How Bull Selection Affects Your Feeder-Calf Prices with Brian Bertelsen

We are heading into bull sale season, so today’s episode is geared to give you some bull selection criteria — but with the perspective of the end product. Miranda Reiman caught up with Brian Bertelsen, vice president of field operations at U.S. Premium Beef, at the Feeding Quality Forum. He gave some great insight into ways to make the most money off your feeder cattle, and how your bull selection plays into that. 

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Transcript

Hello and welcome to Angus at Work. I'm Kasey Brown and thanks for joining us. We're heading into bull sale season. So today's episode is geared to give you some bull selection criteria, but with the perspective of the end product. Miranda Reiman caught up with Brian Bertelsen, vice president of field operations at U.S. Premium Beef at the Feeding Quality Forum. He gave some great insight into ways to make the most money off of your feeder cattle and how your bull selection plays into that. So let's dig in.

Miranda Reiman:

Welcome back to the Angus At Work podcast. Today we have Brian Bertelsen with us and he just told the Feeding Quality Forum audience a little bit about what he does and shared some of his data. So Brian, why don't you just give us a recap.

Brian Bertelsen:

So the title was The Impact of Quality on Grid Marketing. And so we unpacked our data and showed how in our 24 year history of US Premium Beef where the premiums have come from, how much was from all things quality related. And by that we mean quality grade, which really you could boil that down to marbling as being the number one thing. All things related to marbling. And that was the main thing that we covered was the impact of quality and the value where the dollars come from.

Miranda Reiman:

Talk to me a little bit about those trends. How has that changed over time? The impact of quality in that grid premium equation.

Brian Bertelsen:

We showed how we break down that premium. And first of all, let me just say when we talk about premium, what is that? That is comparing what we pay total versus if you would've sold those cattle on the average cash market in Kansas the week before you harvest it. So that's what we call premium. But then we break that premium down and say, well how much of it came from quality? How much of it came from dressing percentage and out weights and so on and so forth, yield grade. And every year but one, quality grade has been the biggest component of the overall reward. Over the years that quality grade premium has grown very consistently. That's a combination of our cattle getting better, the marketplace rewarding more in recent years. And we talked about how, yes, the industry's undergone this big increase in grading in quality. Choice or better has gone from like 55% to 82%.

That's huge in a fairly short period of time. And I think, like I said in the talk, I think that a lot of producers when they saw this increase assumed that well shoot, we're going to kind of overproduce this high end product, the CAB, the Prime and those kind of upper end products. We just going to overproduce it and the premiums will just go to nothing because we'll have more product in those categories than demand. Well, actually the premiums and rewards in the marketplace have actually increased. If you just look at the Select chart, total industry, Select has gone from 37% down to 14%, less than half. And so we talked about how a lot of the big customers that are retailers, they buy really big volumes.

So we've actually, as an industry, we've actually kind of pushed some of those players out of Select and made them buy something different. And this is before COVID. I mean, COVID really changed a lot of things and forced a lot of people out of their comfort zone and made them try new things. So that's my explanation of, well, how can we have this much of an increase in quality and still have an increasing reward for it? The reward for quality, I don't see it going away and I think we've got room to continue to improve it. If we ratchet the whole industry up a notch of quality, a notch on the ladder of quality higher, then that just means we've got more satisfied consumers, less problems with eating quality.

Miranda Reiman:

I like how you say that that was even over a relatively short period of time. When I first started in this business 17 years ago, the big news was why the decline in quality grade? It was going down at that point. Do you guys talk about where will the ceiling be in terms of too much quality grade?

Brian Bertelsen:

We have not seen that yet. And when producers that we work with really started focusing, and I mean literally they would tell me, hey, I'm shooting for Prime. I mean, that's what I want do because that's the highest price. Producers tend to do that. And that's the whole idea of a grid is we're going to try to lead those producers with a carrot or dollar bill rather than beat them with a stick and say, you've got to do this, you've got to do that. But when I started diving into the data, the market of Prime, I noticed, and remember this was back when industry average was like 3%. Now, we're at 10%. Big increase but still very much a minority of the total beef complex. But we noticed that when Prime was a little more plentiful, premiums actually went up. Totally the opposite of what you would tend to think.

