Profitability–A Light at the End of the Tunnel

The Touchstone Angus breeding program has always focused its breeding program around Angus cattle that would consistently produce the most tender and flavorful beef possible. To be sure, calving-ease, milk, growth, fertility, and other economically important traits are bred into our cattle, but we never forget that the primary purpose of our program is to identify and propagate genetics that will consistently provide the most pleasurable eating experience possible for the consumer.

Research funded by the National Cattlemen Beef Association (NCBA) has shown that consumers are willing to pay more for guaranteed tender beef. This fact is also proven out by the growing spreads between Prime, Choice and Select. This is an amazing phenomenon because most consumers today have no idea what the quality grades mean. Many consumers think that "Safeway Select Beef" is the pinnacle of quality and are usually disappointed when it doesn't meet their expectations.

The spread is being driven primarily by the restaurant supply industry competing for the Prime and Choice carcasses for use in higher-end restaurants. These restaurants have figured out just how much consumers are willing to pay for a great piece of beef. Chain restaurants like Morton’s Steakhouse, Ruth Chris Steakhouse and numerous others charge in the range of $35 or more for a USDA Prime 12 oz. filet, and that doesn't include the sides or a beverage. This is small change compared to Japan where a single steak from Kobe beef (extremely marbled and tender beef, usually from Waygu cattle) will sell for as much as $10,000.

Market signals far removed from the cow-calf producer combined with a poorly informed consumer have been major culprits in our ability to receive financial incentives for producing cattle grading Choice and Prime. This situation is changing fast due to grid marketing programs, branded beef products, and consumers viewing beef in a more positive light. Your ability to receive significantly higher prices for calves will hinge on having those genetics capable of producing tender beef in the upper two-thirds Choice and Prime quality grades.

Receiving even a slightly higher price for calves will have a greater impact on your profitability than trying to become an even lower-cost producer. Adding 10% to your selling price adds more to your bottom line than trimming 10% from your operating expenses. We are committed to the concept that when our end-use customer is well served, those who produce that product will receive a higher price and will become more profitable with a brighter future in ranching.

Beginning with the End in Mind

In the past few decades the beef industry was driven to produce pounds because the market signals given did not fully represent the desires of our most important customer—the end-use consumer. Unfortunately, what our customers wanted most was de-emphasized and pounds, yield grade, and production efficiency took priority over tenderness and flavor. All of those are important traits but only so long as the unsurpassed eating pleasure quality beef offers is not lost.

The beef industry watched its once dominant market share evaporate as the American consumer chose meats they felt were superior in taste and consistency. Beef demand began to decrease and prices plummeted. Lower prices combined with escalating production costs have left beef producers with a profitability crisis!

Some have suggested that all we need to do is become low-cost producers. We don’t believe that becoming a low-cost producer, in-and-of-itself, is a good long-term answer. First, it does not make for a very enjoyable lifestyle and second you may wind up as a low-cost producer with a product that no one is willing to pay for because it may be tough, too fat or lacking in flavor.

Additionally, organizations focused on being low-cost producers in other industries historically don’t have good long-term survival rates. Compare this to organizations that are experts at identifying and supplying customer needs—they thrive and prosper. Price is always a secondary buying decision compared to delivering product benefits the customer is searching for.

Here’s what we are doing to improve carcass quality in our herd. We have: 1) utilized proven AI sires with outstanding carcass EPDs. 2) Ultrasonically scanned both replacement heifers and bulls. 3) Conducted actual carcass evaluation of progeny. 4) Completed DNA testing for tenderness and marbling on the majority of our herd. 5) Incorporated Beef Image Analysis, an innovative ultrasound tenderness identification technology into our sire and replacement selection criteria, and 6) market a Touchstone branded natural grain-fed and grass-finished beef directly to consumers.

“Don’t go where the puck is…Go where it’s going!”
Wayne Gretzky

The secret to Wayne Gretzky’s phenomenal success in hockey should be applied to breeding decisions today if you as a producer are to succeed and prosper in the future.

How can you be confident the genetic decisions made this year will position your calves where the market is going? Remember, the results of breeding decisions made today will not begin to be realized for at least two years.

What are the factors/drivers that will shape the cattle industry over the next 10 years?

WINDS OF CHANGE

We believe there are 4 major drivers that will significantly change the landscape producers must operate in. They are as follows:

1. Greater global trade and opening of world markets, both in terms of beef exports and beef imports.

2. Changing attitudes among healthcare professionals and other opinion leaders who significantly impact beef demand. Some are even beginning to recommend grass-finished beef as a “healthfood.”

3. Greater segmentation of retail beef products including new branded beef programs created in response to consumer preferences in the US and abroad.

4. Ethanol production will make corn and other traditional feeds significantly more costly requiring alternate finishing rations and methods.

HOW WILL THIS PLAY OUT?

As a seedstock producer, Touchstone Angus is responsible to create genetics for our customers that will make them more profitable in the next decade. We therefore, must have a vision of the future and a genetic plan that matches the vision.

