Just how big do you have to be to compete in an industry that continues to concentrate and consolidate? Consider this:
The four largest packers annually harvest more than 80% of the entire fed beef cattle supply, reports the Grain Inspection, Packers and Stockyards Administration. Of those, Steve Kay of Cattle Buyers Weekly estimates IBP (now Tyson) handled 9.7 million head last year, Excel — 6.4 million, ConAgra (now Swift and Co.) — 5.7 million and Farmland National — 2.7 million.
By comparison, the top four cattle feeding organizations account for a one-time capacity of 1.6 million head. Using the industry standard of 2.5 turns/year, that's about 4 million annual fed marketings, assuming full pen utilization, or about 16% of the total fed steer and fed heifer harvest in a fed supply of 25 million head (the previous two years have been closer to 24 million head of fed cattle marketed).
Meanwhile, the top 10 feeding outfits account for a total of 7.45 million head annually, or 29.8% of that supply.
As for cow-calf producers, Cattle-Fax reports that 27,450 beef cow operations have herds of 200 head or more. That's about a third of the cowherd.
No single organization has yet been able to assemble more than a million head of anything to counter the leverage of a concentrated packing industry and rapidly consolidating retail industry. This includes the individual feeding organizations cited earlier, as well as such alliances as U.S. Premium Beef (USPB), which markets 700,000 head/year, and Consolidated Beef Producers (CBP), which currently markets about 1 million annually.
In fact, the top 10 organizations sharing annual marketings in BEEF magazine's “2002 Alliance Yellow Pages” (August 2002) represented a combined 4.1 million head. The largest open system among these was Certified Angus Beef at 2 million; the largest closed system was USPB.
The bottom line is that no one knows for sure how big you have to be to counter increased packing and retail consolidation and concentration. We do know, however, that the volumes producers have assembled under one marketing roof thus far are too small to command more industry-wide market power.
Consequently, rather than ask “how big?” the more pressing question may be “How big do you have to be to be able to play?”
The Four States Working Group, a group of associations and cattle feeders from Texas (including Oklahoma), Kansas, Nebraska and Colorado, are exploring the pooling of cattle to gain market leverage. At press time, the group was exploring partnering opportunities with CBP.
Kay says the four states represented 18.4 million head of cattle in 2001, about 79% of all the fed cattle marketed. Arguably, even 25% of that supply, coupled with cattle already marketed by CBP, could change the bargaining position of those involved.
Only time will tell if enough cooperation exists to harness such collective power, but there's little question that plenty of interest exists for cooperation.
Case in point: during its initial membership drive to cattle feeding organizations, lasting about four weeks, a new organization, VeriPrime Inc., signed up members representing 9.2 million head of fed cattle. That about 36.8% of the fed cattle supply.
Specifically, VeriPrime seeks to get producers paid by consumers for the assurance attributes producers provide. That would include adherence to beef quality assurance and standardized animal welfare guidelines, monitoring feed rations for mammalian protein, etc.
This value will be negotiated apart from the trade, says VeriPrime. The group says it isn't representing 9.2 million head of cattle, but the consumer assurance attribute rights to those cattle. Still, when was the last time producers controlling that many head of cattle agreed on anything?
Incidentally, apart from the raw volume thus far, early VeriPrime members are excited about the notion of getting paid for consumer assurance attribute rights apart from the cattle trade. It represents an entirely new revenue stream rather than just another attempt to re-divvy pre-existing margins.
The idea of working together to gain more market leverage on either the buying or selling side isn't new. But examples like these may point to a new willingness by producers to exploit the opportunity.
If so, one of the most important marketing decisions individual producers might make in the coming year isn't how they will market their cattle or to whom. It's who they will join forces with to play bigger in a market that shows no signs of becoming less concentrated or consolidated.
December 3-4 — The Robert E. Taylor Beef Symposium, Fort Collins, CO; 970/491-6009.
December 5 — IRM Working Group Fall Conference, St. Joseph, MO; 303/850-3373.
December 6-7 — Minnesota State Cattlemen's Association's Annual Convention, Bloomington; 507/877-5003.
December 6-7 — 2002 Missouri Livestock Symposium, Kirksville; 660/665-9866.
December 10 — 2002 Minnesota Cattle Feeder Days, Morris; 320/589-7423.
December 10-12 — Annual Rangeland Management Short Course, University of California, Davis; 530/752-1720.
December 11 — 2002 Minnesota Cattle Feeder Days, Slayton; 507/825-6715.
December 12 — 2002 Minnesota Cattle Feeder Days, Ormsby; 507/825-6715.
December 12 — 2002 Minnesota Cattle Feeder Days, Rochester; 651/565-2662.
December 13-15 — Missouri Cattlemen's Association Annual Meeting, Osage Beach; 573/769-2468.
January 18-22 — North American Veterinary Conference, Orlando, FL; 800/817-9928.
January 19-22 — American Farm Bureau Federation's 84th Annual Meeting, Tampa Bay, FL; 847/685-8850.
January 19-21 — Western Range Science Seminar, Medicine Hat, Alberta, Canada; 403/317-2218.
January 21-24 — Food Processors Institute's Better Process Control School, (Spanish only), Orange, CA; 714/628-7255.
January 22-23 — California Grain & Feed Association's Industry Conference, Monterey Bay; 916/441-2272.
January 23-24 — Kansas State University Employee Management for Production Agriculture, Kansas City, MO; 620/431-1530.
January 27-30 — Food Processors Institute's Better Process Control School, Corvallis, OR; 800-823-2357.
January 29-31 — American Society of Agricultural Engineers Dairy Housing Conference, Fort Worth, TX; 269/429-0300.
January 29-February 1 — 2003 Cattle Industry Annual Convention and Trade Show, Nashville, TN; 303/694-0305.
February 2-7 — 56th Annual Society for Range Management Meeting, Casper, WY; 307/358-2289.
February 3-5 — Food Processors Institute's Better Process Control School, Anchorage, AK; 907/274-9691.
February 9-16 — 27th Annual Iowa Beef Expo, Des Moines; 515/855-4322.
Institute's Better Process Control School, Baton Rouge, LA; 225/578-3541.