Objectives
• describe the supply and demand cycles for beef and explain how they affect the market price.
• identify and describe the market classes and grades of beef cattle.
• describe the various methods of marketing beef cattle.
• describe how beef cattle should be handled to prevent losses when marketing.
• explain the use of the futures market with beef cattle.
Supply and demand govern the price of beef cattle. Beef producers have little effect on the demand for beef. Management decisions of producers do affect the supply of beef in the market. Beef cattle prices vary with the season of the year. There are also long-term trends or cycles in beef cattle prices. Beef cattle are marketed through terminal markets, auction markets, and by direct selling. The importance of terminal markets has been declining in recent years. Auction markets are found in many local communities. The numbers of cattle marketed in auction markets have not changed much over the years. More cattle are being sold by direct marketing methods now than there were a few years ago. Larger cattle producers tend to use direct selling rather than other methods of marketing.
The sale of beef cattle that are transported across state lines is regulated by the Packers and Stockyards Act. This act sets forth rules for fair business practices and competition in the marketplace. The USDA administers the act. Purebred cattle are sold by private sale and by auction. The reputation of the breeder and the methods used for advertising are important factors in the sale of purebred cattle. Many producers select a marketing method based on convenience. However, price and costs of marketing are more important factors, and should be given first consideration when selecting a marketing method.
Cattle shrink when being shipped to market. Careful handling and management can reduce losses due to shrinkage and damaged carcasses that may occur during shipping. Cattle are divided into classes based on use, age, weight, and sex. Quality grades are used to describe both feeder and slaughter cattle. Yield grades are also used in describing slaughter cattle. The age of the animal and the amount of marbling in the carcass affect the quality grade. The yield grade is determined by the amount of lean meat that can be cut from the carcass. The cattle futures market can be used by the cattle producer to reduce price risk. The cattle producer must keep good records and have an understanding of the pricing system to successfully use the cattle futures market.
The Beef Promotion and Research Act of 1985 established a $1 per head checkoff for every head of beef sold in the United States. Fifty cents of each dollar goes to the state beef council in the state where the sale occurs. The other fifty cents goes to the Beef Promotion and Research Board for use at the national level. If there is no state council in the state where the sale occurred, all the money goes to the national level. The money collected is used to promote beef as a food, provide consumer information about beef, provide information to the beef industry, promote foreign marketing, and promote research in beef production and utilization.
The checkoff money is generally collected by auctions, packers, and other markets. Animals sold at private sale are also subject to the checkoff, but compliance enforcement is more difficult. Checkoff money is required to be forwarded to the state beef council or the beef board by the 15th of the month following the sale. Penalties for noncompliance include late fees of 2 percent compounded monthly, a civil penalty of up to $5,000, and a federal penalty of up to $10,000 for each violation. The United States Department of Agriculture (USDA) is responsible for enforcement of the checkoff.
The activities of the Beef Promotion and Research Board are credited with helping beef maintain a higher share of the meat market than would have otherwise occurred. Research funded by the checkoff has addressed such issues as excess carcass fat, quality control, food safety, animal welfare, and environmental concerns. A recent analysis of the impact beef checkoff spending has had in the marketplace shows a net gain to cattle raisers of more than $5 for each $1 of checkoff money collected. The analysis revealed that consumers in the United States have responded favorably to beef promotion and education programs funded by the checkoff money. The programs have effectively increased the number of new beef consumers as well as the amount of beef purchased by current consumers.
Some beef producers have not agreed with the concept of the beef checkoff program and have challenged its legality. Federal courts in various states have ruled differently on this question. The U.S. Supreme Court may eventually settle the issue. The checkoff program continues to function until a final determination is made.
SUPPLY AND DEMAND
Supply is defined as the amount of a product that producers will offer for sale at a given price at a given time. As prices increase, producers are willing to offer more of the product for sale. As prices go down, less of the product will be off ered for sale. Demand is defined as the amount of a product that buyers will purchase at a given time for a given price. As prices go up there is less demand for a product. As prices go down there tends to be more demand for a product.
The combined effects of supply and demand govern the market price of beef cattle. Producers have little effect on the demand for beef. However, their decision to sell or not to sell beef affects the supply. Since cattle raising and feeding is a long-term project, the real influence on supply is made long before the cattle go to market. Management decisions to raise more cattle or fewer cattle eventually affect the price of cattle on the market. Beef cattle numbers tend to run in 9- to 13-year cycles.
