OK, so its a corny title but I wasn't about to use the “M” word that we've been assaulted with constantly for the last year. Typically, about this time of the year I try to take an issue and discuss what possibilities may exist for the cattle producer in the coming year. Given where we are in history I felt that it might be a good time to examine current trends and where we are very likely headed over the next few years. I don't claim to have any better crystal ball than anyone else so what follows are simply my opinions and should be viewed as such. Being students of cattle production history, however, and paying attention to the changes taking place in our world, it is best we work diligently to read what writing we can find on the wall.
We can no longer view our production systems on purely a local basis. Like it or not, we live in a global economy and what happens in Asia, Europe or South America has an effect on how we produce and market cattle in Hampton, Arkansas or Etowah, Tennessee. The price of beef is affected by world-wide demand, not just how well it sells at the local Piggly Wiggly. So sit back, put on your “big picture” glasses and lets consider where the 2000's will take us.
You Can't do it Like Granddad did it Anymore
I think we'd all agree that times have changed substantially since our grandparents ran cattle. Our economy is significantly different as well as what we know about the biology and physiology of producing cattle. Back in the good old days it was simply a matter of getting a calf to the local auction market. Better managers looked at calving percentages, weaning weights, fixed and variable costs and so on but these tended to be the exceptions and not the rule. Frankly, much of this is still true today and we'll discuss this more in a minute. As producers of cattle we have to remember what business we are actually in -- THE FOOD BUSINESS. This is where we have to start.
Putting it on the Table
As with any other industry, cattlemen must focus on one primary objective, production and delivery of a quality product. In our case, this is fundamentally meat protein which is an integral part of the human diet. Current research has shown the many benefits that beef plays nutritionally in our diet. We have gone through the period where beef has been viewed unfa-vorably and has been perceived as a health detriment as opposed to an asset. This situation appears to be changing. We are beginning to hear more consistently how beef is an outstanding source of protein and energy as well as essential minerals such as zinc, copper and iron. Additionally, we have seen recent evidence that the conjugated linoleic acid (CLA's; a form of fatty acid or building block of certain types of fat) found in beef has been shown to significantly reduce incidence of certain types of cancer. These positive attributes are statements that need to become the cattleman's mantra and need to be shouted from every rooftop. We need to build on this momentum, putting this information in from of consumers, physicians and anyone that is in a position of influence. This information is vital to the marketing of our product and increasing market share, reclaiming it from poultry and other protein sources.
We have seen an increase in beef demand over recent months. Many industry experts have viewed this perceived improvement in demand with a certain amount of skepticism and that it may not be real. Theories abound as why this appears to be occurring including folks stocking up their freezers prior to the first of the year (guess they didn't think about the fact that if everything broke down there would be no electricity to run freezers). Other experts believe that if current cattle inventories are higher than originally projected the price strength we saw in 1999 are truly remarkable, indicating the demand is real and that this pricing strength should continue through 2000.
A while back I had the opportunity to be at a conference where some of these trends were discussed. A statement was voiced that made a lot of sense. The speaker stated that it has been shown that as a given culture increases in prosperity, as it's economy improves, a subsequent increase in the demand for red meat also occurs. This simply says that as individuals make more money they buy more beef, since beef, despite all claims in the past, is the food of choice for many people. When was the last time you heard someone say “Man, I'm gonna go out tonight and have a good chicken breast.” When we want to splurge, we go looking for a steak. As our incomes improve, this occurs with more regularity. Beef becomes a more regular part of our basic diet and retail grocers have more difficulty keeping their coolers stocked on a day-to-day basis. Despite our current governmental leadership, the United States has been blessed with unprecedented prosperity over the last few years. Similar improvements in standards of living have also been witnessed in other countries including China, South Korea and Brazil. This will result in an increase in the consumption of red meat in these countries as well. Considering the population base this covers, even a 1% increase in consumption translates into hundreds of tons of product. We tend to be concerned about the production of beef in countries such as Australia, Mexico, Brazil and Argentina and how this affects our competitive position in the domestic and global marketplace. While these numbers of cattle and tons of beef will undoubtedly have an affect on our markets in some manner, the advantage we have is the presence of a highly developed productions system (relatively speaking) and a high relative degree of efficiency with which we produce beef in this country. All this goes to say that the outlook is favorable for demand to continue to be good and that US cattleman will be in the forefront of meeting this demand.
