This represents my final monthly column in BEEF. I've enjoyed sharing my thoughts with you over these many years - 24 years and one month to be exact. In this final article, I'd like to review some of the changes that transpired over my career and offer insights on changes likely in the new century.
My career in livestock marketing began more than 50 years ago. After using every possible cost-cutting production idea available on my small cowherd, I sold my calves at a local market and realized a substantial loss.
The reason was marketing. Like most producers, I had ignored this phase of the business. This incident, however, altered my vision of the industry so much that I switched my education from animal husbandry to agricultural economics and marketing.
Though the cattle industry has changed drastically since then, there are many aspects that remain basically the same.
- The hard work and high costs of cow/calf production is seldom rewarded. The profits, in fact, are not only low but often negative.
- Cattle feeding has shifted from farmer-feeders in the Corn Belt to custom feedlots in the Southern Plains. This change in itself allowed the industry to produce more beef with fewer cows.
- The real winners in the beef business, however, have remained constant - meat packers and retailers. Neither, incidentally, are required to contribute to the beef checkoff program.
- In the early 1960s, my industry analysis indicated that many cattlemen were not really profit-oriented. My 1963 Extension publication entitled "The Cattle Business - An Agricultural Venture or Outdoor Recreation?" created quite a stir. A common statement of mine at that time was "cattlemen are the largest group of organized individualists in the world."
An Industry Large And Small While many profit-oriented cattlemen exist in the industry, the number grows smaller each year. The average cowherd size in the U.S. is 35 head. According to almost every economic analysis, a herd this small is far short of an economically sound size unit.
Such producers, therefore, must be in the business for reasons other than profit motives - tax reasons, hobbies, property valuations, land speculation, supplemental income, etc. (Incidentally, most of the larger cattle operations are located in only eight states, and they have one-third of the beef cows.)
Many cattlemen are part-timers who are really doctors, lawyers, crop farmers, teachers and factory workers. Most of these folks bought or inherited land and feel it's the "code of the hills" to stock it with cattle.
Anyone with the resources can get into the cattle business. Unlike most other agricultural ventures, ranching doesn't require a great deal of knowledge to survive in it. As a consequence, many small operators don't keep records and probably are unaware they're losing money. (During the last 27 years, the average returns for U.S. cattle herds have been -$5.50/cow.)
Two factors caused the cattle feeding industry to evolve into large commercial feedlots - a concentration of grain production in the Plains states and the realization that the benefits of economies of size were considerable in feeding cattle. While this change substantially increased productivity, the great gains have probably reached their ultimate level. From here, it will likely require more calves to produce more beef.
Today, there are 105 super large commercial feedlots in the U.S. that account for more than half of the cattle feeding in the U.S. These operations, for the most part, are custom feeding facilities that function like hotels for cattle. The real owners of the stock are professional cattle feeders who are speculators more than cattlemen.
Profits in this segment of the industry are quite small and very volatile. For these investors, however, it's obviously sufficient. (A total of 83% of all the cattle fed in the U.S. is done in five states.)
The Future Holds Uncertainties So where do we go from here? Despite talk of increasing demand for beef, the data doesn't show that. The consumption of Choice beef is way down because we produce less. Therefore, even though Choice retail prices are higher, demand is probably down. At best, we may be able to maintain demand at or near its current level. That means increased consumption at the same price levels.
This would indicate an uncertain future. As land prices and production costs rise, the smaller part-time cattleman will negatively react to lower or flat calf prices. Many will probably exit the industry, which will substantially reduce feeder calf numbers and create a supply problem for feedlots.
Unlike other agricultural products - vertical integration in the cattle business to the cow/calf production level is not very likely because of the huge capital requirements. This will probably lead to growing imports of feeder calves from Mexico and Central and South America.
Other negative impacts include the reduced number of livestock market news reports, packer concentration (four slaughterers control the industry), growth of foreign imports and continual changes in U.S. federal grades that diminish their reliability. In addition, I anticipate more attacks on meat inspection (which reduces consumer confidence), more dependence on futures market quotations and changes in income and property tax laws.
The cattle futures market was originally intended to provide cattlemen and packers with the ability to hedge their investments. Unfortunately, futures market price quotations are being misused. They're frequently used as forecasts of future cash price levels, which is not what they are.
Many forward-selling contracts (formula pricing) are based upon a futures price level, even though it is not a cash price. This dependence on futures market prices has added considerable price instability to the market.
If more U.S. cow/calf producers do leave the industry, the local livestock auction market system is likely to slowly dry up. Ranchers need these markets to get rid of their animals. Feedlots depend on them for sources of calves. Packers need them for sources of salvage breeding stock. And, the checkoff program relies on them to collect their funds from producers.
These livestock markets provide the only link between the rancher and the feeding industry. Without them, the communication of information via prices throughout the system is lost.
Farewell It has been a pleasure sharing my comments with you in BEEF through the years. Thanks to those of you who have followed my articles. Be assured that I am still alive and well and will look forward to writing an occasional feature for BEEF in the future. Please feel free to contact me through e-mail at [email protected]