The price of feeder calves tends to be below the yearly average during the fall and winter months. During the spring and summer, the price of feeder calves tends to be above the yearly average, which reflects a stronger demand during this period. The price of slaughter steers and heifers follows a pattern similar to that of feeder calves. The peak prices tend to come in April, after which the prices taper off for the rest of the year.
In recent years, more cattle finishing has been concentrated in large commercial feedlots. This trend has tended to reduce the seasonal variation in fed-cattle prices. Large feedlots are more likely to follow a pattern of year-round placement and marketing of fed cattle. Another factor that has aff ected the seasonal variation in fed-cattle prices is the tendency to feed cattle for shorter periods of time than was common a few years ago. The numbers of fed cattle marketed are generally lower during the last quarter of the year. However, an increase in marketing of cows and other non-grain-fed cattle and an increase in the pork supply tends to keep fed-cattle prices lower than the yearly average during this period. Beef marketing tends to be lower during the second quarter of the year; this causes an increase in seasonal prices during this period.
Knowledge of seasonal price changes can help in making management decisions about buying and selling cattle. However, price movements in any given year may be different than the long-term seasonal trends. Current information about supply and demand and other factors that may influence price movement must be carefully evaluated each year when making buying and selling decisions. Federal farm programs, general business conditions, feed supply, and price levels are all factors that may affect seasonal price trends for beef cattle. Long-term trends show the level of cattle prices over a period of time. General economic conditions have the greatest influence on long-term price trends for cattle.
METHODS OF MARKETING
Terminal Markets
Terminal markets are also called central markets or public stockyards. The facilities of the terminal market are owned by a stockyard company. The company charges for the use of the facilities and for feed fed to the cattle while they are in the stockyard. However, title to the livestock does not pass to the stockyard company. In other words, the stockyard never possesses ownership of the cattle. Terminal markets have two or more commission firms. Cattle are consigned to a commission firm by the seller. When goods are consigned, they are not sold to another party, but merely given to another party who acts as a selling agent.
The function of the commission firm, or selling agent, is to bargain with representatives of the purchaser to get the best price possible for the cattle. Commission firms charge a fee, called a commission, for their services in marketing the cattle. As noted before, the commission firm does not take title of the cattle. Cattle that are consigned to the firm are sorted into uniform lots for sale. Costs at a terminal market include charges for yardage, feed, insurance, and selling fees. Yardage is the fee charged for the use of stockyard facilities. These costs are deducted from the selling price of the cattle. The seller receives the net amount after the charges are deducted. Terminal markets exist for both feeder cattle and slaughter cattle. Today, there are about 30 terminal markets compared to about 80 in the 1920s and 1930s. Most terminal markets for feeder cattle are in the western and mid-western states. Slaughter-cattle terminal markets tend to be located near population centers and packing plants. Commission firm sales of cattle are by private sales. Both buyers and sellers are represented by professionals. Some terminal markets are now using auction sales as a method of selling both feeder and slaughter cattle. However, the use of terminal markets as a method of selling cattle is decreasing. About 12 percent of the packer sources of slaughter cattle is from terminal markets as compared to more than 90 percent in 1925. Larger producers of cattle tend to use other methods of marketing their cattle.
At auction markets, cattle are sold by public bidding, with the animals going to the highest bidder. Auction markets are also called local sale barns and community auctions. They are found in local communities. Auction markets are popular because of their convenience for buyers and the open competition for cattle. Auction markets are of most value to the smaller cattle producer. Auction marketing costs include charges for yardage, feed, insurance, brand, and health inspection. Charges are based either on a percent of the selling price or a fixed fee. The costs are paid by the seller of the cattle.
Both feeder and slaughter cattle are sold through auction markets. In some states, cattlemen’s associations sponsor consignment sales for feeder cattle. Cooperative auction markets are used in some areas to sell slaughter cattle. Increasing numbers of feeder cattle are being sold through auction markets. The number of slaughter cattle being marketed in this way is currently remaining steady. About 18.6 percent of the packers’ sources of slaughter catt le come from auction markets, compared to 15.6 percent in 1960.
