Rewarding the cow-calf man

From 1980 to 2000, the U.S. cattle business was essentially a zero-sum game.

From 1980 to 2000, the U.S. cattle business was essentially a “zero-sum game,” Randy Blach, Cattle-Fax executive vice president, told attendees of a recent Intervet producer conference. Over that 20-year period — one of sinking beef demand — the average feedlot return was $5.11/head. For cow-calf producers, the average return figure over that same period was $2.33/head.

“We were a perfect commodity business from 1980-2000. It didn't matter if you were feeding cattle or in the cow-calf business; the average producer didn't make any money,” Blach says.

The industry stabilized, and began to turn up the demand curve, around 2000. The result was that, from 2000-2005, the average feedlot return/head jumped to $25.70, while the cow-calf sector reveled in an average return of $104.12/head. In the years 2003-2005 alone, the average return/head for cattle feeders was $55.59, while cow-calf producers recorded an average return/head of a whopping $144.15.

In that two-year period, the U.S. feedlot industry almost doubled its total sector return, turning a $2.5 billion industry in 1980-2000, into a $4.6 billion powerhouse during the 2003-2005 period. Meanwhile, the cow-calf sector increased its total returns from the 1980-2000 figure of $203 million to $12.8 billion during 2003-2005.

“For the cow-calf producer, that's an average of $144/head vs. $2/head for the previous 20 years. Who benefits the most from demand growth? It's the cow-calf side, the fixed-cost operators. Everyone else in the system just trades dollars,” Blach says.

In addition to 21st century victories on the demand front, a healthy dose of luck was in play when the BSE-related market closures of late 2003 coincided with the cattle-supply low point of the cattle cycle. Had the loss of export markets occurred at a time of high supply, the recent record prices could have resulted in record losses, Blach says.

“Somebody was looking after us as far as the timing of our loss of export markets,” he says.

But the loss of those export markets meant piles of cash left on the table over the past two years, Blach says.

“The amount of equity you as producers were unable to capture in each of the last two years was between $3.5 and $3.8 billion, depending on how you do the math. That's a pile of money. The market has been good but it would have been really good if we'd had access to these markets.”

While it's easy to become frustrated with the snail's progress on reopening of the markets, Blach says regaining access is imperative as the industry continues to expand numbers.

“We need those export markets now, but we'll seriously need them as we move through the balance of this decade in order to absorb the growing beef tonnage and remain at our new and higher trading range,” he says.

Demand growth fuels profitability
Source: Cattle-Fax data
Years Feedlot total return Feedlot $/hd return Cow-calf total return Cow-calf $/hd return
1980-2000 $2.5 bil $5.11 $203 mil $2.33
2000-2005 $4.1 bil $25.70 $18.6 bil $104.12
2003-2005 $4.6 bil $55.59 $12.8 bil $144.15
1980-2005 $6.3 bil $9.49 $16.4 bil $22.82
TAGS: Marketing