The cattle cycle's influence on cattle numbers is a primary factor determining beef supply, but cattle numbers don't explain the total beef supply picture. After all, cattle numbers have trended down the last 20 years while beef production has trended upward.
In fact, since 1980 the U.S. industry has trimmed 10 million head from its total cattle inventory. Yet, total production has risen more than 5 billion lbs.
One key reason is the increase in beef production/cow. In 1970, each cow produced about 450 lbs. of carcass beef/year. That figure began going up in the early '80s. By 2000, it was 620 lbs. of carcass beef produced/cow/year. This 170-lb. increase amounted to an average annual productivity increase of 1.8%.
Several factors are responsible for the increased beef production/cow. Increased weaning weights are a major contributor.
In the '80s, North Dakota beef cow producers added an average of 10 lbs. weaned/calf/year — a total of 100 lbs. of added weaning weight/animal during the decade. This documented increase in weaning weights is indicative of the overall U.S. beef industry. Meanwhile, Canada shifted to a higher percentage of exotic breeding programs and grew weaning weights even more.
Moreover, genetic improvements in both countries over the past 20 years have resulted in larger mature weights in beef cattle and, as a result, dramatically increased carcass weights over that time. Adding an average of 100 lbs./carcass generated an additional 3.6 billion lbs. of beef. Larger carcass weights accounted for 61% of the total productivity growth over this 20-year period.
Another 38% of this productivity growth came from higher calving rates, fewer non-productive cow days, better husbandry practices and improved health programs. In addition, a declining dairy veal calf slaughter has moved a higher percentage of dairy calves into the finished market.
Finally, there's the import issue (Figure 1, page 30). Most Mexican exports to the U.S. are feeder cattle. Canada's exports consist of slaughter cattle, cull cows and feeder cattle. In any case, U.S. live cattle imports are included in the beef produced/cow data presented here.
With the decreasing beef demand of the last 25 years, the increase in beef produced/cow meant fewer beef cows were needed to meet consumer beef demand. This need for fewer beef cows led to lower profit margins/cow.
North Dakota's Farm Business Management Records confirm that profit margins/cow have shrunk with each progressive cattle cycle. Thus, to generate a reasonable family living, ranchers have been forced to run more cows just to stay even.
A beef cow manager must evaluate the primary production impact and the secondary economic impact of any new technology being adopted by the beef industry. For instance, while beef production increases/cow is the primary production impact of improved genetics, animal husbandry practices, etc., the inelastic demand for beef ensures that decreasing total gross income to the beef industry is the secondary long-run economic impact.
The inelastic demand for beef ensures that the magnitude of the negative secondary effect is greater than the magnitude of the positive primary effect. The long-run net result of this output-increasing technology is a drop in the industry's long-run total revenue. This phenomenon is not well understood by the cattle industry.
Decreasing profit margins — during the last 25 years of decreasing demand — have driven the reduction in beef cow numbers. Shrinking margins have also led to fewer ranches and consolidation among the remaining ranch units. Decreasing profit margins have made it increasingly difficult to generate a family's total living from running beef cows.
The ranch units that remain are trying to revise business plans to generate sufficient family living from beef cows. Increasingly, more are looking at off-farm income as a remedy.
Thus, while increased beef production/cow has been a substantial production accomplishment, increased production/cow has also taken its economic toll.
Much of the beef cow producers' long-term economic stress has been blamed on the next level in the marketing chain. In truth, much of that economic stress is due to ever-increasing productivity during a prolonged time of decreasing demand.
The others in the marketing chain have faced this same prolonged decreasing demand forcing them to also consolidate. No one in the beef marketing chain has escaped the impact of this decreasing demand.
Decreasing profit margins/cow is a primary force motivating the beef industry to divide into either a commodity beef segment or a value-based beef segment. In either case, knowledge through data is the key to profitability. Today's profit margins have reached the point that those beef cow producers who don't collect data may well not survive the next cattle cycle.
In a nutshell, the problem is that the amount of beef produced/cow is rising 1.8%/year. Domestic and foreign demand for beef products, however, is only rising 1.3%/year. Since productivity will probably continue to outpace demand growth, cow numbers will probably continue to fall.
That means consolidation in the ranch sector will continue. So will the economic pressure on ranch operations to change.
Harlan Hughes is a Professor Emeritus of North Dakota State University. Retired last spring, he is currently based in Laramie, WY. He can be reached at 701/238-9607 or [email protected].
Evaluating Market Alternatives For 2001 Calves
These planning price projections (Table 1) are based on both the futures market price and Western North Dakota sale barn prices for the current week. The price projections in Table 1 were used to evaluate six marketing alternatives for year 2001 calves shown in Table 2.
The “buy/sell margin” in Table 2 is the buying price of animals going into a lot subtracted from the selling price of animals coming out of the lot. Since selling price is normally less than purchase price, the buy/sell margin is normally negative. The negative buy/sell margin represents the marketing loss/cwt. on the purchase weight of the animals. The cost of gain (COG) represents the cost of the added weight while in the lot. Profit/head represents the combined marketing losses and profits from gain.
|Lbs.||Fall '00||Mar '01||Spring '01||Nov. 9, '01||Fall '01||Jan '02*||Mar '02*||Spring '02*||Fall '02*|
|*Projected week of Nov. 9, 2001|
|Marketing strategy||Buy/sell margin||Cost of gain (COG)||Profit/head|
|Sell at weaning||xxxxx||$0.70||$113|
|Bckg. high ADG||-$19||$0.45||-$31|
|Fin. bckg. steers||-$4||$0.48||$47|
|Grow & finish||-$23||$0.40||$64|
|Steers on grass||-$1||$0.45||$58|
|Fin. grass steer||-$7||$0.46||$67|
|Week of Nov. 9, 2001|