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Doing More With LessDoing More With Less

Steve Kay

February 2, 2011

3 Min Read
Doing More With Less

Much hand-wringing has occurred about the declining U.S. cattle population and its impact on the industry. For cow-calf producers, though, the outlook is bullish. Cattle feeders are already paying breathtaking prices for calves and yearlings to fill pens. So the answer to why producers aren’t expanding seems obvious. Why would you build up numbers again and jeopardize getting even better prices?

Calf and feeder prices (basis Oklahoma City) increased 12% and 14%, respectively, last year from 2009. They likely won’t have this kind of gain this year but they will be higher. Prices might at some point be high enough to encourage net heifer retention, but I doubt this will occur this year.

The industry might have to brace itself for a permanent decline in numbers, a likely decline in the number of feedlots and packing plants, and the resultant impact on rural economies. I first wrote about the shrinking herd in a March 2009 column. No one then, however, could have forecast that the cattle population on Jan. 1, 2011, would be only 92 million head, vs. 94.5 million in 2009.

This means the focus must be on “doing more with less.” Everyone in the beef chain, from producer to retailer and restaurateur, will need to focus on improving their efficiency and productivity, reducing death loss and waste, and on adding value both for themselves and for consumers.

I have no doubt the industry can find more ways to do this. Its productivity gains over the past 30 years have been impressive. In 1980, the industry had a total herd of 111.2 million head and produced 21.6 billion lbs. of beef. The industry last year had 93.7 million cattle (on Jan. 1) and produced 26.2 billion lbs. of beef.

Such an effort came through increased carcass weights – up about 6 lbs./year until last year when they were hurt by the severe 2009-2010 winter. Overall carcass weights (cows, steers and heifers) began this year 9 lbs. heavier than the same week last year. So, despite a likely decline in slaughter levels this year, the industry will produce nearly the same amount of beef it produced in 2010. Steers and heifers will likely be on feed longer and be fed to record-heavy weights (breaking records set in October 2009). This will be despite the fact that corn will likely average $6/bu. or higher.

Putting the productivity gains another way, beef production per cow has increased about 400 lbs. since the mid-1960s. A key reason for such gains is the way producers have improved their herds’ genetics. This focus will be even more important in the coming year for the industry to do “more with less.” Producers, from seedstock to cow-calf operators, arguably have the future of the industry in their hands.

Cattle-feeding operations are most at risk from the shrinking herd. The sector already has 30% overcapacity in feedlots 1,000 head or larger. There are a lot of empty feedlots and many others have adjusted their operations to running only two-thirds to three-quarters full. The question for some will be: at what point does it become economic to operate? And that’s without taking cattle-feeding margins into account. The way that projected breakevens are right now vs. projected market prices, it appears cattle feeding could see some heavy losses this year.

The packing sector has slight overcapacity but no plants are likely to close this year. Both fed- and non-fed packers will cut their Saturday kills if necessary and focus on running more efficiently Monday through Friday. They will also focus on improving their productivity so they can continue to sell beef at a price that gives their customers a margin, and that consumers can afford and are willing to pay. The last point is also critical to the future of the industry.

Steve Kay is editor and publisher of Cattle Buyers Weekly (www.cattlebuyersweekly.com). Catch his weekly market roundup at beefmagazine.com every Friday afternoon.

About the Author(s)

Steve Kay

Steve Kay is editor and publisher of Cattle Buyers Weekly (www.cattlebuyersweekly.com ) subscription newsletter, the number-one marketing and business newsletter for the meat and livestock industry. He provides BEEF readers with beef-specific information and analysis on the North American meat and livestock industry. He also provides a weekly cattle market roundup each Friday afternoon at beefmagazine.com.

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