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♦ The Real Value of "Value-Added" Programs
♦ The Real Value of "Value-Added" Programs

The Real Value of "Value-Added" Programs

Kevin L. Hill, DVM, Merck Animal Health Technical Services

Increasing Revenue for Cow/Calf Operations
Cow/calf producers have relatively few options when it comes to increasing ranch revenue. Value-added programs that make each calf worth more are a proven way to increase ranch profits. Most of these programs are not new, and many producers have taken advantage of them to prepare their calves for selling. For those who are not aware of, or may doubt the value of such programs, it is important to understand what they have to offer and what premiums are expected. Knowing this helps decide whether the program is feasible to implement in an operation. Some will make sense for nearly every production system, while others will only be profitable if carefully executed with one eye on cost and the other on potential returns.

Fortunately, we have very good data that helps look at the cost/benefit relationship of these various programs. Superior Livestock Auction has collected detailed sale data since 1995 that provides a large database that accurately defines the current value of these programs. What may be very difficult to see while sitting in the auction barn, the true differences in calf value relative to value-added practices, is readily apparent by studying the summaries of these large volume sales.

Value-Added Health Programs
A solid vaccination program is the most common ranch management practice for which calf buyers are willing to pay. There is good consensus within the industry that healthy calves are far more profitable for a feeder than sick calves. The primary question to explore is how much added net value can be obtained when also accounting for any increased cost of the planned vaccination program.

Vac 24 is the most basic program in the Superior Livestock database. It requires only a single respiratory vaccination and a clostridial vaccination at two to four months of age. In 2013, when compared to calves presented for sale with little or no vaccination history, calves advertised as Vac 24 did not realize any significant premium. Therefore, producers should not expect a single calfhood vaccination to have any value to a potential buyer.

Vac 34 requires a single round of respiratory and clostridial vaccinations given two to four weeks prior to delivery to the buyer. These preconditioned calves are significantly more valuable to buyers, bringing an average premium of $2.86 per hundredweight more than similar Vac 24 calves. For a 550-pound calf that would add $15.73 per head for preconditioning. Since most operations should be able to accomplish this single vaccination process for far less than $15.73, this appears to be a highly profitable strategy for true added value and increased net revenue. In fact, this is the most popular health program recorded in the Superior Livestock database, representing 46 of the calves in the 2013 sales.

The Vac 45 program gets more complicated but promises greater rewards. Vac 45 requires preconditioning followed by boosters two to four weeks later and weaning at a minimum of 45 days. About 31 percent of the calves sold in 2013 were advertised as Vac 45. They registered a $6.13 per hundredweight premium or $33.72 per head more than Vac 24 calves and $17.99 per head more than Vac 34 calves. Producers considering this weaned calf program must understand the efficiency of feed and labor are the primary drivers of profitability. While they can confidently expect the premium identified in the data, they will need to pencil out carefully the costs required to achieve those rewards. If labor and feed costs are too high or weight gains are too low during the weaning period, the result could be a loss of revenue rather than a gain.

Growth Implants
One of the most surprising observations in the Superior Livestock data shows there is no price discount for implanted calves. While some non-hormone treated cattle and natural programs may still offer small premiums, the data from 2010 through 2013 shows no overall difference exists for calves sold as implanted versus never implanted. With expected gains of 20-25 pounds per calf from implants, producers are leaving $30-$40 on the table by not implanting or if their natural program does not reward them enough to offset that unrealized weight gain.

Genetics, BVD and Brucellosis
Other management practices that have recently shown promise for profitable returns are genetic quality assurance, Bovine Viral Diarrhea-Persistent Infection (BVD-PI) testing and brucellosis vaccination of heifers. In the coming years when replacement-quality heifers are in demand, these premiums would logically be expected to strengthen. In 2013, BVD-PI negative calves netted a $1.80 per hundredweight premium or $9.90 per 550-pound calf, and progressive genetics earned calves a $1.59 per hundredweight premium or $8.75 per 550-pound calf. Brucellosis vaccinated heifers only gained a $.60 per hundredweight premium, still enough to cover the typical cost of vaccination.

Value-added practices are certainly too valuable to ignore. The economic signals from calf buyers described in the Superior Livestock database are telling us exactly what these programs are worth. Every producer should carefully determine which programs can work to add revenue to their cow/calf enterprise.

March 2014