Evaluating Premiums for Weaned Calves Marketed with Value-Added Management Characteristics

Background

Cow-calf producers are often price takers with little opportunity to influence the price they receive for weaned calves. With a large portion of the calf crop coming to market at the same time each year (during the fall months), supply exceeds demand and prices decline. Both traditional and value-added attributes will differ between lots of calves. Ranchers who can market their calves as a lot or group may be able to differentiate their calves and draw a price premium. Research to determine which attributes for feeder calves marketed via electronic auction in western Canada draw higher or lower prices can help cow-calf producers determine which practices are worth changing.

Objectives

Online auction sales results from 2016 to 2020 are being analyzed to see which attributes influence the price received and how the price influences have changed over time. Seventeen attributes were considered including traditional (e.g., weight, breed, colour, sex, lot size, location) and value-added (e.g., implant status, weaned, age verification, VBP+ status, EU eligible).

What you did

Key deliverables include:

• estimates of premiums (or discounts) in electronic auction price for 17 select weaned calf attributes for producers to understand the value associated with weaned calf management and marketing,
• metrics on what attributes are included in lot listing reports and how attribute inclusion and premiums have changed over time, and
• a comprehensive database that will be used for this and future analysis.

Years of interest for the study are 2016 to 2020 and data has been sorted to include online calf sales results from August to December for weaned calves weighing between 400 and 800 lb.

A graduate student assigned to the project has developed a database combining CanFax’s historic sales information for weaned calf sales with attributes from the hard-copy (paper) lot listing reports. Industry advisors were consulted to inform the variables to include in the hedonic model.

What you learned

For 60 years, hedonic modeling has been used to examine the relationship between the attributes of a feeder calf lot and the resulting price. The majority of this research has been done in the US. This is the first Canadian study to analyze the relationship between attributes and resulting price for online feeder calf sales using a hedonic model.

We looked at 17 attributes related to the: 1) lot (sex, number of animals, province of origin); 2) genetics (hide colour, frame size); 3) management (weight, weight spread, flesh, implant use and weaning status); 4) marketing (age verification, VBP+ mention, EU eligibility) and; 5) market structure (marketing week, days to delivery, expected fed price).

As expected, traditional attributes – weight, lot size and weight uniformity – consistently influenced price. As average calf weight increased, the price declined but at a decreasing rate. The average lot size was 109 head; as the number of head in a lot increased, price also increased but only up until ~350 calves. Lots with weight spreads under 100 lb were favored (+$1.18-$2.30/cwt) but weight spreads exceeding 200 lb were discounted (-$2.03 to $2.67/cwt).

Mentioning VBP+ ($1.63/cwt) and EU Eligibility ($1.72/cwt) positively influenced price for steer lots sold in 2020, but not in previous years. From 2016 to 2020 the percentage of lots mentioning VBP+ increased from 3% to 15% while the percentage of lots noting EU eligibility increased from 0% to 8%.

The percent of lots mentioning age verification (AV) declined from 58% to 46% (2016-2020) and the AV premium declined from 2017 ($1.43/cwt) to 2019 ($0.88/cwt) for steer lots with no premium in 2020.

It is best to disclose implant status; lots that did not specify implant status were discounted $1.13 to $2.12 per cwt. In all models, Charolais-influenced calves received premiums ($4.46-5.81/cwt) compared to black-hided lots. Lots originating from Alberta typically drew higher prices.

What it means

Long-standing fundamentals consistently influence prices in expected ways, while value-added attributes are varied. Age verification is no longer associated with higher price which could be due to export markets (such as Japan) dropping age requirements. Lack of price influence for VBP+, EU and weaned mentions may be related to a lack of third-party verification when these claims are made on a lot listing. Weight uniformity (< 100 lb spread) can be achieved by using a defined, shorter breeding season. Buyers are interested in purchasing calves of like type and source to fill a feedlot pen (250-300 head), which is why price increases as lot size increases. It is best to disclose implant status to avoid penalties. Given the majority of feedlots and federally inspected slaughter capacity are in Alberta, lots originating from Alberta receive higher prices. Despite Charolais-influenced lots receiving price premiums, only 10% of steer lots were Charolais-influenced while close to 70% had Angus influence.