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'08 and Beyond

What a difference a year makes. Livestock Marketing Information Center data shows that last year at this time, Omaha corn was pricing at $3.46/bu., compared with just over $2 the year before. For the week ending May 10, 2008, corn price was $5.90/bu., a jump of 70.5%.

Pulled along in King Corn's slipstream, prices for other grains were up dramatically as well. Kansas City wheat was at $8.01/bu., up from $4.74 a year earlier, a 69% jump; and southern Iowa soybeans were at $12.89/bu., up from $7.19, a 79.3% increase.

And if a livestock producer's nerves weren't already sufficiently frayed, USDA reported that, for the week ending April 27, planting was behind both in expectations and the five-year average for all crops except spring wheat, thanks to water-logged fields. Only 10% of corn was planted, compared to 20% for 2007 and 35% for normal.

With 25-30% of the 2008 U.S. corn crop mandated to ethanol production, and grain-hungry Eastern economies enticed by the weaker U.S. dollar, U.S. livestock producers are finding the competition for the rest vigorous.

Life, they say, is what happens to you while you're making plans; these days, life is happening fast. Every week seems to bring more market-jostling news, all driven by the leapfrogging prices for energy.

As of early May, crude oil prices had climbed more than 30% this year, blowing through $115, $120 and even $125/barrel. Speculative fever has given rise to talk about the price of crude even reaching $200.

As of May 12, 2008, the average price of regular gasoline at retail was at $3.72/gal.; diesel was $4.33/gal., almost $1.56 over the previous year's price.

Cow carrying costs have increased $100/head on average during the past few years, says Cattle-Fax CEO Randy Blach, and he expects we'll see them increase another 10% this year. Meanwhile, feedyards scrambling to stay full in the face of ever-increasing breakevens are facing huge losses.

Needless to say, “volatility” is once again this year's byword for life and business, which makes planning awfully tough.

For our annual state of the industry report, we decided to contact four industry experts for their take on what lies ahead in the areas of the economy, beef demand, trade and politics. Participating are: Randy Blach, Cattle-Fax CEO; Tom Field, Colorado State University professor; Bill Helming, agriculture economist; and Bill Mies, industry consultant.

The Prediction Is Pain - Bill Helming
Between Hard Spots - Randy Blach
The Toughening Of America - Tom Field
Time To Pull Leather? - Bill Mies

Between Hard Spots

Summing up the state of the cattle business has never been easier: input costs are historically high and likely to climb higher, in a volatile manner that often defies logic.

Figuring a way to the other side has never been tougher: cow numbers are declining, the traditional cattle cycle is in hibernation and dog-eared rules of thumb no longer apply.

“Though costs are at extreme levels, that doesn't mean they're as high as they're going to get,” says Randy Blach, Cattle-Fax CEO. “None of us thought we'd see Minneapolis wheat selling on top of $20, but we have. None of us ever thought our economy could support oil prices at $120/barrel, but the market has marched right through it.”

So goes an historic period of relearning in the U.S. cattle business.

“We're all in a situation where cost of gain is approaching $1, and exceeding it in some cases. There are big premiums in the deferred live cattle futures, and I suspect these premiums will continue until the market sorts out this cost squeeze,” Blach says. “We've seen cow carrying costs increase $100/head on average during the past few years. I expect we'll see them increase another 10% this year.”

Salt in the wound comes with the fact that most of the increased cost has thus far been absorbed by producers.

“At some point, a portion of these added costs will have to be passed along to the consumer,” Blach says. In other words, he expects prices for fed cattle, and wholesale and retail beef to begin marching upward for the next couple of years.

Along the way, Blach adds, “Despite the higher costs, I think the market will continue to support calf and feeder-cattle prices higher than traditional thinking would suggest.”

There were 32.6 million beef cows in the Jan. 1 national inventory, 28.5% fewer than the peak in 1975 and the fewest since 1971 when the National Agricultural Statistics Service began providing the current inventory reports. According to Blach, the number of beef-cow operations with 100 or fewer cows has declined 17% in the past 15 years. The total number of cow-calf operations has declined 25% since 1986.