And in discussions with our meat marketing people, I think it's safe to say that we can explain that in that Prime is a demand-driven market. Choice and Select more of a commodity market and therefore more supply driven. So in those levels, yes, when you have too much of one, you tend to have a little lower reward. But again, we've gone so far that we've pushed some of those players out of Select. And so, the good thing is that with this movement towards quality, everything tends to be getting pulled up. Even if a rancher is not really focused on carcass traits, which a lot of them aren't. And in their defense, they're worried about things that are more immediate to them to make them money. I get it. But even those people that don't necessarily put carcass traits as high on the list, they're probably buying a better, on average, a better bull for carcass traits today than they were 20 years ago when seedstock suppliers weren't all that worried about it. And more of them are very conscious of it today, even if it's not really top on their list, they've all moved up.

Miranda Reiman:

Absolutely. Incidentally, that's gone up. Even if it wasn't a focus, it's gone up so the bulls are going to buy. That totally makes sense to me.

Brian Bertelsen:

Yeah, but to answer your question, I don't know that we have a ceiling. I mean, when you think about that and you think about the fact that we're now in our third year of the industry being at 10% Prime and where these quality rewards are today, and we had record, while on our grid, we had the second highest Prime premium last year, 2021. We had the highest Choice-Select spread that we've had during our history. CAB premium was strong. So like I say, everything really moving in the right direction. And if, like I said in the talk, if we end up having to come up as an industry, come up with a new quality grade that's above Prime, that's a great thing.

I don't know what we'll call it, but again, if we ratchet everybody up, remember the research shows that back in the '80s, when we didn't have very good product, one out of four eating experiences had a problem. Well, if we move the overall quality up, then we have less of those. And we're asking people to spend a lot of money for beef. W we might as well make it good quality so that they're satisfied and are willing to pay that money because it's worth it.

Miranda Reiman:

If we come up with a new grade above Prime, you're going to have to redo your cameras though, right?

Brian Bertelsen:

I did mention that. So what you're referring to is the camera grading. And so we now get marbling, ribeye, back fat on just about every animal, every carcass, whether that's a data lot or not. And the traditional USDA marbling chart maxes out at what we call a nine ninety nine, which is abundant 99. And we had carcasses coming in that were actually higher than that, but the system pegged them at 999. So we said, all right, we need to update our system so that that can be reflected because some of that data does go to American Angus Association or breed association and we want to be able to contribute to accurate EPDs whatever breed they're dealing with.

Miranda Reiman:

A good problem to have.

Brian Bertelsen:

Yeah, exactly. Yeah. But like we said in the talk, boy, the tools are there. And if I had to explain how did this quality revolution happen? Well, first, value-based marketing came on board, became more popular, grew, and then we had cattle feeders communicating to ranchers, ranchers communicating to seedstock suppliers saying, hey, we'd like to have more marbling, adequate ribeye, not a huge amount of back fat. The seedstock producers started focusing on it and then we started getting better tools incorporating obviously ultrasound, then incorporating DNA. So we now have even more accurate predictions to make our laundry list and then go get it when they go bull shopping. So I think that's the answer. I said, how did we get here in a fairly short period of time? And I've mentioned that not that long ago, I would encourage people if they were looking for advice on bulls to select, I would say, well, it'd be really great if you could get a 1.0 marbling EPD bull in the Angus breed and a 1.0 ribeye in the same bull. And shoot, now, and that was top what, 2% of the breed?

Miranda Reiman:

That was a pretty elite animal you're asking for.

Brian Bertelsen:

Yeah. And today we have some 2.0 marbling bulls. Just incredible.

Miranda Reiman:

I got the opportunity to work with you guys on, you'd won a CAB Award last year and write about USPB. I think a lot of that can be attributed to that revolution that US Premium Beef really started and got some momentum going in that space.

Brian Bertelsen:

Yeah, we showed, one of my first slides was showing CattleFax's data of the huge drop, the 50% decrease in beef demand back in the '80s. And US Premium Beef started in 1997. That was by coincidence or design, that was about the time where demand started moving up. And I'm not going to be naive and say, oh yeah, that was all us, but I think we definitely contributed. We got that ball rolling, that big stone rolling a little faster. Again, and it's really just trickle down economics, right? Consumers voting with their dollar to say, we want this, we want CAB for example. The demand grew, processors offered a premium to feeders and then feeders began paying more for feeder cattle that appear to meet the right kind of requirements. Trickle down economics works if the consumer wants Certified Angus beef.

