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More Alignment, Better Risk Management Needed

More Alignment, Better Risk Management Needed
Industry leaders offer their thoughts on what the industry needs to remain competitive out to the year 2027.

Producers and feeders must become better risk managers and align themselves closer with other segments of the margin-squeezed industry if they’re to remain profitable over the next 15 years. That’s the advice that four key industry leaders relayed to attendees of the Texas and Southwestern Cattle Raisers Association (TSCRA) annual convention in Fort Worth, TX.

Charged with examining the fate of the U.S. beef industry by 2027, the year the 15,000-member-strong TSCRA will celebrate its 150th anniversary, the four leaders included:

• Bill Rupp, president of the JBS Inc. beef division;

• Rob Aukerman, president of U.S. operations, Elanco Animal Health;

• Kevin Good, CattleFax senior market analyst; and

• John Ryan, president and CEO of Rabo AgriFinance, a division of Rabobank.

Rupp, president of the JBS Inc. beef division, says better industry alignment – from the rancher to the user – is needed to help maintain and hopefully grow the consumer demand for beef. Closer alignment between producers, feedyards, processors and retailers will promote innovation and send positive market signals to consumers, he said.

“We need to bring food service and retail (representatives) into this room,” Rupp says, describing how better understanding of different industry segments should strengthen them all.

Charging a lack of industry communication on the controversial lean finely textured beef, which was publicly maligned as “pink slime,” Rupps says the incident likely put retailers and food service “in a position to turn their back on our industry.”

Meanwhile, Elanco’s Aukerman adds that the need to “align the food chain” involves further educating the industry’s largest consumer audience on beef safety and its value in their diet. He says an independent study of some 97,000 consumers between 2001 and 2010 found at least 95% of food buyers made purchases based on taste, nutrition and cost. That compares to just 4% who are considered “lifestyle buyers,” and purchased food based on where and how food was raised.

“We don’t need to flip the entire chain to cater to the lifestyle buyers,” he says, adding that producers and feeders need to “tell our story” to as many as possible. “Your personal involvement is critical. No audience is too small,” Aukerman says.

He notes that along with the science-based safety of beef and beef production, “we need to look at the social” aspects in the years ahead. “We’re trying to feed the world,” he says, which faces a large population growth at the same time about “9 million people die from starvation and malnutrition” every year.

On the production side, CattleFax’s Good says the industry is on the verge of seeing the cowherd finally start to grow. “We have the economic incentive to rebuild the cowherd. We just need help from Mother Nature,” he says.

Good praises the innovative state of the industry that’s seen production efficiency increase by 40% the past 35 years. High prices for cattle in all phases of production are the strongest ever, but the capital requirements are also escalating by the day.

“Credit needs are skyrocketing,” Good says, noting that 60% more credit is needed now than in 2009, or about “$639/head” for a finished animal.

Meanwhile, Rabo AgriFinances Ryan told TSCRA attendees that a good lender educated in risk management will be essential in the years ahead. “You need to bank with an institution that knows your industry… and seek a proactive bank relationship.”

Ag lenders will want to see a producer’s cattle procurement plan, marketing plan and occupancy capabilities, and may want 50-75% of the cattle to be hedged through some type of risk management program, Ryan explains.

With exports growing more important, the state of the global economy will impact U.S. beef sales for years to come. With current economic instability in Greece and other parts of the European Union, “global recession odds are on the rise,” Ryan says. “If one EU country fails, there’s added pressure on neighboring countries… A weak U.S. dollar argues well from an export perspective.”

Exports should remain strong for U.S. producers, Good adds, especially in China and other growing countries. With the continuing strong growth in China’s gross domestic product – up 36% from 2007 to this year – China’s demand for higher quality food proteins should help increase U.S. meat sales, he says.

TAGS: Marketing
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