By: Tina L. Saitone
Ranchers marketing their cattle through Western Video Market (WVM) are often at the forefront of the industry, enrolling in and differentiating their cattle on sale day with the newest value-added management and marketing programs available. Using data from WVM's 2018 satellite video auctions allows us to estimate the average premium/discount associated with marketing under each of these programs individually.
This is the second post in the blog series where I summarize and discuss the estimated premiums associated with value-added management, vaccination, and marketing programs in 2018.
In order to generate reliable estimates, a sufficient number of lots of cattle must be marketed under each program. In 2018, the available programs for analysis included:
- Age and Source Verified - allows cattle to be sold in export markets (USDA Process Verified Program or Quality System Assessment Program).
- Non-Hormone Treated - third-party certified program that ensures animals are not given hormonal growth promotants at any time during their life. Qualifies beef derived from these cattle for export markets (e.g., Europe).
- Organic - Cattle must be raised in a manner that compiles with USDA Organic Standards.
- Non-GMO - Cattle are not fed GMO feeds; indicates compliance with the voluntary GMO labeling system.
- Natural - cattle have never been fed or injected with antibiotics, fed any ionophores, implanted with synthetic hormones, or given any feed or supplements containing animal by-products.
- Verified Natural - third-party certification that cattle were raised in accordance with the natural standard.
- WVM Natural - WVM provides an alternative to the third-party verified natural program wherein ranchers can sign an affidavit confirming that cattle were raised naturally.
- Implanted - Cattle have received an anabolic implant (e.g., Ralgro, Synovex, etc.).
- Global Animal Partnership (GAP) - Cattle are raised in accordance with the third-party certified animal welfare protection program.
WVM provides a summary and details at these programs here.
Prices for calves and yearlings were analyzed separately given that they are often marketed to different buyers. The results from the calf and yearling models for the value-added management and marketing programs available in the 2018 data are provided below.
Figure 1 (below) compares results from 2017 and 2018 for calves. Estimates for 2017 are shown in navy blue and estimates for 2018 are shown in red. All estimates are provided in per hundredweight (cwt.) terms. In the figure below, the dots represent the estimated premium/discount for that particular value-added program and the lines that extend away from the dots show the 95% confidence interval. This is the range in which we are 95% certain that the true value of the premium/discount falls. If the confidence interval includes zero (vertical red line), we cannot be certain (in statistical terms) that the premium/discount is not zero. It should also be noted that there is, in some cases, substantial year-to-year variability in premiums/discounts associated with value added management and marketing programs.
The largest premiums earned for value-added management programs in 2018 for calves were associated with lots that were marketed global animal partnership ($4.39/cwt), organic ($4.22/cwt although it is not certain that this is statistically different from zero), and non-GMO ($3.94/cwt also not significant). Also note that these programs have large confidence intervals surrounding the point estimates. This is because relatively few lots participated in these programs and, as such, statistical precision is limited.
Figure 2 (below) shows the 2017 (in navy blue) and 2018 (in red) yearling results. Yearlings that were implanted earned a premium of $1.59/cwt in 2018 ($0.93/cwt in 2017.) Yearlings marketed as either WVM Natural ($5.73/cwt) or Verified Natural ($5.60/cwt) earned statistically significant premiums in 2018. In 2018, the premiums for WVM Natural and Verified Natural are very similar (i.e., not statistically different from one another). Also, it should be noted that the premium associated with yearlings marketed as organic in 2018 earned a substantial premium ($11.95/cwt). Yet, the wide confidence interval should also be noted (i.e., the model indicates that we can be 95% confident that the organic premium is between nearly $8/cwt and just shy of $16/cwt).
Also, for the first time in 2018 producers were noting a few new things when marketing their cattle including: i) lots with electronic identification (EID) tags, ii) China export market ready, and iii) Saudi Arabia market ready. While EID tags may facilitate increases in efficiency when cattle move through the supply chain (e.g., vaccine documentation would eliminate re-vaccination), data analysis for 2018 does not show a premium for EID tag placement. China and Saudi Arabia market ready means that cattle are age and source verified and non-hormone treated. Thus, adding the premiums from those two programs would give you the premium associated with having cattle export ready for these destinations.
Year-to-year variability in premiums/discounts can be caused by many factors. These estimates represent averages across all calves and yearlings marketed in 2018 through WVM. These are not meant to be taken as forecasts for premiums/discounts in the future.
If you would like to be notified via email when additional blog posts become available, please email Tina Saitone (firstname.lastname@example.org).