Direct Selling and Country Markets
Larger cattle producers tend to market their cattle by direct marketing methods. Typically, there are no commission firms or brokers involved in the marketing process. Contract sales are used to market cattle directly from feeder cattle producers to cattle feeders. The sale is made on the range or farm where the feeder cattle are produced. Large producers of feeder cattle often use contract sales as a method of marketing their cattle.
Cattle dealers buy feeder cattle for cattle feeders. Dealers are either paid on a commission basis or buy the cattle outright and then resell them at a higher price. Cattle dealers also buy slaughter cattle locally. Usually, they have facilities for handling cattle. These cattle are then shipped on to packing plants for slaughter.
Order buyers buy feeder cattle on order for cattle feeders. Cattle feeders use order buyers because the order buyer knows where the cattle are and is familiar with market conditions. Order buyers also buy slaughter cattle for packing plants. The cattle are bought on the farm and shipped directly to the packing plant. They are weighed at the packing plant and are paid for at prevailing prices for that day. Increasing numbers of slaughter cattle are being bought on a grade and yield basis. Using this system, the value of the animal is determined after it is slaughtered. The carcass is graded, and the carcass weight or yield is determined. Good quality cattle bring a higher price when marketed in this way. About 23 percent of the cattle and 9 percent of the calves in the United States are marketed on a grade and yield basis. This compares to 14 percent of the cattle and 3 percent of the calves in 1967. The number of slaughter cattle being marketed by direct marketing methods is increasing. About 69 percent of the packers’ source of slaughter cattle is from direct marketing and country dealers as compared to 38 percent in 1960. Increasing numbers of feeder cattle are also being marketed through direct marketing methods.
Electronic Marketing
In some areas of the United States, livestock marketing associations have established a system of marketing utilizing computer technology. This method has been used mainly for marketing feeder cattle, but the potential exists for expansion into marketing other types of cattle. The system works as a form of auction selling. Each bidder has a computer terminal online during the sale. Bids for each lot of cattle are entered by individual bidders on their terminals. When no more bids are received, the lot of cattle is sold and the bidding begins on the next lot. Bidders can buy the cattle from their offices and do not have to travel to an auction barn. Accurate written descriptions of the cattle and terms of the sale are made available to the bidders several days prior to the beginning of the auction. This information is gathered by graders who work for the livestock marketing association. Information made available includes the number of head, breed or type, sex, estimated average weight, estimated grade, delivery date, weighing location, conditions of sale, flesh condition, feeding and pasture conditions under which the cattle were kept, and information concerning any preconditioning. Video auctions are growing in popularity as a method of selling cattle. The cattle are videotaped on the ranch or farm where they are located. The videotape is sent to the transmitting station where the auction is located. The auction is telecast for viewing by prospective buyers. Typical information about the cattle includes breed, where they are located, number of head, frame size, estimated weight variance, vaccination and implant information, and current feeding program. Prospective buyers must register with the auction company in advance of the sale. A video auction allows the buyer to see the cattle without moving the cattle to the auction. The purchased cattle are moved directly from the seller’s facility to the buyer’s facility. This reduces the chances of the cattle having stress and health problems.
Some video sales cattle auction companies that have been doing video auctions of cattle have now expanded their services to the Internet. Potential buyers can see the cattle and make bids online. Use the search term “cattle auctions” in a search engine such as Google.com to find the URLs of these services. These URLs also provide links that allow trading in other agricultural supplies and products such as grain, hay, farmland, beef and dairy cattle embryos, chemicals, and livestock feeds. These are commercial sites designed to provide electronic commerce tools to the agricultural community. It is expected that the Internet will continue to increase in importance for livestock producers in terms of both commerce and information in the years ahead.
Packers and Stockyards Act
Th e Packers and Stockyards Act is a federal law that is administered by the USDA. All cattle that move across state lines are regulated by this act. The act sets the rules for fair business practices and competition. These rules apply to stockyards, auction markets, packers, market agencies, and dealers who engage in interstate livestock marketing. Individual farmers who buy or sell cattle as a part of their farming operation are not considered to be dealers under the provisions of the act.