Here’s our vision: Over the next decade these drivers will change the industry from a commodity system to a differentiated and complex market place of branded products. The cattle cycle worked well to predict prices in a commodity based system but will lose relevance as a larger percentage of cattle are bred and developed to meet various brand requirements.

The brands that are growing and successful will pay substantial premiums to the producers capable of meeting their specifications. Commodity markets will pay even low-cost US producers less than breakeven prices due to foreign competition resulting from various trade agreements in particular those with South America.

WHO WILL THE WINNERS BE?

It’s clear by observing today’s large growing brands, that consumers prefer tender, well-marbled beef and are willing to pay more. Even faster growing is the category that carries an “All Natural” claim, although currently smaller in total sales than non-branded commodity beef.

But we believe the category that has the greatest potential to grow and maintain profitable prices long-term to qualifying producers is the grass-fattened category.

A number of important opinion leaders and early product adopters cite solid scientific evidence to support their belief that grass-fed beef is superior to grain-fed from a human health stand-point.

Here’s a quick summary of the studies:  Grass-fat beef has an ideal 3:1 ratio of Omega 6 to Omega 3, similar to wild salmon, while grain-fed beef is 20:1 and may be the causative factor linking beef to heart disease. Grass-fed is 300-400% higher in CLA, beta carotene and vitamins A&D.

Additionally, three separate university taste panels found that around 25-30% prefer grass-fed beef with another 50% stating no flavor preference. Yet current sales of grass-fed beef account for less than .06 % of total beef sales. Clearly this is the beef category poised for the greatest growth and profit potential.

The ethanol boom is making the cost of finishing cattle on grains much more costly and will only serve to drive the grass-fattened category to faster growth.

WHAT TO DO? HERE’S AN IDEA

Embrace these changes for what they are - an opportunity to create long-term profitability for your ranch by supplying the faster growing market segments of the beef industry while getting out of the commodity markets. Remember, growing differentiated markets make for revenue growth and greater profit margins while declining commodity markets result in equity erosion and failure.

TAKE THE NEXT STEP

Begin now to change your genetics and your operating plan to ensure your future calves qualify to be sold into the rapidly growing market segments.

HERE’S HOW WE CAN HELP

1. We can provide a list of organizations that are searching for cooperators willing and able to produce cattle that will fit their specifications.

2. Touchstone Angus can provide you with genetics that have been uniquely developed to fit these growing market segments.

In fact, Dr. Allen Williams of Tallgrass Beef Company states that “We have been pleased with the performance of Touchstone Angus genetics. They have scanned well and have consistently fit our parameters for optimum finish and tenderness.”

Lack of Uniformity–Public Enemy No. 1

Some might be surprised to learn that the number 1 problem identified in a recent National Beef Quality Audit (NBQA) was that carcasses lacked uniformity and consistency. Problems like injection site blemishes, toughness, excessive fat and insufficient marbling seemingly could have ranked higher but they didn’t. This is because inconsistent and non-uniform cattle cause problems throughout the production chain.

From a feeder’s perspective, non-uniform calves have to be sorted by type and fed differently making the process inefficient and more costly to feed inconsistent cattle types. A uniform group of feeder calves will receive a premium while a non-uniform group will be discounted.

The packer has to deal with carcasses that can vary by 500 pounds or more with quality and yield grades that run the entire spectrum. This causes the "disassembly" line to run inefficiently, as time must be taken to process carcasses differently. Additionally, packers want carcasses that consistently "fit the box" and have a marketable quality and yield grade.

Finally, the consumer has come to believe it’s a crapshoot when buying beef products because 17% of the time, the beef is tough, not flavorful or too fat. Customers often prefer buying other meat products with consistent quality over beef that may be great—or a disappointment.

Reproductive Efficiency–Still the Same After all These Years

On the cost side of the income statement (as opposed to the revenue side), reproductive efficiency remains—as it has been for many years—the most important factor affecting profitability. The overall ability of a cow herd to conceive, deliver, raise and wean a calf will still have the greatest impact on your bottom line from the cost standpoint. Cows that either don’t breed back on time or lose their calves at birth add cost without a corresponding increase in revenue to cover it. Studies have shown that profitable ranches typically have a higher calving percentage than the unprofitable ones.

Linebred Emulous cattle are the foundation of our herd and are well known for their functionality and maternal excellence. They’ve proven to be easy-fleshing cows with short gestation periods, maintaining their condition with very little supplemental winter feed and breed back on schedule. In fact, our cows receive less assistance and winter supplementation than most commercial operations in our area. We’ve applied some of the management philosophies of the Tail N Ranch that says, "a little bad management—appropriately practiced—can improve your cow herd."

