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Meat Matters

We Must Continue To Build Beef’s Value Equation

We Must Continue To Build Beef’s Value Equation

It’s startling that the declining U.S. cattle herd and consequent record-high cattle prices are causing more concern than celebration. Perhaps it reflects fears that such prices can’t last or that they’ll inflict damage on the industry in terms of people eating less beef. Such fears are understandable, but unfounded.

The industry has a long history of dealing with contraction and expansion, as well as record-high and low prices. Yet the industry is still large in terms of global cattle numbers, while the U.S. is the world’s largest beef producer and produces the highest-quality beef. Plus, global demand for this beef is growing, so the future looks bright to me.

The fact is, people are eating less beef because there is less available. It has nothing to do with preference. Only when U.S. production increases, and/or exports lessen and imports increase, will per-capita consumption increase. Getting people to eat more beef is irrelevant until per-capita supply increases.

How does the industry do this? The most obvious way is to encourage cow-calf producers to expand. Of course, they wanted to in 2010 and 2011, but Mother Nature got in the way. It’s not overly simplistic to say that the best way to stimulate herd rebuilding is to pray for rain, because green grass and more cows go hand in hand.

However, the industry can consider several ways to help producers retain heifers, such as cattle feeders offering long-term contracts for calves to be born in three years’ time. The industry might consider offering free clinics to help producers manage their risk. And, it might try to persuade bankers to offer reduced lending rates for cow-calf producers to carry those heifers to calf.

Meanwhile, suppliers to the industry can encourage producers to use all available technologies to improve productivity and reduce costs and death loss. Beyond this, it’s imperative to let the market take care of the herd size and prices. Producers will expand their herds if it rains and if calf and feeder prices remain record-high.

I’m not as concerned as some about the impact on industry structure. The cow-calf sector has been shrinking in terms of operators for 25 years, mainly because the smallest and least efficient producers have exited. This will continue because that’s how the laws of economics work in every sector of the economy.

The industry has had significant over-capacity in the cattle feeding sector for years. But it didn’t stop the largest operators from expanding over the past decade. It’s now time for the largest operations to mothball some feedlots, which some are already doing.

It’s much more difficult to mothball a packing plant, however, so I don’t expect any plants to close in the next year or so. Tyson Fresh Meats will likely close its Denison, IA, plant sometime next year, but it won’t reduce its overall slaughter capacity. It plans to increase capacity at its flagship Dakota City, NE, plant to absorb Denison’s 2,150/head/day capacity.

Packers will stop operating on Saturdays and perhaps operate only one daily shift rather than two at some other plants on occasions, depending on cattle supplies and overall market conditions. The declining numbers, though, will make it virtually impossible for any new or reopened plants to get established, as I noted in my January column, “Packer pipe dreams.”

As for record-high retail beef prices, consumers will continue to buy beef because they crave its taste and there’s no substitute. It’s important to remember that personal incomes are increasing, unemployment levels are falling, and people are feeling better about the economy.

Americans will also spend more on beef because they will be consuming less. The industry’s primary focus must be on continuing to improve beef’s quality and consistency, to make beef’s value equation (quality vs. price) even more compelling for consumers.  ❚❚

Steve Kay is editor and publisher of Cattle Buyers Weekly. Catch his weekly market roundup at every Friday afternoon.

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