Livestock dealers must register with the USDA. They must file a bond based on the volume and type of their business. Packer-buyers who buy only for slaughter do not have to file a bond. Records showing the nature of every transaction must be kept by dealers. Scales must be operated in a way that gives accurate weights. Serially numbered scale tickets are issued. Dealers are forbidden to use any unfair, discriminatory, or deceptive trade practices. The Packers and Stockyards Act is enforced by representatives of the USDA. Violators of the Act may be warned or ordered to stop violations. If the violation is serious, dealers may be suspended from registration and not allowed to continue to do business. Criminal violations are prosecuted by the Department of Justice.
Purebred Marketing
The marketing of purebred cattle is a specialized business. Purebred cattle are usually sold by private sales or by auction. Purebred producers advertise their herds through breed association magazines and other publications. Selling bulls that have been performance tested also provides advertising for the purebred herd owner. Exhibiting at fairs and shows is another way to advertise purebred cattle. Purebred associations sometimes sponsor consignment sales at which cattle are auctioned. The purebred producer should consign only cattle of the best quality to these sales.
Selecting a Market
The marketplace has two functions. These are to set the value of the cattle and to physically move the cattle from producer to consumer. The individual producer must determine the best market based on price, costs of marketing, and convenience. Many producers select markets mainly on the basis of convenience. Price and costs of marketing should be given more importance than convenience when selecting a market.
Shrinkage
Shrinkage is the loss of weight that occurs as cattle are moved to market. The amount of loss varies from 1 to 5 percent of an animal’s weight. The amount of shrinkage is affected by the following factors:
• the distance the cattle are moved. Most loss in weight occurs in the first few miles.
• the amount and kind of feed and water the cattle receive just before shipping.
• the weather.
• the condition of the cattle; thin cattle shrink more than fat cattle.
• how the cattle are handled.
• the sex of the animal.
• the amount of feed, water, and rest the cattle receive during shipping.
• the length of the fillback period (time during which cattle are fed) after the cattle reach market.
Losses from shrinkage are absorbed by the seller. A pencil shrink is sometimes used in certain kinds of marketing. In a pencil shrink, the amount of shrinkage is estimated and a deduction of weight is made based on the estimate. Tables can be used to determine the net bid when a pencil shrink is being used. For example, if the bid was $40.00/cwt with a pencil shrink of 3 percent, then the net bid is $38.80. If the producer decides to ship the cattle rather than taking the on-farm bid with a pencil shrink, then the cattle must bring a higher price to make up for the shrinkage while being shipped. In this example, if the cattle shrink 3 percent while being shipped, then the market price must be $41.24 to be equal to the bid offered on the farm.
Price Information
If cattle are to be marketed profitably, the producer must be aware of current prices as well as price trends. Live cattle quotations can be obtained from newspapers, radio, television, and by phone. The USDA publishes weekly livestock market news information to which producers can subscribe. Outlook information is available from colleges of agriculture.
Labeling of Meat
The Agricultural Marketing Act of 1946 was amended by the Farm Bills of 2002 and 2008 to require retailers to label covered commodities showing the country of origin. This includes the muscle cuts of beef, lamb, and pork; and ground beef, lamb, and pork. Other commodities that do not come from the livestock industry are also included. The country of origin labeling program is generally referred to as the COOL program. To use a “United States country of origin” label, the product must come from an animal that was born, raised, and slaughtered in the United States. The package may be labeled with a written label, a stamp, a mark, or other visible means that may be clearly seen by the consumer. Restaurants, bars, and food stands are exempt from the labeling requirement. The Agricultural Marketing Service of the USDA is responsible for making the rules for this requirement. The Farm Bill provides for enforcement and mandates fines for those who violate the regulations. Record keeping and tracking systems are being developed to meet the labeling regulations. COOL increases costs at all levels of the process, but eventually all costs are passed on to the final consumer. Proponents of country of origin labeling argue that it increases demand for domestic meat, thus raising prices for producers. Opponents cite the increased cost to the consumer and argue that there is little or no increase in demand for domestic meat and therefore no significant economic gain for producers. Data from the USDA indicate that imported meat amounts to about 1 to 2 percent of the total meat consumed in the United States. It is not clear that country of origin labeling of meat provides a significant economic benefit to producers. Opponents cite the active trade of cattle and cattle products with Canada. They ask, “What label should ground meat receive, which often contains meat from two or more countries, and how should cows that are born in Canada and finished in the United States be labeled?” It will probably be several years before any clear answer begins to emerge.