The Touchstone Difference–Staying in the Lines Keeps the Picture in Focus

What really sets our program apart is our unique linebreeding program. The primary benefits of linebred cattle are uniformity and prepotency. Remember, a lack of uniformity and consistency is the number one problem identified in the NBQA. To that end, we began our herd with linebred Emulous females that originated from three notable programs, Ankony Angus, the N Bar Ranch and the Tail N Ranch of Oklahoma. Emulous cattle have been linebred for 75 years and are known for their performance, reproductive efficiency and carcass excellence.

The Emulous line began with a bull simply named Emulous born in 1927, registration number 408620. Little is known of this “progenator” bull but a son, Emulous of Sangamon, bred by St. Albans Farm, Pacific, Missouri was shown and in the string of August Busch (Budwieser beer baron). Later Garrett Tolan of Illinois purchased the bull at 10 years of age with the entire herd from Busch just to get 12 heifers he really wanted. Tolan wasn’t interested in the old bull but just took him with the entire herd and hadn’t gotten rid of him yet when a group of angus breeders stopped by in 1939 including Carlton Corbin, Lee Leachman and David Bates. These men accidentally saw him in a back pen waiting to be hauled to the sale barn. They were very impressed with old bull and Carlton Corbin purchased him for the market price of $150.00 (with papers) in an agreement with Tolan that he had him off the place prior to their annual sale the next day.

Carlton Corbin bred Emulous of Sangamon to 40 heifers the next year. It was those Sangamon calves mated in half-brother/half-sister schemes that became the foundation for all future Emulous linebreeding programs. A few of the notable linebred sires from this line and the times they trace to Emulous are as follows: Ankonian Dynamo (6), Lovana (19) , Emulous Pride 127 (6), Emulation 31 (4), N Bar Emulation 5522 (19), EXT (27), Finks 5522-6148 (25), Scotchcap (8), Sayre Patriot (10) and Vance Top Dawg (21),. These cattle were primarily linebred to improve performance in the feedlot and on the rail but it’s possibly their maternal characteristics that earned them lasting respect.

We chose to continue linebreeding these cattle for a variety of reasons but one of the strongest reasons for linebred cattle is they are more uniform and breed true. This is because linebreeding creates more homozygous gene pairs (identical alleles) and therefore significantly increases the ability of the animal to breed true. We have found this to be true not only phenotypically but even at the DNA level. Our DNA marker testing has shown a much higher percentage of homozygous gene pairs for the tenderness and marbling markers in our Emulous cattle than the general population of Angus cattle according to Genetic Solutions, one company marketing the tests.

Cattle that are not linebred and are outcrossed to a variety of once-pure Angus lines have fewer homozygous gene pairs and more heterozygous gene pairs (un-identical alleles). This substantially increases the variation or non-uniformity in the offspring. Linebred cattle breed truer because they possess more homozygous (identical) gene pairs. Therefore, linebred cattle are one of the best ways to address the number one problem in our industry – carcasses that lack uniformity and consistency.

Additional reasons include genetic purity and elimination of genetic defects. Cattle that have been linebred for decades have fewer genetic defects because linebreeding does not create genetic problems it only brings them to the surface faster, if they exist, allowing them to be identified and eliminated. The original Emulous bull, or the line progenator, was born in 1927 and represents one of the oldest Angus lines that continues to be linebred by a few breeders like us. We believe the length of time the Emulous line has been in existence adds to the assurance that it is genetically cleaner. In fact, three of the last eight bulls tested and certified as Genetic Defect Free (GDF) by the American Angus Association, have been either linebred Emulous bulls or sired by one. It is a disproportionately high percentage of Emulous bulls who are very few in number compared to the general Angus population.

Jim Lents in his book The Basis of Linebreeding writes that “linebreeding fixes and maintains certain traits within a population of cattle that then have the prepotency to pass on consistently to future generations those characteristics that have been fixed.” 

Steve Viker of Lanesboro, MN wrote an excellent internet post on the ACS forum excerpted as follows: “Linebreeding over time, makes more of the same cards (more diamonds, fewer spades and clubs if you will) in the genetic deck. An increase in genetic consistency results from fewer dissimilar genetic combinations which results in narrower distribution of animals about the type and performance mean. These animals also tend to be able to reproduce themselves in a more consistent fashion (prepotency).”

Dr. Bob Long said it best in his "Beef Logic" column when he discussed linebred cattle. "Inbreeding with selection can be a powerful tool for herd and/or breed improvement. Outstanding inbred individuals are productive, predictable, prepotent, and the most valuable breeding animals of all…If someone else has already created such a strain, buy them if you can. They are the best." 

Some might be concerned with linebreeding and the increased chance for genetic problems. Dr. Long in the same column states: "Remember, the inbreeding does not create the lethal genes. If the herd carries no genetic trash, none will result from inbreeding." Given the long track record of linebred Emulous cattle you can be confident that genetic problems either never existed in this line or was eliminated long ago.

We are linebreeding Emulous cattle to fix and maintain the following traits in our herd and those of our customers: reproductive efficiency, calving-ease, growth, carcass quality, tenderness and efficiency in a forage-based system.