U.S. Premium Beef (USPB) was founded in 1996 as a closed marketing cooperative and began purchasing fed cattle from its members in December 1997, after obtaining ownership in Farmland National Beef (FNB) Packing Company. Producers purchased USPB stock to finance 50% of the FNB purchase with USPB securing a loan to complete the purchase. These shares of stock act as delivery rights which give the producer the right and obligation to deliver one finished animal per share, per year to FNB's two plants in Liberal and Dodge City, KS.
To market fed cattle, a producer must be a member of USPB and tie each animal he delivers to a share of USPB stock, either through ownership or by leasing shares. All cattle are purchased on a value-based grid. USPB's grid rewards producers for delivering the quality of beef that FNB's customers want.
The unique ingredient to USPB is ownership in FNB. As a result, USPB shares in the profits of FNB. These profits are then distributed as dividends to members who have sold cattle to USPB. In the company's first fiscal year, USPB members realized a total dividend of $10.14 per head delivered. Last fiscal year the dividend was $17.99 per head. The other benefit to ownership is stock value. During the original offering stock sold for $55 per share. Currently, stock value is more than $85 per share.
More than 1,350 members from all segments of the beef industry have participated from 33 different states. USPB has purchased more than 1.4 million cattle from over 700 feedyards in 14 states. The average premium has been $12.87 per head more than selling on the cash, live market. Premiums on all USPB cattle during the first half of 2000 were $13.83 per head above cash and the top 25% received a premium of $38.06 more than cash per head.
There are several keys to the success of USPB. First, value-based marketing is used to provide incentives for delivering high quality cattle to supply the growing need for value-added beef products. Second, carcass data is provided at no additional cost to enable producers to improve marketing, management and genetics. Finally, ownership in the packing company has provided USPB with governance and profit sharing from the processing sector. This last key separates USPB from any other significant value-added marketing program in the beef industry. Currently, a feasibility study is under way to explore the possibility of expanding USPB and FNB into the company's northern trade area.