Use of Ultrasound to Determine Live Animal Quality
Research is being conducted to determine the value of ultrasound technology as a means of assessing the probable grade of live cattle. The use of the technology allows the producer to measure the percent of marbling, the amount of fat cover, and the rib eye area in live cattle. Using ultrasound, cattle feeders can sort cattle into separate lots for feeding more uniform groups and determine when cattle are ready for market. Breeders can use the technology to help select breeding stock, especially bulls, with desirable carcass traits. As the cattle industry moves toward a marketing system based on carcass merit, the ability to accurately determine the quality of the carcass in live animals will become more important. Currently, the relatively high cost of the procedure has limited its use. Continued research in the use of ultrasound to determine carcass merit will improve the accuracy and value of this technology.
Effect of Mergers on Marketing
For a number of years there has been an ongoing debate in agriculture regarding mergers of agribusiness corporations into larger corporations. Some observers believe that this trend is putting too much control of the market in the hands of too few people. Whenever the prices paid for livestock drop, the debate becomes more intense. Occasionally, there are suggestions that more legislation is needed to control such mergers. There are also those who believe the Justice Department should investigate possible antitrust violations in agriculture. The USDA reports that approximately 82 percent of all steer and heifer slaughter in the United States in 2000 was controlled by the four largest packing companies. This compares to approximately 36 percent of the steer and heifer slaughter that the four largest packing companies controlled in 1980. A statistical analysis (U.S. Beef Industry: Cattle Cycles, Price Spreads, and Packer Concentration) by the USDA concluded that there was no evidence that packer concentration had any major impact on the market price of live beef cattle. Some farmers, farm organizations, and agricultural economists did not agree with the conclusions of the USDA report. This is another issue that has yet to be resolved.
MARKET CLASSES AND GRADES OF BEEF
The purpose of this section is to provide a brief overview of the market classes and grades of beef cattle. The official U.S. standards for beef cattle may be secured from the USDA, Agricultural Marketing Service, Livestock and Seed Division. The standards are available at the URL: http://www.ams.usda.gov .
Calves
Beef animals younger than 1 year of age are called calves. After 1 year of age, beef animals are called cattle. Calves are further classed as veal calves (vealers) and slaughter calves. Veal calves and slaughter calves are generally divided on the basis of the kind of carcass they will produce. The main difference between the two is the color of the lean meat in the carcass. The age and kind of feed the calf has had generally determines whether it is a vealer or a slaughter calf. Vealers usually have had only a milk diet and are under 3 months of age. Slaughter calves are usually between 3 and 8 months of age and have had feed other than milk in their diet for a period of time. Light veal calves weigh less than 110 pounds (49.9 kg). Medium-weight veal calves weigh from 110 to 180 pounds (49.9 to 81.7 kg). Heavy veal calves weigh more than 180 pounds (81.7 kg). Weight classes for slaughter calves are: Lightless than 200 pounds (90.7 kg); Medium—200 to 300 pounds (90.7 to 136.1 kg); and Heavy—more than 300 pounds (136.1 kg). The sex classes of vealers and slaughter calves are steers, heifers, and bulls. All three of these classes are graded on the same standards. The five grades of vealers and slaughter calves are: (1) Prime, (2) Choice, (3) Good, (4) Standard, and (5) Utility.
Slaughter Cattle
Cattle are first divided into feeder or slaughter cattle. This division is based only on their intended use. The class of cattle is based on sex definitions and the grade is based on the apparent carcass merit of the animals. There are five sex classes of beef cattle. A steer is a male that was castrated before reaching sexual maturity and is not showing the secondary characteristics of a bull. A bullock is a male, usually under 24 months of age, that may be castrated or uncastrated and does show some of the characteristics of a bull.
A heifer is an immature female that has not had a calf or has not matured as a cow. A cow is a female that has had one or more calves. An older female that has not had a calf but has matured is also called a cow. A bull is a male, usually over 24 months of age, that has not been castrated. When applying the official USDA standards, any castrated male bovine that shows, or is beginning to show, the mature characteristics of an uncastrated male is considered a bull. The grades of live slaughter cattle are directly related to the grades their carcasses will produce. As noted in another section of this chapter, there is research being conducted on the use of ultrasound technology to help determine the quality of live animals.
