Extension by John Ritten
Can you afford preconditioning programs? Can you afford not to implement them? Recent research at Kansas State has tried to put economic values on various preconditioning programs.
Feedlots nationwide were surveyed to determine the value of various preconditioning programs as well as various types of certification in terms of willingness to pay for calves. The feedlots surveyed were mostly large, with 95 percent of respondents having at least 1,000 head capacity. Of those surveyed, on average 23 percent of the cattle purchased had undergone some form of preconditioning. However some operators indicated that greater than 75 percent of the cattle they buy had undergone some preconditioning.
As expected, the survey suggests feedlots generally prefer calves that have undergone some sort of preconditioning program and are willing to pay extra for them.
Feedlot operators generally stated that having identified health programs prior to the feedlot setting tended to decrease morbidity and increase efficiency and gains. However, feeders also realized these animals were likely to cost more to purchase. The type of verification also appears to be important in the premiums paid for calves that have undergone some form of preconditioning.
Results indicated that calves vaccinated against respiratory and clostridial/blackleg as well as being treated for both internal and external parasites were likely to receive a $1.93 per hundredweight premium over calves without any prior health program.
Interestingly, it appears weaning plays an even bigger role in premiums.
For calves that had undergone the same health program but had been weaned for a minimum of 30 days prior to shipping increased the premium to $7.25 per hundredweight – an increase of $5.35 per hundredweight for the weaning claim over just the health program. If the weaning were increased to 45 days, the total premium increased to $12.15 per hundredweight. The additional 15 days of weaning is worth $5.10 per hundredweight over the 30 day weaned calves.
However, verification of these claims also increased the premiums.
The above results were for claims made by the seller alone. If third party verification, such as a pharmaceutical company or veterinarian, is included, all of the above premiums would increase by $0.85 per hundredweight. USDA certification increased the premiums by $2.37 per hundredweight.
Whether or not verification pays will depend on the cost of such verification. Compare the cost to the expected increase in revenues, which for a 500 pound steer with USDA certification should be worth $11.85 per head.
Age and source
Perhaps one of the easiest premiums to be received is the age and source verification (ASV).
As ASV has become increasingly important for export markets, respondents said that calves that had ASV would bring a premium of $5.84 per hundredwight. Again, on a 500 pound steer that translates to an increase of almost $30 per head. The estimated cost of ASV for those operations already tagging calves was only four dollars per head.
Surprisingly, respondents stated that only 16 percent of placements were currently age and source verified.
In a similar study of the Superior Livestock Auction (SLA), these preconditioning premiums varied only slightly. Based on 10 years of data, VAC34 programs have steadily brought two to four dollar per hundredweight premiums, while weaning programs have increased from two dollars per hundredweight in 2001 to over $4.50 per hundredweight in recent years.
There appeared to be more ASV calves going through SLA, and premiums were often in the two to three dollars per hundredweight range.
In short, calves that had a health program, were weaned a minimum of 30 days and were age and source verified, brought premiums in the range of eight to 11 dollars per hundredweight through the SLA in recent years.
These are all important options to consider when preparing to market calves this fall. An interesting note is that the research at Kansas State was based on $140 per hundredweight steer prices for a 650-pound steer, and expectations are that as cattle prices rise, these premiums will increase on a similar scale.
Given the restricted supply of calves in coming years, I would not be surprised to see prices at or above this range for a while. Therefore, the opportunity cost of not utilizing these programs will be higher.
Is the additional revenue sufficient to cover the cost of preconditioning? I’m not sure because each operation is different, and only you can compare the cost of enacting these programs. But, the data suggests there are some premiums to be had.
For more information, the Kansas State study can be found at ksre.ksu.edu/library/agec2/mf3017.pdf. John Ritten is the UW Extension Economist and can be reached at firstname.lastname@example.org.