In most investment situations, you get a chance to evaluate the risk and rewards, do some research and make an informed decision. But when cattle pass through the sale barn in 30-second intervals, it's not always easy for buyers to base decisions on anything more than appearance.
Data from Oklahoma-based Professional Cattle Consultants (PCC) shows that challenge could make the difference in whether feeders make or lose money on individual sets of cattle.
"You'd think premiums in the marketplace are being based on factors that will ultimately pay off when you're going to sell those cattle," says Dillon Feuz, ag economist with Utah State University.
The PCC analysis, taken from five years of closeout data on millions of cattle from across the feeding belt, shows otherwise.
"If you pay a premium just because they look good or they have the hide color that you think is best, there's enough variation in those groups that you're going to come out short on those premiums," Feuz says.
Does this mean cattle are never worth a premium? Hardly; but it takes information to make them pay.
"If we could correctly identify the cattle that make the most money in the feedlot and grade the best, if we could identify those as feeders in the auction market," Feuz says, "then the premiums aren't big enough."
Danny Herrmann, Ford County Feeders, says he's willing to pay more for cattle that stay healthy, gain and convert, and grade. The best chance at those is recruiting repeat suppliers into his Kansas feedlot.
"If I have a pretty good history, I'll try to buy those cattle again," he says. In the long run, partnership pays off for ranchers, too. "Those people probably get more of a premium than the person who is just taking the highest price every year from a different person."
Hale says producers who want to ensure cattle top the market year after year should make certain they deserve to.
"For a cow-calf man to do the best at marketing his cattle, he needs to know how his calves have performed and graded in the feedyard and how their health has been," he says. "Then he can make changes and improve his cattle and develop a history."
Communication is the key, says Herrmann—that and an extra dose of concern for the entire industry.
"If you do all the vaccinations and everything you can to give it 100%, I'll be more interested," he says. "But if you're complaining about a 50-cent shot, then you're telling me you don't care about me. You need to be concerned about how the cattle perform for the next guy."
Paying more for high-grading or source-and-age verified cattle, but selling them on the average live or dressed price is a flawed business model.
"If you're paying a premium for cattle that you think are going to grade above average, but you're not selling in a market that rewards that," Feuz says, "then you're just wasting money on a [calf] premium."
At the ranch level, lack of knowledge on how cattle gain and grade after weaning makes it hard to know if it's worth paying a premium for breeding stock, he adds.