Everyone should take time to celebrate the current cattle market. Historically strong demand, tight supplies and near-record profitability have combined to create what promises to be one of the longest-lasting periods of prosperity that we have ever experienced in the cattle business.

The higher prices predicted for the next several years are a welcome reward considering all the challenges ranchers have faced in the past. Market volatility, the whims of Mother Nature and economic downturns are just part and parcel of our business. They are nearly as constant as death and taxes.

Changing dynamic

However, our industry has had some very specific challenges. We had to deal with declining demand, fueled by a segmented industry saddled with a commodity pricing system that did not enable feedback or economic signals to be efficiently sent through the production system.

The result: We were constantly disappointing consumers. Dollars flowing into our industry were declining on an inflation-adjusted basis. The industry was experiencing consolidation and concentration as a result.

We should celebrate that those dynamics have changed. The industry has never been in a stronger position from a supply and demand standpoint. We should celebrate the success of the Certified Angus Beef ^® (CAB^®) brand and its positive effect on beef demand. We should applaud ourselves for the improvements we have made in quality and efficiency and how we have more dollars flowing into this industry.

We should be excited about how the value of genetics has increased dramatically, and how the marketing system is evolving to provide more price differentiation and information flow that leads to improvements in product quality.

The next couple of years will strengthen producers’ balance sheets and bottom lines. Celebrating successes is one of the true joys of life.

No time to rest

History also teaches us that while we are enjoying the fruits of current successes, we should simultaneously prepare for the future by beginning to put into place what we believe will set the stage for future achievements.

Success in agriculture is never a destination. Rather, it is a continuous process of steady incremental improvement, building upon past accomplishments while preparing for what’s to come.

There is a lot of uncertainty about the future, the most successful ranchers will be those who can adapt to the rapid change and continual transformation we see in our industry.

While we may not know entirely what the future holds, there are a few trends we can be certain will drive the next stages of the cattle industry.

Trend #1

The value of genetics will continue to be the primary differentiator in the marketplace.

Good management is almost a given at this point. It is expected. The value difference between an industry-average pen and an industry-leading pen of cattle can be more than $600 per head.

We routinely see exceptional cattle return grid premiums $150 per head greater than average pens. We see similar differences when measuring differences in feed efficiency. An additional 50 pounds (lb.) of carcass weight contributes yet another $150.

It is understandable that we focus on pen and individual differences in value that occur because of genetic improvement. These are vital metrics, but we need to keep in mind that genetics have been the driver behind improved beef demand.

The base price we are using to calculate all of these differences is $800 per head higher than it would have been if the industry had not turned around beef demand. Premiums for things like quality grade are significant, but their greatest effect has been on demand.

At today’s price levels, small genetic differences have large economic ramifications. Increasingly, cattle buyers understand that genetics are not only the largest driver of differences in profitability, they are also the best way to mitigate risk. Cattle feeders are increasingly using two hedges to reduce risk — they lay risk off on the Chicago Merchandise Exchange (CME), and they invest in a “genetic hedge.”

Of course, herd health, lot size, condition and distance from the feedyard will always play a role in determining value, but genetics are increasingly the primary way we differentiate cattle. Market access and market flexibility will also remain important.

Programs like CARE, non-hormone-treated cattle (NHTC) and All-Natural require a little more effort. But they continue to show positive returns on investment (ROI) as they increase the number of buyers, and they are niche markets that have customers who have proven to pay premiums.

Much like genetics, if you are making the investment, you should take steps to get rewarded for those investments.

Trend #2

Verification, documentation and collaboration are becoming vital components of the marketing equation.

The seedstock industry went through a similar evolution. At one point, it was strictly phenotype and reputation that determined value. Then we began to performance-test and provide performance information. Eventually we evolved to having genetic evaluations and providing expected progeny differences (EPDs), which removed a lot of the guesswork. Reputation was replaced by brand equity.

The market will continue to see more and more price differentiation, but in order for buyers to have the confidence to pay premiums, they will require verification and documentation of the data they are being provided. Differentiation of cattle requires documentation and verification.