Vertical Integration of the Beef Industry

[ollie']

I espoused some hopeful expectation I would have if an individual or corporation, probably several of each would start the process of vertical integration in earnest. I'll copy my post here. Bez or others please feel free to agree or disagree and provide logic to support your feelings.

I guess I am no longer in the younger crowd but vertical integration in the beef segment is long over due and will be a welcome sight to this old cowboy. Efficiency is virtually nonexistant in the beef industry compared to chicken and pork. Seedstock improvement lacks direction. The feedlot segment is nothing more than glorified corn salesmen. Technology is underutilized such as ultrasound , EPDs,etc are more of a sales tool than a breeding tool. Quality, predictable, replacement females are scarce at best. The packing segment is running cycles of boom and bust and I imagine if I were in their shoes I'd be hard pressed to invest new capital to blaze a trail. The retail segment is working with a wildly varying product. The question is who has the money and wherewithall to vertically integrate a large portion of the beef industry. Just think of the advantage we could have over third world countries. The time is now!

_________________

 

[MikeC]

Ollie, Vertical Integration could be a good thing if it was done from the "Bottom Up", but from the "Top Down" it would ruin a way of life for a lot of ranchers and cattlemen.

I'm not sure I agree with you on all points and how it would happen, but one thing is for sure. There are a lot of scrubby cattle being sold that the price is being supported by those who raise "Good" cattle.

The "Chickenization" of the beef industry is scary to me.

By the way, Tyson is investing $650 million is new facilites as we speak.

The seedstock folks are at a standstill cause the ordinary cattleman doesn't know what he wants.

EVERY CATTLEMAN IN THE US SHOULD BE FORCED TO SELL A LOAD OF CALVES ON THE GRID AND YOU WOULD SEE A LOT OF CHANGES BEING MADE.

 

[ollie']

Ollie, Vertical Integration could be a good thing if it was done from the "Bottom Up", but from the "Top Down" it would ruin a way of life for a lot of ranchers and cattlemen.

I'm not sure I agree with you on all points and how it would happen, but one thing is for sure. There are a lot of scrubby cattle being sold that the price is being supported by those who raise "Good" cattle.

The "Chickenization" of the beef industry is scary to me.

By the way, Tyson is investing $650 million is new facilites as we speak.

The seedstock folks are at a standstill cause the ordinary cattleman doesn't know what he wants.

EVERY CATTLEMAN IN THE US SHOULD BE FORCED TO SELL A LOAD OF CALVES ON THE GRID AND YOU WOULD SEE A LOT OF CHANGES BEING MADE.

The one glaring problem with your approach Mike is that the "bottom" has neither the money or the ability to cooperate. I guess that is two glaring problems.

 

[ollie']

The seedstock folks are at a standstill cause the ordinary cattleman doesn't know what he wants.

[

The reason commercial cattlemen don't know what they want (one of the reasons) is that the target is moving. One period of time the packer wants choice cattle, we feed them longer then they want higher yielding cattle. The choice select spread changes in relation to the run of cattle. Your high yielding Charolais cattle would make large sums of profit in certain periods on a yield grid but then in other times they are hunting higher grading cattle and they would make less. I'm speaking generally here.

 

[MikeC]

Ollie, Vertical Integration could be a good thing if it was done from the "Bottom Up", but from the "Top Down" it would ruin a way of life for a lot of ranchers and cattlemen.

I'm not sure I agree with you on all points and how it would happen, but one thing is for sure. There are a lot of scrubby cattle being sold that the price is being supported by those who raise "Good" cattle.

The "Chickenization" of the beef industry is scary to me.

By the way, Tyson is investing $650 million is new facilites as we speak.

The seedstock folks are at a standstill cause the ordinary cattleman doesn't know what he wants.

EVERY CATTLEMAN IN THE US SHOULD BE FORCED TO SELL A LOAD OF CALVES ON THE GRID AND YOU WOULD SEE A LOT OF CHANGES BEING MADE.

The one glaring problem with your approach Mike is that the "bottom" has neither the money or the ability to cooperate. I guess that is two glaring problems.

Eau Contraire, my dear friend. Take a gathering of cattlemen who would sit down and figure out a market for their calves, breed alike bulls in the same season and pool them together to gain the valued premiums inherent from sheer numbers.. It would make each one of them improve at lightspeed because of the inate competition.