The quality grades for steers and heifers are: Prime, Choice, Select, Standard, Commercial, Utility, Cutt er, and Canner. The same quality grades apply to slaughter cows, with the exception that there is no Prime grade for cows. The quality grades for bullocks are Prime, Choice, Select, Standard, and Utility. The Prime, Choice, and Standard grades are generally used only for steers, heifers, and cows that are less than 42 months of age. The Select grade for steers, heifers, and cows is generally limited to animals that are no more than 30 months of age. The Commercial grade is generally applied only to steers, heifers, and cows that are more than 42 months of age. The Utility, Cutter, and Canner grades may be applied to any age of steers, heifers, and cows. The quality grades for bullocks apply only to animals that are no more than 24 months of age. Five yield grades are used to describe slaughter beef. These are numbered Yield Grade 1 through Yield Grade 5. Yield Grade 1 indicates the highest yield of lean meat. Yield Grade 5 indicates the lowest yield of lean meat. The grading of beef carcasses is directly related to live beef grading standards. Live cattle quality grades are based on the amount and distribution of finish on the animal. The firmness and fullness of muscling and maturity of the animal are other factors involved in quality grading. Yield grades in live cattle are based on the muscling in the loin, round, and forearm. Fatness over the back, loin, rump, flank, cod, twist, and brisket is also used in determining yield grade. Fatness is more important than muscling in determining yield grade.
Carcass Beef
The age of the animal and the apparent sex designation when the animal is slaughtered determines the class of the beef carcass. The five beef carcass classes are (1) steer, (2) bullock, (3) bull, (4) heifer, and (5) cow. The quality and yield grades for carcass beef are the same as those for live slaughter cattle. The amount of marbling in the carcass affects the quality grade of the carcass. Marbling refers to the presence and distribution of fat and lean in a cut of meat. When grading beef carcasses, five maturity groups and seven degrees of marbling are used. Figure 19-8 shows the relationship between marbling, maturity, and quality grades of beef. Bullock carcasses are limited to maturity group A. The Select grade of beef is also restricted to maturity group A.
The yield grade of a beef carcass is influenced by carcass weight, rib eye area, thickness of fat over the rib eye area, and the amount of kidney, pelvic, and heart fat. A preliminary yield grade for a warm beef carcass is determined by the thickness of fat over the rib eye. Each 0.1 inch (0.25 cm) of fat thickness changes the yield grade by 0.25. An adjustment is then made for rib eye area and percent of kidney, pelvic, and heart fat to determine the final yield grade. An increase in the amount of these fats decreases the percent of retail cuts from the carcass. Each change of 1 percent of the carcass weight attributed to these fats causes a 0.2 change in the yield grade.
The preliminary yield grade is adjusted for each percent that the kidney, pelvic, and heart fat is more or less than 3.5. For each percent more than 3.5, add 0.2 of a grade to the preliminary grade. For each percent less than 3.5, subtract 0.2 of a grade from the preliminary yield grade. For example, if the thickness of fat over the rib eye was 0.2 inch (0.5 cm) the preliminary yield grade would be 2.5. Assume the warm carcass weight is 600 pounds (272 kg) and the rib eye area is 12 square inches (77.4 cm2). The adjustment to the preliminary yield grade is then a minus 0.3. Assume, further, that the percent of kidney, pelvic, and heart fat is 2.5. The adjustment to the preliminary yield grade is then a minus 0.2 of a grade. The final yield grade would then be 2 (2.5 0.3 – 0.2 2.0).
The higher grades of slaughter beef are usually grain-fed animals that have a high yield of lean cuts with the right amount of marbling. These animals bring higher prices in the market. About 97 percent of the graded beef in the United States grades U.S. Select or higher; 8 percent of the quantity grading Select or higher grades Prime; 83 percent grades Choice; and only 5 percent grades Select. About 53 percent of the commercial beef production in the United States is quality graded. Research is currently being done on using ultrasound imaging to grade beef carcasses. A hand-held transducer is placed over the rib-eye muscle of the carcass as it moves along the line in the packing plant. The information is fed into a laptop computer that calculates the percentage of fat. This allows more accurate grading of the carcass. It is expected that ultrasound imaging will eventually be commonly used for grading beef carcasses. Dark cutting beef is a condition in which the lean meat is darker than normal in color. It usually has a gummy or sticky texture. It is believed to be the result of reduced sugar content in the lean meat at the time of slaughter. The condition is sometimes found when cattle have been subjected to stress conditions just before slaughter. The condition varies from being barely visible to nearly black in color (dark/black cutter). There is little evidence that the condition has any negative effect on the taste of the meat. It is considered in grading beef because it has an effect on consumer acceptance and therefore on the value of the meat. Depending on how severe the condition is, the grade of carcasses that would otherwise be graded Prime, Choice, or Select may be reduced by one full grade when the condition is present. Beef carcasses that might have otherwise graded Standard or Commercial may be reduced in grade by up to one-half of a grade. Dark cutt ing beef is not considered when grading Utility, Cutter, and Canner grades.
