Creating Consistently Fair Prices for Cattle Producers with Chad Tentinger
Volatile markets, unpredictable weather and input costs are risks faced by each generation of cattlemen and women. However, with the emergence of new technology and business models, each generation has a new way to mitigate these risks. One new business model that is paving a way for ranchers and feeders to mitigate risk in the marketing side of their business is exhibited by Legacy Beef Co-op and Cattlemen’s Heritage. The partnership between these two organizations is not only opening new marketing opportunities for cattlemen but also creating unity between all segments of the beef supply chain from rancher to consumers.
The foundation behind Cattlemen’s Heritage and Legacy Beef Co-op is to keep more family farms in business for generations to come by implementing a business model that gives producers a share of processing and brand profits plus it offers a more favorable pricing and delivery model. Founder – Chad Tentinger, 4th Generation cattlemen–comes from a family operation in Iowa and knows firsthand how challenging it can be to keep it going after growing up during the Farm Crisis of the 1980s and now having his own children involved in production agriculture. Chad said, “I don’t think it is acceptable to tell our young men and women that this isn’t a business to be in. This next generation should be in this business. We just have to create a business model that works for us.” That business model is the partnership between Cattlemen’s Heritage and Legacy Beef Co-op.
Cattlemen’s Heritage is the company building a 2,000 head per day packing plant outside of Council Bluffs, IA. This plant will contain state of the art equipment and design to operate at efficiencies that are estimated at $100 less per head during production than other facilities. But what really sets this plant apart is who owns it. “The Cattlemen’s Heritage business model allows for 20%+ ownership by producers,” said Tentinger. That 20% ownership is through Legacy Beef Co-op – the organization created to source and deliver cattle for the packing plant by selling shares. Outside of creating a producer-driven plant, this business model goes one step further to create more profit for ranchers and feeders by using a pricing model based on the choice cutout boxed beef index. “Cattle are delivered on a favorable grid tied to a fundamental market. And on top of the better pricing model you also get a $25 per head bonus upon delivery,” said Tentinger. The profit sharing and pricing model create a fair pricing structure for ranchers, feeders and the packer.
One share unit equals one delivery obligation per year. Ranchers who buy units through Legacy Beef Co-op have two routes to take. One option is to partner with a custom feeder and retain ownership in their calves to see that share all the way through the supply chain. The second option is to lease that share to someone else if other marketing options are more favorable. These shares can also be viewed as a risk management strategy. Chad said, “For the cost of insuring cattle in the money, you can buy a unit and eliminate your insurance cost.” 525,000 total shares are being sold over the course of five rounds. The first round, which just closed, started at $125 per unit and the share price increases $25 each round.
Creating more opportunities is an integral part of the foundation of these companies. For cattlemen and women who are already participating in value-added programs or other complimentary marketing opportunities; they can still reap these benefits in addition to those offered by Cattlemen’s Heritage. “No part of our system is designed to create less value for animals. Everything is designed to create more value for the whole system,” said Tentinger. It’s about creating a fair system where people are not working against each other.
There must be a catch, right? Ultimately it comes down to your goals and how you want to manage risk and participate in the market. “As the market stands today, cattle producers are on the supply side. Once I sell my animal, I don’t have a say in what they do with it, how much money they make or what their margins are. Many people say it is unfair that they don’t get a share in profit. I agree I didn’t get a share in the profit, but I can’t say it is unfair because I don’t own the pricing mechanism that made that profit. I sold my product. We as cattle producers have to work together to create a model that works for us,” said Tentinger. Take some time to think through the goals of your operation, the risks you face and how you want to manage them. The partnership between Legacy Beef Co-op and Cattlemen’s Heritage is just one example of how cattlemen and women can take ownership of their future and manage risks.
Learn more about Legacy Beef Co-op on their website. https://legacybeefcoop.com/