Miranda Reiman:

So we talked about more today than just the quality revolution. You talked a little bit about maybe some decisions on cattle towards the end. I think there was a slide, the cost of gain on a carcass basis as you move throughout the feeding period. You want to explain that a little bit?

Brian Bertelsen:

For most of my talk, we talked about the value of quality, and then we got into some, okay, how can you get that? How can you build that quality into cattle? And obviously genetics, but then managing cattle to express their genetic potential. It's not totally different on growth, for example. We can raise cattle with a high genetic potential for growth, but if we don't feed them properly, they're not going to fully express that. And same way with marbling. The tricky thing about marbling is there isn't any compensatory gain. So if we have a period of time in that animal's life where it's not depositing marbling, it's not going to be faster or more rapid later on. So, we can try to help that animal to never have a bad day. And that's really the way to maximize it. But what we talked about at the very end was, okay, we looked at data by yield grade. And cut to the chase there, when we look at individual carcasses summary of that data, yield grade 3s are always the highest price per pound on our grid.

That's actual numbers from our grid from our database. But yield grade 4s and 5s are typically the most total dollars per hit. And if you look at the price per pound of 4s versus 2s, 4s are still actually a little bit higher price, just the way it worked out last year. Anyway, my message to the producers based on that is, hey, you really want to try to produce a high percentage of yield grade 3s. And if you erred to the side of making a few extra 4s and 5s than maybe what you wanted, you're selling more pounds. Your quality on average tends to be a little bit higher with the higher fatter yield grades, and you're cashing a big check. So with my background in nutrition, I used to run closeouts for my customers.

And when we started seeing this benefit of feeding longer, I had to roll up my sleeves and do the math to really find out for myself, can we feed cattle longer and make more money? And so what I did is I dusted off some of the data from back in one of the earlier increases in corn price, $6.50 per bushel corn.

Miranda Reiman:

'08, is that about when?

Brian Bertelsen:

Probably, yeah, right around there. So I used a spreadsheet model, and this is where, this is not real world data, but it's calculations based on research. So the net energy equation, an intake prediction equation, an actual set of rations from one of our feed yards, setting up a baseline that was representative of our cattle, our steers. And then looking at with the spreadsheet model, then you can look at more or less days on feed because of the spreadsheets calculating their performance every single day. And so, we showed that, okay, you've been ingrained in your head as a cattle feeder that, oh, you don't want to over feed cattle because your cost of gain's going to come up. And it does, but that's cost of gain per pound of live weight gain per 100 pounds.

But now we're selling cattle on a grid and that's off of a carcass basis. And that also comes up, but it comes up less rapidly. The reason is that because dressing percentage increases as we feed that animal longer. So it's a different way of marketing cattle. If you're willing to change your mindset a little bit from that older system to this new or different system, yeah, you can make more profit. We calculated it out and yes, in fact, the analysis that we did said, well, even our average good cattle could probably be fed a little bit longer

Miranda Reiman:

Even with expensive corn.

Brian Bertelsen:

Yes, exactly. Yeah. And I've done it at different corn prices and the higher the price of corn, the more you tend to pull the graph down, the more negative or less positive it becomes in terms of your profit. And we actually calculate it down to the profit per head at each of the week increments on feed, more or less days. But the relationship is still the same comparing grid marketing versus cash live marketing. The point was, yes, even at expensive corn, you can stay the course, feed for quality, feed for grid, and still make more money.

Miranda Reiman:

And you don't end up with too many outs on the other end, too many cattle that are getting dinged for overweight carcasses and those kind of things?

Brian Bertelsen:

You could, yes.

Miranda Reiman:

That's kind of the governor on it then.

Brian Bertelsen:

It is, and this is a little tongue in cheek, but I tell our producers that have heavyweights, well, that's a nice problem to have. And I don't mean to belittle the situation, because yes, some of them get some pretty significant discounts, but remember, you're still selling a lot of weight and that's good. But if you're feeding steers, what we can do long term is to manage the weight that we put them into the feedyard so that we still have room to feed them to a fatness and to a pretty big carcass weight without getting high numbers, high percentages of the really, really big ones.