Something we, as an industry, have to understand is that the majority of the cattle which go into the food supply chain are produced on farms and ranches which average approximately 30 head of breeding females. This obviously creates a tremendous diversity in the cattle which ultimately end up at the packers. We see this variability in carcass quality as a result in breed differences as well as management differences. This is one very significant weakness our industry has as compared to poultry. One thing you can pretty much count on is that when you buy chicken breasts at the store, chicken is chicken is chicken. The beef industry will more than likely never achieve that degree of consistency. Through selection and genetic research, we may eventually reduce the variability of quality between cuts of beef as well as entire carcasses. This will come only when it becomes cost prohibitive to produce cattle which fall outside of a given set of specifications. Some of this is occurring already, as more and more cattle are sold out of the feedyards on formula pricing which results in more dollars paid for cattle meeting or exceeding a given set of specifications. Cattle not meeting these specs will become so heavily discounted that it will become very difficult to economically produce these animals. This will result in price spreads for cattle at the grass roots level which are even wider than they are today. Those producers who generate significant levels of income from their cattle will be required to meet these specifications in order to remain profitable. Those producers who operate more or less as a hobby will probably not make major changes to production systems.
In addition to the commercial cow-calf operator, we will see even more pressure on purebred, seedstock producers to breed cattle which can provide the desired carcass performance. A number of breeds have, over the last few years, felt the pressure this has placed on their markets for bulls as well as breeding females. I had a conversation with the executive director of one of the breed associations who made the following comment: “There is probably more variability in performance as it relates to carcass quality within given breeds than their is between the breeds.” That's a pretty significant statement and truly puts the various breeds in the “hot seat” to reduce this variation. It also requires breeds to select for carcass quality and potentially veer from standard parameters historically used to select for cattle within a breed. Breeds will be required to identify the desirable traits and select for these in addition to isolating specific genetic pools, individual animals or cow families which can repeatedly deliver the performance required. Obviously, all this is not an overnight process and will require years of selection but many breed associations are beginning to see the trends and that they will have to change or loose significant levels of market share. Association members can only sell to one another for so long before their program becomes seriously overburdened.
Even the commercial herds are finding that there is value to identify those breeds and breed combination that can: a) reduce variability/increase consistency, b) improve overall performance in the feedyard and c) improve the economics of production at the cow/calf level. We will see an increased use of breeds that can be crossed to produce the type of calves desired through to the packer and retailer. These breed combos will also produce a cow herd that is efficient, requiring lower levels of energy for maintenance purposes while still producing a weaned calf that is 60 to 65% of the cow's mature weight. This will result in lower overall annual costs to maintain that cow and subsequently produce an acceptable end product (weaned calf).
Over the past few years we have seen quite a variety of marketing methods emerge which help the base level producer retain more of the profits he/she is due. One of the most significant steps producers need to take is developing their operation to allow for taking advantage of market opportunities when they exist. Historically, many cow-calf producers marketed cattle through the local auction facility. While I believe this will be a vital part of the cattle production pipeline for years to come, producers need to constantly evaluate where the opportunities exist so they can follow one of several courses:
1) Market cattle through the local sale facility at weaning
2) Sell via satellite, Internet or order buyer at weaning
3) Precondition and graze cattle through the stocker phase and sell prior to entry into the feedlot.
4) Retain ownership of cattle all the way until they go to the packer
Some statistics I read a short while back noted the following:
A) Cow/calf producers that market calves exclusively at weaning are profitable 4 to 5 years out of 10. The other years they actually lose money.
B) If these same producers retain ownership of their calves through the stocker phase, profitable years become 6 to 7 years out of 10.
C) If these same producers retain ownership all the way through the feedyard, they tend to be profitable 8 or more years out of 10.
For those producers who seriously desire to be competitive and profitable, retained ownership of calves will become a given. Obviously some of this will depend on the cooperation of your banker and more than likely will also require some education on the part of more than a few Ag lenders.
All this goes to say the beef industry has a lot of continual self examination which needs to take place. It is an exciting place to be right now and will continue to be such for some time to come. In the next issue we'll examine more production related trends which will have an effect on production and performance in this new era.
Dr. Steve Blezinger is a nutritional and management consultant with an office in Sulphur Springs, Texas. He can be reached at P. O. Box 653 Sulphur Springs 75483, by phone at (903) 885-7992 or by e-mail at firstname.lastname@example.org.