The "Co-op", if you will, could allow others to join in when the word spreads, and could get as big as they wanted.

They would then demand a certain bull to meet their needs and push the seedstock guy to fill the bill.

Future Beef had it going but had bad luck out of the chute.

 

[ollie']

That is fairly common place on a small scale now. The trouble is they don't have a retail market to develop and don't get the added profitability they could have if they owned the feedlot , packing house and distribution chain. In my mind it still has to include these to be viable over the long haul.

 

[certherfbeef]

Just how do you plan to get all these hard headed set in their ways cattlemen to agree on one "type" of bull. How do you get them to agree to change the way they have been doing things forever to follow your (for lack of better word) FAD.

Just curious.

 

[Bez!]

Back from the chores - but only for a minute.

Vert Int - if there are only three major buyers in the entire country would you be a believer?

When captive supply is thrown in for good measure, price fixing becomes a real issue.

If there is no competition there is no chance for a fair price.

Now to comment on markets and better breeding. Those of you in the U.S. have had an opportunity to see the good times - and yes I believe there is a large number of lower quality cattle out there - now I have gone and said something I have held back for many years - beware the bad times when they return - those lower quality cattle will well and truly drag you down.

To that end, we are in the bad times and I am seeing better quality animals "AS A WHOLE" in this country than ever before. It is the only way to keep the buyers somewhat happy.

I am not a packer blamer, but what I am is a fearful person. Deathly afraid of loss of competition.

Profits in the ag industry have never been higher in this country.

Commodity prices have never been lower.

Over to you folks for your responses.

Remember - therre are serious differences in the industry if you compare north and south of the border - so temper your responses with that in mind.

Regards

Bez!

 

[MikeC]

That is fairly common place on a small scale now. The trouble is they don't have a retail market to develop and don't get the added profitability they could have if they owned the feedlot , packing house and distribution chain. In my mind it still has to include these to be viable over the long haul.

U.S. Premium Beef is a Cattlemen owned packer and doing pretty well. They are not small either.

http://www.uspremiumbeef.com/

Buy some stock in them and "Go to it". ;-)

 

[MikeC]

Just how do you plan to get all these hard headed set in their ways cattlemen to agree on one "type" of bull. How do you get them to agree to change the way they have been doing things forever to follow your (for lack of better word) FAD.

Just curious.

They are just gonna "HAVE" to Cert. We are losing ground to chicken as we speak and it's all because of the poor cattle that are being raised on the 40 acre farms with no direction.

Bez is onto something there too. Packer competition is at an all time low.

 

[ollie']

I understand your concerns Bez but isn't that basically what we have now? A captive supply? I rarely see a particular packer bidding much higher than the neighbors for a certain type fat steer. There is some difference between poor and good steers but not much. Through the South American dog in the fight and I am much more afraid of the competition than I am the captive supply problem. Am I wrong? If England would have vertically integrated 100 years ago and been progressive with their seedstock, they might have been a major player still. Instead they shipped their best genetics where the realestate was cheaper I assume , thus the beef industry in North America. Why won't the same thing happen to us when the South American situation becomes stable in relation to disease and rogue govts.

 

[ollie']

I have to run as well. I am certain I have given you folks enough material to have me proven a fool by morning. Good night all.

 

[certherfbeef]

So, calves out of same type bulls and maybe similar cows can come up with a uniform enough carcass to outdo the chicken industry and their dreaded factory farms.

I guess I just don't understand how it will work unless some really well to do folk pool their money, build a cow/calf operation and run their own feedlot. There is too many varibles with environment and management to intergrate like the pork and poultry industries have.

 

[Bez!]

I understand your concerns Bez but isn't that basically what we have now? A captive supply? I rarely see a particular packer bidding much higher than the neighbors for a certain type fat steer. There is some difference between poor and good steers but not much. Through the South American dog in the fight and I am much more afraid of the competition than I am the captive supply problem. Am I wrong? If England would have vertically integrated 100 years ago and been progressive with their seedstock, they might have been a major player still. Instead they shipped their best genetics where the realestate was cheaper I assume , thus the beef industry in North America. Why won't the same thing happen to us when the South American situation becomes stable in relation to disease and rogue govts.

ollie'

You folks have separation in price from one area to another -we have basically the same price from coast to coast.

There is no competition for cattle in this country.

Vert Int in hogs - you grow them and they tell you what you will get for them. If you like the price, you are doing fine. If you do not - tough - that is what you get. That is what will happen to cattle. May be good for some and not so good for others.

