The dominant issues of the day are drought, rising feed and energy costs, and industry consolidation. And all these concerns exist against a backdrop of ever-tightening supplies and surprisingly strong demand.
In this scenario, cow-calf producers are focused on surviving the drought to take advantage of the opportunities that will emerge on the other side. Meanwhile, feedlots and packers are wrestling with increased input costs, prices that can’t keep pace, and excess capacity. Illustrating that the burdens of overcapacity are real, we saw several mid-sized feedlots shut down this week, or announce that they would be shutting down.
A Closer Look: The Consolidation Dilemma
And don’t forget the full-court press by the Humane Society of the U.S. and other activists groups on the regulatory and judicial fronts.
Without question, these are the driving issues of the day, though drought has a way of consuming all thoughts relative to the future because the future becomes irrelevant when it’s in doubt. Long-term plans get shelved and survival becomes the focus.
But history tells us it will rain again, cattle numbers will expand, market equilibrium will return, and margin considerations will once again be paramount to profitability. The other long-term trends of stabilizing demand, narrowing market targets, more specialization and more price differentiation also will again emerge as the market stabilizes. In addition, the value of genetics, and the importance of management and marketing, will continue to escalate.
Without question, the pressure from environmental and animal welfare groups will continue to grow. So will the importance of an ever-intrusive and more powerful federal government; I believe elections will only affect the magnitude, but not the long-term trend in these areas.
All these issues and concerns are fairly obvious, though I think we tend to underestimate their significance. But what other big drivers are out there that we should be contemplating? Without question, the long-term changes relative to hay and grain prices will forever alter livestock rations and ration costs. I believe trends in land ownership and demographics will have significant ramifications on the makeup of our industry as well. And the two dynamics of growth in hobby ranching and large production units will likely create two divergent industries with different goals, opportunities and challenges. Integrating the two into a cohesive industry that can grow demand will be a key to shaping our industry.
What are your thoughts on the drivers that will shape our industry? Where would the industry be today without the droughts of the last few years, or with access to our markets restored and market share regained? Is there a viable alternative to corn in cattle rations, or do we simply need to continue to downsize in accordance with the size of the ethanol mandates? What factors are shaping your plans in the post-drought environment? Let’s start a discussion by leaving your thoughts in the comments section below.