Yet, by most estimates, cattle-feeding capacity has been overbuilt by about 25% for at least 10 years. Meanwhile, for all practical purposes, beef cow numbers have languished for a decade.

“We (Cattle-Fax) don't see any beef cow herd expansion, nor will we for the next few years,” Blach says. In fact, he expects modest downsizing of the beef-cow inventory to continue for a few years. “I suspect we'll continue to rely more on increased cattle imports from Canada and Mexico since we're not growing the factory here,” he explains.

In April, the USDA Economic Research Service (ERS) estimated 2.65 million head of cattle would be imported to the U.S. this year, 6% more than last year.

Ultimately, that means further consolidation and concentration in the feedlot and packing sectors as they reduce capacity toward an economic equilibrium with domestic cattle numbers.

“We'll likely see more consolidation and concentration in the packing sector. We'll also likely see more cattle-feeding pens idled in the next 12-18 months,” Blach says. “When the dust settles, we'll have fewer, larger, better-capitalized operations than we've had in the past.”

A sustainability key

Fewer cow numbers and operations don't mean less beef, though.

“Beef-production levels will continue to be supported at close to all-time high levels because of increased productivity,” Blach says. “Beef-production levels won't fall dramatically here, though we may consume less of it here.”

He emphasizes producers need to understand that domestic beef consumption will decline over the next couple of years, but it doesn't mean demand is declining. Cattle-Fax estimates domestic beef consumption will decline 1.5 lbs./capita this year and potentially another 1.0-1.5 lbs. next year. That's partly because U.S. cow numbers will be stagnant to declining, but mostly because more production will be consumed outside the country.

Exports are a chief reason for Blach's optimism about the future of the business here, though he's concerned about the current economic squeeze.

“Only 4% of the world's population is in the U.S.,” Blach says. “There will be 1 billion new beef consumers around the world in the next decade.” Some of that's due to population growth, but most stems from the growing economic power of foreign consumers who find themselves with enough disposable income to contemplate making beef a diet staple for the first time in their lives. This at a time when world market prices for major food commodities such as grains and vegetable oils have risen more than 60% in two years, reaching historic highs, according to ERS.

Yep, it's the same global economic growth that's helped create the current dilemma in the cattle business here — global commodity demand has increased faster than supply. Given the U.S. dollar's weak value, U.S. grains have represented a bargain to global buyers.

Additionally, ERS analysts say short-term factors contributing to such steamy commodity-price inflation include: increased demand for biofuels feedstocks, adverse weather in some major grain- and oilseed-producing nations the past two years, and recent policies adopted by countries to mitigate food-price inflation.

For perspective, the entire U.S. population is currently 300 million. Global population grows by 78 million each year. There are 6.7 billion people today; by 2030, that will be 8 billion.

“The U.S. beef industry needs to have the opportunity to market globally, and then let the market sort it out,” Blach says. “If we allow the market to work, it's very efficient at finding the right answer. Unfortunately, it hasn't been allowed to work for since 2003.” Everything from export markets being shuttered for non-scientific reasons, to government policies artificially inflating grain prices, have stymied the market's ability to do its job effectively.

“At some point in the future, the economic factors that supported a cattle cycle in the past will likely return, but not for three to five years,” Blach says. There's too much global demand and too little global supply of grain and other commodities for the current cost-price squeeze to sort itself out quickly.

Traditional wild cards played in the current business environment would be magnified exponentially. Grain production short of predictions — or increased demand — could push prices up another steep slope. The same goes for other commodities such as oil. The federal government could intervene, too, as it did in the 1970s, with disastrous consequences.

On the other hand, Blach points out a sustained rally in the valuation of the dollar could curtail some U.S. grain exports.

Hedge against rising inputs

In the meantime, Blach says there are a couple of opportunities cow-calf producers need to consider embracing as a hedge against rising input costs.

“This is a period when cow-calf producers need to look at putting a couple hundred more pounds on their calves before merchandising them,” Blach says. The calf-to-feeder price spread continues to narrow as feedlots place more demand on cattle entering the lot at heavier weights. The lesson is to sell heavier cattle.