I do not claim to have the answer - but I do know this. The primary producer will always be screwed if he does not have a decent animal and at least 4 buyers at the sale barn willing to take his animal.

Right now we have one buyer if we are lucky.

Captive supply - the big boys run a few thousand out back in their own pens - that way they do not have to buy every time there is a sale. Keeps the price down.

I am sure my view is considered overly simplistic - but when you get less than what it costs to raise them it makes it easy to get a view like mine.

Bez!

 

[purecountry]

Take our case today for an example - we sold 46 calves, had 4 guys bidding on each group, and came out quite well. Will we do that every year? Maybe not. The one thing we have in hand, is that our costs for our own operation ar lower than they have ever been, to the point where I'm not sure we could raise a calf much cheaper. The quality of our calves is great, and we still work to make them better.

BUT, no matter how good they are, or how well we manage, there has to be a buyer. I do very much like the idea of ranchers working together to market a larger uniform group of calves. Instead of 10 herds of 50-100, market them as a group of 500-1000, taking bids on them from buyers. Or, feeding them out yourselves. But with that said, I have to agree with some of you that getting 10 ranchers to breed the same cows, to the same type of bulls, the same time of year, all for the same common goal, would be like herding 100 cats in 1,000 square miles of wilderness.

The only place I can think of that does that successfully, are the Hutterite colonies. Everyone does their part for the good of the whole. No greed, no self-indulgence or glory. Just working collectively for a common ideal accomplishment. If there's one thing to admire them for, it's that. Cause hell knows if everyday ranchers could do it without a fight.

 

[Beefy]

personally i think chicken is gross.

 

[Saltydawg]

I agree with Bez. Vertical integration would limit competition which is bad news for us little guys.

Just some thoughts....

Poultry has been vertically integrated and you don't see many small producers anymore.
The reason they could do it with poultry is because they can cram a LOT of birds in small quarters....throw cheap corn at them forever....and chickens will happily keep reproducing chickens.
Feed is cheap and space is not as big a concern.

Cattle on the otherhand.

Is it even possible to feed cattle nothing but grains and still expect them to reproduce and be healthy for generations?

I don't pretend to know a lot about feedlot operations but I know they toss a whole bunch of medications in their feeds....knowing that the animal only needs to stay healthy till it reaches slaughter weight.

Can you do this with cows that are expected to reproduce year after year?

I think the answer is no based on the fact the large feedlots havent already done this.

Cattle require too much room and too many resources to vertically integrate in the same manner that the poultry and pig industry has.

I could be wrong though :lol: .

 

[Frankie]

I think vertical intergration in the beef industry is happening. The high cash prices we're getting for cattle the last few years has slowed it down some. There are groups all over the US that have come together to use certain bulls, pool their calves and sell directly to feedlots. Isn't the Nolan Ryan branded beef program owned by some Beefmaster producers, not the breed assn? It's my understanding that you have to buy your bulls from one of those producers to be able to sell your calves into the program. The Premium Gold Angus (PGA) branded beef program identifies Angus producers in each state as their "selected" producer. If you use their bulls, they pay a premium for your calves. Drovers used to have a list of alliances. IMO, the animal ID program is going to give VI a boost, too.

 

[dph]

I think some of the info that came with our Stevenson-Basin catalong details how origen (sp?) is already working on just that.

 

[Bez!]

I think vertical intergration in the beef industry is happening. The high cash prices we're getting for cattle the last few years has slowed it down some. There are groups all over the US that have come together to use certain bulls, pool their calves and sell directly to feedlots. Isn't the Nolan Ryan branded beef program owned by some Beefmaster producers, not the breed assn? It's my understanding that you have to buy your bulls from one of those producers to be able to sell your calves into the program. The Premium Gold Angus (PGA) branded beef program identifies Angus producers in each state as their "selected" producer. If you use their bulls, they pay a premium for your calves. Drovers used to have a list of alliances. IMO, the animal ID program is going to give VI a boost, too.

When Vert Int is complete and there is only one or two companies doing all of the buying - will you be happy to accept the price they offer?

What if that price is lower than cost of production 3 years out of 4?

Other industries are finding this now. Grow them for our orice and deliver them when we see fit - or lose the contract.

It can happen. Just enough cash to keep the operator in business and no more.

Bez!