HANDLING CATTLE PRIOR TO AND DURING MARKETING
Careful handling of cattle just before shipping and during transit to market can save the producer a great deal of money. Losses due to improper handling amount to millions of dollars per year in the United States. Feed additives and drugs must be removed from the feed for the proper length of time before marketing. Label directions on these additives and drugs must be followed closely. Cattle can be conditioned before shipping to reduce shrinkage. If they have been on a ration of green feeds or silage, the amount of these feeds should be reduced and the amount of hay increased. Remove the protein from the ration 48 hours before cattle are to be shipped. Reduce the grain in the ration by one-half the day before shipping. Do not feed grain the last 12 hours before shipping. Give the cattle free access to water up to the time of shipping. If cattle are to be sold on a grade and yield basis all feed can be taken away from them 48 hours before shipping. Allow them all the water they want up to the time of slaughter. Cattle that are to be weighed upon arrival at the plant can be fed the normal ration up to weighing time. Cattle should be moved slowly and quietly when loading and handling. Do not use clubs or whips or electric prods to force cattle to move. Clubs and whips damage valuable cuts of meat on the carcass. Electric prods overexcite the animals. Canvass slappers can be used with little injury to the cattle. Load only the proper number of cattle on trucks. Overcrowding or underloading increases the chances that cattle will be injured during shipping. Large trucks should be divided into compartments. Protect the cattle from the weather while shipping. Avoid sudden stops and starts with the truck.
CATTLE FUTURES MARKET
The cattle futures market is a system of trading in contracts for future delivery of cattle. The contract is a legal document calling for the future delivery of a given commodity. Trading in futures is common with many types of commodities. Trading in contracts means that the contract representing the commodity is bought or sold rather than the actual commodity. Trading in futures is done for both slaughter and feeder cattle. The trading is done at commodity exchanges. The futures market is supervised by the Commodity Exchange Authority of the USDA. The actual buying and selling is supervised by members of the commodity exchange. They charge a fee for their services. A cattle feeder may use the futures market to hedge on the price of cattle. Hedging provides some protection against price changes. To hedge, or protect himself from a future drop in the price of finished cattle, a cattle feeder might sell a contract on the futures market at the same time that he buys feeder cattle. Later, when the finished cattle are sold, the futures contract is bought back. This practice tends to lock in the profits from feeding the cattle. Because the hedging operation involves opposite actions (buying and selling) in the cash and futures markets, the risk of loss is less if cattle prices go lower than expected. The sale of the futures contract at the start of the hedging period offsets the lower cash price for cattle at the end of the hedging period. However, if cattle prices go higher than expected at the end of the hedging period, the cattle feeder will not realize additional profits because he must buy back a contract at that time or deliver the live cattle to off set the sale of the futures contract at the start of the hedging period. Thus, while hedging reduces risk, it also reduces the opportunity for additional profit that might result from a higher than expected upward movement in the price of live cattle.
There is some risk in using the futures market. The cash price of cattle does not always closely follow the price of futures contracts. To use the futures market successfully, the cattle feeder must keep good records and understand the pricing system in the market. The futures market tends to bring price stability to beef cattle prices. It also tends to level out seasonal variations in the price of beef. Extensive use of the futures market by cattle feeders tends to take some of the risk out of the beef cattle business.
By James R. Gillespie and Frank B. Flanders in the book 'Modern Livestock and Poultry Production' - Delmar Cengage Learning, U.S.A, 2010, chapter 19, p.371-384. Edited and adapted to be posted by Leopoldo Costa.
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