2003: Economic research related to the Montana Beef Network

By Gary W. Brester, Kevin McNew and Vincent Smith, Department of Ecoomics and Agricultural Economics, Montana State University.* The following is a summary of research being conducted on the economic value and impact of the Montana Beef Network.

How do Montana cattle compare to the U.S. average?

We analyzed 9,600 head of cattle marketed between 1999 and 2001. The data indicate that:

Montana Beef Network cattle tend to be more concentrated in the Choice quality grade compared to the U.S. average, with fewer cattle in the Montana Beef Network grading Prime or Select. Yield Grade results also suggest noticeable differences between cattle in the Montana Beef Network and the U.S. averages. The average Yield Grade for Montana Beef Network cattle was 2.58, while the U.S. average is 2.35.
Cattle from the Montana Beef Network would average a discount of -$3.46 per cwt if sold using the U.S. average premium/discount schedule or a -$3.36 per cwt discount if sold on the Gelbvieh grid.
Although average cattle should not be sold on the grid this does not imply that all cattle should not be sold on the grid. Some producers have high quality cattle and can earn better prices for those cattle by selling on the grid. Only 2.5 percent of all producers would ever find it advantageous to sell on the grid if the U.S. Average Grid were in effect. For these producers, they would sell on the grid only 35.7 percent of the time and the average premium would be $0.053 per cwt. If the Gelbvieh grid were in effect, 24 percent of the producers would find it worthwhile to sell on the grid at least once over this time period. On average, this group of producers would sell on the grid 11 percent of the time and earn an average premium of only $0.04 per cwt.
For these producers in the Montana Beef Network, the value of carcass grading information is worth $0.04 to $0.05 per cwt on a carcass weight basis.

What is the potential for marketing value created by the Beef Network?

Our research centered on the value of membership in MBN and also Beef Quality Assurance certification.

A mail survey conducted by Marc King, MSU Extension agent in Sweetgrass County, was sent to 400 Beef Network members and 400 non-members. Responses were received from 147 members and 69 nonmembers. The principal investigators on this project used econometric regression techniques to analyze the data. The following conclusions can be drawn from the survey:
In 2000, MBN members averaged $98.04/cwt for steer calves; non-members averaged $96.42/cwt.*
*statistically significant differences
MBN members averaged $93.28/cwt for heifer calves; non-members averaged $91.82/cwt.*
*statistically significant differences
No statistical differences between members and non-members were found for calf sale weights, sale methods, or number of calves marketed.
MBN members used modified live vaccines relative to killed vaccines much more frequently than non-members.
On average, MBN members vaccinated calves 1.73 times; non-members vaccinated calves 1.35 times.*
*statistically significant differences
After accounting for calf sale weights (and the number of years out of the last five that ranchers had marketed cattle to the same buyer), it appears that the MBN program added $1.56/cwt to steer calf prices and $1.09/cwt to heifer calf prices.

Feedlot performance of Montana feeder cattle

We obtained data from 70 pens of cattle from a Colorado branded-beef feedlot program and used statistical procedures to evaluate the impact of a variety of factors on morbidity (sickness), mortality, average daily gain, carcass weight and carcass quality.

Pens that contained animals from multiple ranches had a 6.7 percentage point increase in morbidity. In addition, pens that contained heavier feeder cattle had significantly lower morbidity.
Pens that contained heavier feeder cattle had significantly lower mortality.
After accounting for gender, pens that had lower morbidity (sickness) had higher average daily gains. In addition, Montana feeder cattle had significantly higher average daily gains (about 0.2 lbs/day) than feeder cattle from five other states.
Increased average daily gains and heavier feeder cattle resulted in larger carcass weights.
After accounting for gender and carcass weights, straight bred British animals had higher percentages grading Choice than British crossed with British animals. British crossed with Continental animals had lower percentages grading Choice than British crossed with British animals.
Montana feeder cattle were not different from those originating in other states in terms of morbidity or mortality. However, because of higher average daily gains, heavier carcass weights, and a higher percentage of animals grading Choice, Montana feeder cattle generated $31.47-$35.70/head more than other animals depending upon Choice-Select price spreads and selling method.

Beef quality in the food chain

Over the past decade, several major European supermarket retailers have developed high quality branded products and established identity preservation systems that result in direct contracts with cattle operations requiring prescribed production practices.

However, several of these initiatives collapsed because of contractual arrangements that specified payment premiums only for cattle that met pre-determined quality standards as well as being sourced from operations following prescribed practices for all their cattle. Many producers withdrew from these programs because the costs of the prescribed practices exceeded the financial benefits from the premiums received for the cattle that met the quality criteria.

In general, producers can only receive payment for higher quality cattle when the "lemons" problem is solved. Here's an example: Nearly new used cars typically sell for very large discounts relative to new cars because buyers assume that a nearly new car is being sold because something is wrong with the vehicle. The only way an owner of a good, nearly new, used car can receive a price that reflects its actual condition is to provide credible evidence of the vehicle's quality. Ranchers face a similar problem. To receive higher prices for higher quality cattle, they must provide credible evidence of the improved quality to buyers. In almost all cases, providing this information involves costs that currently may or may not be lower than the returns they obtain from providing the information. Cattle operations benefit from new technologies throughout the marketing chain that reduce those costs and increase premiums paid for quality attributes by households who consume beef.