A cattleman who I rely on for sage advice said something to me this week that really got me to thinking. He asked why everyone is encouraging expansion so loudly. His point was that his operation looked like it might be more profitable than any time in the past; so why does everyone seem so concerned about encouraging expansion?
I’ve always been a big believer in letting the marketplace work, and producers will expand or contract depending on the economic signals we are given. But I think the talk about the need for expansion is twofold.
Experts want producers to position themselves for today’s good times and those ahead by beginning to increase inventory now. Historically, if you wait to expand until everyone is expanding, the window of opportunity is narrow and the cost of expansion is significantly higher.
Secondly, as good as things are in the short term, the confluence of events with ethanol and droughts may have caused us to actually reduce the numbers more dramatically than required. The industry has to be concerned about losing market share, and the all-important infrastructure that will be difficult to regain.
Without question, the goal is to increase demand to the point where we aren’t sacrificing profitability and sustainability by expanding. We all benefit from an industry where all segments are efficient and profitable. We can’t return to the fallacy promoted through the decline in beef demand and cattle numbers that the culprit was one segment benefitting to the detriment of other segments. Instead, we have to focus on building a growing industry that will allow us to feed a growing world population – a world population that is willing to purchase our product at price levels that allow all segments to be profitable over time.
