AgDM newsletter article, March 1997
By Harlan Hughes, Extension Livestock Economist, North Dakota State University, 701.231.7380
Tired of the status quo in beef marketing, many beef producers are seriously considering joining the Northern Plains Premium Beef (NPPB) Cooperative. NPPB will provide an opportunity to retain ownership through processing and beyond.
NPPB has the potential to reward cattle producers based on carcass value while improving beef quality, consistency, and market share. At the same time, forming a beef processing cooperative presents new risks, financial requirements, and new management challenges for its members.
Maintaining full capacity
A problem with the current beef processing system is that it is continually afflicted with a changing supply of cattle. For example, because high grain prices reduced cattle placements during the spring of 1996, beef processing facilities went from almost full capacity in the first half of 1996 to considerable idle capacity in the last half. Fixed labor contracts and fixed costs of highly capitalized processing facilities, combined with changing slaughter numbers, dramatically decreased packer profits in the last half of 1996.
The economic environment for the proposed processing cooperative is quite different. Theoretically, the NPPB cooperative should be at full capacity throughout a total cattle cycle because slaughter cattle supply is guaranteed by the membership. The processing efficiencies brought about by operating the cooperative beef processing facilities at or near capacity can be routinely distributed back to NPPB members in the form of net earnings. However, this may require you to change your production schedule.Production schedule changes
As the cooperative sets out to increase quality and reduce variation through its marketing guidelines, you need to consider the production changes you will need to make to meet NPPB’s marketing guidelines and how they will impact your costs of production. For example, changing your calving schedule could interfere with planting, haying, etc. Delays in these operations could offset the permiums generated by joining the cooperative.
Slaughter cattle prices paid to cooperative members can be based on carcass values originating from boxed beef prices designed to reflect consumer preferences. The role of NPPB Cooperative will be to negotiate the discounts out, as much as possible, though integrated marketing and to send clear price signals back to cooperative members encouraging them to manage the discounts out of their cow herds.
Herein lies one of the major benefits of joining a beef processing cooperative. The associated efficiencies of this integrated marketing system will be reflected in the cooperative’s net earnings. These net earnings will be distributed to its members through cash dividends and retained earnings prorated annually by the cooperative’s board.
Another primary benefit is guaranteed flow of in herd market information from the consumer back through to the individual cooperative members. This in-herd information transfer will help ensure better market signals from consumers to individual beef producers. Along with this information transfer will come the processing and marketing efficiencies of a vertically coordinated marketing system.
NPPB can provide the value-based carcass data and the grid pricing data needed to tie the economics of consumer preferences back to the selection of individual sires and dams. The key here is being able to tie production, costs of production, and carcass marketing information, back to the individual cow and sire. Producers who have these will have a competitive advantage. NPPB can now complete this information loop with consumer oriented carcass premiums and discounts generated through value-based carcass data and market price grids.
The core of Northern Plains Premium Beef as its proposed information transfer. A joint venture that offers you a concrete way to improve your genetics should position you for better profits in the long run. This critical membership decision is yours.
The following publications are available from the NDSU Extension Service:
These publications, plus computer spreadsheet software can be received by contacting Frayne Olson, Quentin Burdick Center for Cooperatives, NDSU, Fargo, North Dakota, 58202. Telephone: 701-231-7688 Fax: 701-231-1059