Miranda Reiman:

Does that mean feeding them, keeping them out on grass longer or less?

Brian Bertelsen:

Less.

Miranda Reiman:

Less. Fewer days on grass?

Brian Bertelsen:

Yeah, we didn't talk about it today, but in some of my talks we'll talk about, well, what doesn't work on a grid? Well, selling cattle green or early, not really set up to reward that kind of a scenario. And yes, if you're placing steers at say, 950 or greater in weight, if we feed them till they're quote fat, high percentage of 3s, then yes, we're more likely to have heavy weights. But instead, if we could place some lighter, and it's a grading variant scale there, so less is better, but you also want to manage the average carcass weight, the total pounds of carcass that you sell. And so, for example, you don't want to necessarily go back to what I call the aggressive calf fed program where you're harvesting cattle really, really young, significantly lighter. So with the increase in price, because you got to remember, 25 years ago, cattle prices were half, less than half of what they are now. So economics have changed a lot in our history of 24 years.

Miranda Reiman:

And especially as cattle feeders look at availability of cattle into their feedyards, you're going to want to make the most from each head.

Brian Bertelsen:

Yeah, yeah.

Miranda Reiman:

I mean, you always want to make the most from each head. It just feels like it's underscored going into the period we'll be coming into.

Brian Bertelsen:

Yeah. And on our system, on our settlement sheets that people get back on every single group of cattle, we calculate a premium. Like I said, total dollars from us versus what if you sold cash? And that's an important number that tells the producer, well, how did our system do versus the traditional norm? But really if I had to say, what's the most important number, it's the total dollars. So in other words, I tell our producers, you make the decision to market on our system, then step back and ask yourself, how can I make the check from US Premium Beef as large as possible? Well, it's adding more quality and more pounds. The good thing is they tend to go together. I started this job a little bit naive. I thought I knew a lot, but I assumed that we were probably going to have to give up performance to get quality. They actually go hand in hand. Calories drive both of them, and so they can go together.

Miranda Reiman:

I love it when traits like that are not antagonistic.

Brian Bertelsen:

Yeah, exactly. I expected a antagonistic relationship. And there's a few things like growth promotants for example, and we've started talking to people about implants. And we're not here to tell people, oh, you've got to use this product or not use this product, but to try to educate them on how do they work, what do you want to do, what do you want to use, what works for your cattle? Just give them suggestions for, well, we can tweak this, we can change, modify that a little bit for a better outcome.

Miranda Reiman:

So the last question we always like to ask, the cattle business is a people business. So we want to know what's something good that's happened to you either personally or professionally lately? Just give us some good news.

Brian Bertelsen:

Well, I'm always thankful of the people that we work with. People in production agriculture are great folks. I get to travel around and see those people and meet them at their farm ranch feed lot, get to meet their families, learn a little bit about them, share a little bit about my life and my family. Yeah, you're exactly right. It's very much a people industry. Fairly small. A lot of us know each other. But at the same time, it's been a lot of fun to meet new people, new producers, learn more about them and talk to them about our system.

Miranda Reiman:

It always makes the travels worthwhile when you've got good people at the end of those trips.

Brian Bertelsen:

Yeah, yeah, it's a challenge to work where you travel a fair amount, you're away from your family, but I do enjoy what I'm doing and you just got to balance the two, work and home life.

Kasey Brown:

Listeners, you can learn more about sessions from the Feeding Quality Forum in both the Angus Beef Bulletin and the Angus Beef Bulletin EXTRA. You'll find information on how to subscribe to both of those publications in the show notes. If you've got ideas for future episodes or comments about this or other ones, please let us know At abbeditorial@angus.org. We'd also love for you to rate the podcast so it's easier for other profit minded cattlemen to find it. And finally, I'd also recommend The Angus Conversation, a podcast by the Angus Journal team. You'll hear a familiar voice because it's co-hosted by your own Miranda Reiman and the American Angus Association CEO Mark McCully. This has been Angus at Work and thanks for listening.