The structure of the cattle industry has changed dramatically over time, particularly in the packing and feeding segments. It's a change driven by market dynamics that require participants to minimize production costs while, at the same time, maintaining or improving quality. Producers that have met these two demands have remained in business through the various “boom or bust” cycles in the cattle industry.
Beginning in the 1950s and continuing through the '70s, total cattle numbers increased dramatically, and the packing and feeding industries grew accordingly. Total cattle numbers grew by more than 20%, from 109 million head in 1965 to a record 132 million head in 1975.
Since 1975, total numbers have declined by 37 million to about 95 million head, and are now at their lowest level since 1961. Beef cow numbers grew 12 million head, from 33 million head in 1965 to nearly 46 million head by 1975. The increase in beef cow numbers accounted for about half the increase in total cattle numbers from 1965 to 1975.
During this same period, dairy cow inventories declined by more than 4 million head, or 27%, to about 11 million head. Since 1975, both beef and dairy cow numbers have declined.
Beef cow inventory fell nearly 13 million head during the past three liquidation phases of the cattle cycle. On Jan. 1, it totaled slightly less than 33 million head.
Cow-calf operations have fallen in number and increased in average size since the mid-1970s. Since 1975, the number of beef cow operations has decreased by 250,000, and now total about 800,000. The average operation size has increased by about eight head since the mid-1980s to 41 beef cows/operation today.
The reduction in total cow numbers has resulted in faster utilization (this year's fed cattle slaughter compared to last year's calf crop) of feeder cattle and calves. Less “stockpiling” of feeder cattle than was typical during the 1960s and '70s was another result.
Beef production per cow has increased substantially since the mid-1960s due to faster turnover of feeder cattle and calf supplies, heavier fed-cattle and carcass weights and other increases in efficiency. In 1965, beef production per cow (annual total beef production divided by total cow number at the beginning of the year) averaged about 375 lbs. It's since increased more than 70% to peak in 2002 at 641 lbs./cow.
Other increases in efficiency contributing to the beef production increase per cow include better genetics, improved animal health and more and better feeding programs.
The faster utilization of feeder cattle and calves also suggests the industry has moved toward producing a higher percentage of beef from more youthful cattle in terms of physiological maturity. This has helped the industry produce beef with less variation in palatability and better meet consumer expectations.
By the mid-1970s, the beef industry's growth phase, which had lasted more than 30 years, had ended and businesses began to more closely focus on the cost side of the equation. For many operations, this meant getting bigger in order to take advantage of economies of scale and lower operational costs.
From the late 1970s until the late '90s, beef demand declined on an annual basis. The only avenue for industry viability was to cut operational costs.
The packing industry reacted to this economic reality and changed dramatically from the early 1970s through the '80s. For perspective, the largest four packers accounted for approximately 40% of steer and heifer slaughter in 1980. By the end of that decade, their share had grown to more than 70%.
The 1980s were filled with packing mergers and acquisitions. It was also a period in which many smaller packing plants ceased operations, particularly small inefficient cow plants. Currently, the four largest beef packers account for about 80% of steer and heifer slaughter.
Larger packing entities had lower per-head operating cost, the major factor in consolidation. Other factors included declining beef demand during the 1980s and '90s, increasing governmental oversight and regulation, the increasing role of beef exports, and the move to selling boxed beef vs. carcass beef. Each of these had a significant impact on the makeup of the packing industry today.
Feeding industry changes
The cattle feeding industry has also changed dramatically. The first major change was the move away from terminal markets, as a higher percentage of cattle were sold directly from the feedlot to the packer. This change occurred over time, but accelerated during the 1960s and early '70s.
The result was a cattle-feeding industry located more closely to where feeder cattle and calves originated. It was made possible with the development of the Ogallala aquifer, which put water, feed and cattle in closer proximity. In other words, the industry shifted west and south to the nation's Central Plains.
The industrialization of the feeding industry in the 1950s and '60s, and growth of larger feeding operations, helped limit variability in feeding programs and resulting beef quality. As the percentage of fed cattle marketings increased from these larger operations, the industry became more efficient. Cattle feeders were able to lower production costs and focus on the target signals being transmitted through the pricing system.
A more recent change in the feeding industry is the acceptance and usage of value-based marketing. As the industry began to focus more clearly on beef quality during the late 1980s and early '90s, alternative marketing methods were a must.
Higher-quality cattle needed to differentiate from lesser quality. As a result, premiums were paid for fed cattle with desirable carcass characteristics, while discounts were typically associated with carcasses that missed the stated marketing specification.
This marketing evolution has led to a change in management at the feedyard, both before and after the cattle arrive. Feeders that market cattle on a value-based system manage the cattle in order to maximize the specifics of the program.
This typically means they attempt to minimize variation and eliminate the outliers. Managers are very aware of the type and quality of the cattle they buy to bring into their system and also of the treatment program those cattle have been on before they arrive.
While the cow-calf and stocker segments have also changed, they've remained very traditional in their makeup. The majority of cow-calf operations do business the way they did 25 years ago, but subtle changes have impacted them as well.
Due to the advent of value-based marketing systems, cow-calf operators have become more aware of their own cattle quality and management programs. They now can be rewarded in some fashion for doing the “right” things, whether that means incorporating desirable genetics into their herds or documenting a herd health regimen. Carcass weight, red meat yield and carcass quality, as well as feed efficiency and average daily gain, are characteristics sought by cattle feeders.
The industry's evolution has served to do several things:
The changes have made the beef industry more competitive from a cost standpoint. All segments of the industry have become more efficient over time.
The industry has improved the overall quality of the final beef product by managing variation and defining and implementing best practices for all segments.
The implementation of technology has also played a major role. New product development work and muscle profiling have enabled the industry to better maximize value on what were once perceived as inferior beef cuts.
In addition, the industry has a clearer understanding of what the consumer desires. It's also better equipped to produce more consistent, palatable beef than at any time during the past 40 years.
Dave Weaber is Cattle-Fax Director of Research, and Mike Miller is Cattle-Fax Director of Business Development.
For more on Cattle-Fax, the nation's top cattle market information, analysis, research and edcuational service, visit www.cattle-fax.com, or call 800/825-7525.