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There's A Lot Of Comfort In The Commodity Mindset

The fall calf run is in full gear, ranchers around the country are collecting their largest paycheck of the year, and prices are only slightly lower than last year's record levels. Optimism is high, our export markets are returning, domestic demand has been pretty stable, energy prices are falling, and harvest on what's expected to be the second-largest corn crop on record is underway.

Things are good on the supply front as well. Drought continues to short-circuit herd expansion. In fact, we've seen calves pulled off bred cows selling for as much as the cows.

Thus, it looks like 2007 should be another very good year for cow-calf producers. In fact, if lighter placement weights and higher corn prices conspire to reduce carcass weights, export markets take off, and domestic demand shows some strength, we might test the previous highs. If moisture conditions improve to where expansion begins in earnest, 2007 could bring new all-time highs.

I hear folks voice dismay at some people's violent opposition to changes we've seen in the marketplace that have led to value-based marketing. But when I look at how comforting it is to not have to worry about quality (without differentiation, all five-weight calves are worth essentially the same when adjusted for weigh-up conditions), a little part of me can empathize with the naysayers.

After all, there's something quite comforting about commodity-level marketing. In many ways it absolves us of responsibility -- one is only at the mercy of the laws of supply and demand. Even more comforting is that, if we happen to guess wrong from a timing standpoint, we can blame some other contributing factor, such as captive supplies, the packing cartel, the futures marketed manipulated by funds and, of course, trade. In essence, in a commodity market we have no responsibility -- we just raise the calves, haul them to town, and let the rest of the system discover and create value.

How comforting it is to not worry about quality. Our new value-based marketing environment has certainly raised the stakes. It wasn't that long ago when you could count on every fat steer to sell within $2 of each other. Now, value differences within and between pens routinely swing well over $100 at the same live weight.

Same-weight calves adjusted for condition, and weigh up, now will trade with as much as $20 -$25/cwt. price spreads on a given day at a given sale barn. Today, there are a whole lot of variables, besides weight, that one must manage for.

The next time someone longs for the good old days and cusses the changes in the marketplace, it isn't because they don't understand we had to make changes to reverse our decline in market share. And it isn't that they don't understand that differences in genetics and management exist.

It's simply that they realize things were a whole lot simpler in the good old commodity days. And while the changes may have been great for those who produce a product in the upper 30% of the population, they certainly aren't any fun for those in the bottom 30%.
-- Troy Marshall