details. These details include location, grid, and expected returns. The plat location will affect your freight cost, and the specific grid will determine your potential premium. IBC has researched historic returns to bee processing. This company will add more value than traditional plants by producing more consumer-friendly products, but a historical perspective on the level and variation of harvesting and processing returns will provide additional information.

Finally, the cost of a share and the projected cash flow of the company will heavily influence the economic returns from investing. To determine is this is a wise financial investment you will need to perform a net present value (NPV) analysis once you have the complete details on the harvesting facility. The NPV analysis incorporates not only the amount of the divided and stock appreciation, but also the timing of the returns. The IBC has developed a NPV spreadsheet model to help individual producer evaluate their investment decisions.

Check out the IPC web site for the NPV model and the study on historic returns. You can also contact your extension beef or farm management specialist for this information to help evaluate the decision for your operation. In addition, there is a Beef Producer Bulletin Board (BPBB) on the IBC web site (www.iowabeefcenter.org) complete with answers to frequently asked questions. Use the BPBB to discuss this opportunity and share information with other producers.

 

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