“The world in which we operate is fundamentally different,” Iowa State University agricultural economist John Lawrence emphasized as he addressed producers attending the National Angus Conference and Tour held Oct. 7-9 in Oklahoma City.
Lawrence listed higher energy costs, different energy sources, a rocky economy, a dramatic change in corn prices, and even a change in consumer’s preferences and habits among the many differences in today’s world. As a result, he asked producers, “What are you doing differently on your farm?”
Lawrence continued, “The last 20 years your plan may have been successful, but now you need to stop and re-evaluate as you look forward.”
Specifically, Lawrence says producers need to “rethink economic efficiencies.”
He says, “It is time to rethink business models built on cheap energy, cheap fertilizer and cheap corn that don’t care about feed efficiency…None of these things exist anymore.”
Instead, Lawrence says producers need to ask themselves, “What is the optimal – not the maximum – but the optimal production for the resources I have.”
Ultimately, Lawrence says that means finding different ways of doing things like feeding corn to cattle. Lawrence clarifies that the U.S. niche is grain-fed beef, and he says, “That is strong, but I think we will change how we do that.”
For instance, Lawrence says, “I think we’ll find out what is the least amount of corn that we can put into an animal and still get the superior beef product that we’re after.”
He suggests examples to do this may be extended backgrounding programs, and feeding corn for a minimal number of days before harvest. He cites research where cattle were only fed corn for their last 60 days on feed with favorable beef quality results.
With the continued high price of corn, Lawrence believes the market will differentiate to create a greater Choice-Select spread. He anticipates that there will still be a lot of commodity product in the marketplace – making Choice and better beef more valuable. He underscores that this means there is value in quality for producers.
As producers look to make changes, Lawrence and William Herring, who has extensive beef industry experience and now serves as a technical operations manager for Smithfield Pork, both stress that efficiency needs to be a focus for the beef industry.
“A lot of opportunity still exists for the beef industry to improve production efficiencies,” says Herring. He cites feed conversion and genetic improvement as essential to overcome the added costs that are now facing the ag industry.
In addition to changes in the way beef cattle are bred and fed, Lawrence says producers of the future will also need to continue to adapt to a new cattle cycle.
“It used to be one of the most predictable things in agriculture was the 10 year cattle cycle. But the last one was 14 years long with a 9 year liquidation phase and 18 months of expansion, and we are already back in a liquidation phase again due to higher costs,” explains Lawrence.
Lawrence is predicting that cow inventory will continue to decline until 2010 or 2011 before it bottoms out and begins to rebuild. He notes that especially those operations with 50 or fewer cows are exiting the business. And, while small, they make up 28% of the calf crop and likely a large number of bull buyers. Thus, he tells larger producers to be cognizant of how their customer base is changing.
Another change that Lawrence anticipates is a likely shift in where cattle are fed due to high energy, fertilizer and freight prices. He expects regions like Nebraska where ample corn is produced will be attractive for keeping and feeding cattle efficiently.
With the ethanol boom, Lawrence says cow-calf producers will also lose pasture to land being converted for crops for ethanol and for backgrounding yearlings to add gains before going to the feedlot. But Lawrence expects that when the cattle cycle returns to an expansion phase “we are going to see higher prices than we ever dreamed about 10 years ago.”
Don’t count out consumers
Lawrence reports that domestic beef demand has softened some, but increased exports are helping keep demand up – which is important to beef prices. In the decade ahead, he anticipates U.S. beef exports, particularly to Asia and Europe, will help buoy beef demand and prices.
But Lawrence does caution that consumers need to continue to be monitored and appeased by the U.S. beef industry.
“In the decade ahead I think there will be increased consumer demand on our product,” says Lawrence. He explains that this means demands to verify things like natural, organic and brand claims.
Lawrence also cautions that brands are becoming the new “regulations” for consumers. He says, “I think this is important to watch. Regulations have been and currently are implemented with lots of input. Brands however are different. Decisions are made in a board room as to what the brand will require – and that can impact producers.” For example, Lawrence says brands of the future may require animal well-being claims, which can impact production practices.
Likewise, Paul Roach, director of meat for Reasor’s Stores, a chain of 15 upscale food stores in northeastern Oklahoma and exclusively carrying the Certified Angus Beef® (CAB®) brand, addressed attendees to share his experiences in marketing beef at the retail level.
Roach noted that an increasing number of Reasor’s customers are expressing interest in knowing where and how the beef they buy is produced. Thus, Roach reports that Reasor’s is evaluating future partnerships with beef producers to develop a cattlemen-to-consumer link between the beef they sell and the people who produced it.
To read summaries or listen to audio of the speakers at the conference online and click on News/Audio.