“There also continues to be tremendous opportunity to differentiate the calf crop,” Blach says. Price spreads for same-class, same-sex, same-weight calves and feeders in the same part of the world continue to be historically wide.

Whether it's for source verification, natural label eligibility or some other added-value attribute, Blach believes, “We'll see wider price spreads over the next couple of years as the market has more opportunity to express itself based on differentiation. That's a good hedge for cow-calf producers.”

On both counts, Blach says the further producers are from where the calf and feeder markets are made, the more they should consider adding weight and differentiating. At $4/loaded mile, discounts will continue to cut deeper the further cattle are from the market.

“We have to maintain an open mind as we move forward; it's a new frontier,” Blach says. “I believe it will sort out and we will find our way.”

Lose the hot-shots

While Boone Carter's “Don't Stress” article in your April issue (p. 32) was interesting and informative, the paragraph referring to the use of electric cattle prods was just the opposite. If the use of hot-shots up to 25% of the time is acceptable, that is the same as saying you don't need to be concerned if your crew is “hot-shotting” one out of every four animals handled on a daily basis.

This is totally unacceptable in my opinion. I've managed ranches all over the West for the past 20 years, and have had little or no need for hot-shots. The ranch I currently manage doesn't even have one, and we run as many as 3,000 stocker calves at any given time. We've been getting along this way for more than four years.

I think the industry would be better off if we weaned ourselves from hot-shots completely (other than rare emergency use) before it gets done to us, instead of by us. Our industry is characterized by being reactive rather than proactive. Will we ever learn?
Neil Braid
Van Horn, TX

Boone Carter replies:

To clarify any misinterpretation, as noted in the article, I advocate minimal use of electric stimulation (“Use electric cattle prods sparingly”). The metric of 25% suggests a simple standard by which every producer can measure the functionality of their handling facilities, and use at that level indicates a problem in handling or facilities design.

The threshold of 25% is based on recommended evaluation criteria for handling facilities at packing plants, which were published by the American Meat Institute, and are based on research conducted by Temple Grandin. Grandin's research showed that that vocalization was associated with excessive electric prod use, which she reported occurred at very few plants.

However, there is little, if any, direct evidence that electric prods cause tissue damage or compromise carcass quality. A study of the effect of electric shock on dairy cows indicated that its physiological effects are very short term, and dissipate within minutes (Lefcourt, 1986).

A major incentive to avoid any unnecessary force is to prevent negative associations with handling, which makes future handling more difficult. A study of aversive stimuli in handling suggests that electric prods are not much different than yelling, and only slightly different from hitting or tail twisting, in causing cattle to avoid the crowd alley (Pajor et al., 2000).

The reader's letter suggests, as does the article, that with properly designed facilities and a proper approach to low-stress handling, the use of any excessive force is unnecessary. The key principle is to be judicious in any pressure used to move cattle.

Sufferin' Summer Sulfates

Connee Quinn's terse note to herself from summer 2002 is as searing as the drought that withered that year's shortgrass prairie: “Hot and dry,” she wrote. “Lost 12 head.”

It wasn't the first time Connee and her husband, Reuben, had learned how devastating the Great Plains environment can be on livestock. It was worse in 1998, when 15 head died of mysterious causes, while others got sick.

For the Quinns, who ranch in southwestern South Dakota and live near Chadron, NE, it was like a multiple-choice test question with no good answer. “The symptoms of the cows that were still alive indicated some type of central nervous disorder,” Connee says. At first they suspected poisonous plants. Their veterinarian's early suggestion was selenium poisoning, a good guess since selenium poisoning is an ongoing problem in the area.

But the final answer to a question with life and death consequences was sulfates in the water.

With summer 2008 shaping up to be hot and dry for parts of the nation's rangeland, sulfate loads in livestock water may again be a concern. Couple that with the recent use of distillers grains and other corn byproducts as a feed supplement, which can also be high in sulfur, and the question becomes even more critical — how much sulfate in the water is too much for cattle?

Research results vary slightly, but Ted McCollum, Texas AgriLife Extension beef specialist in Amarillo, says generally, sulfate levels below 600 parts per million (ppm) is considered good, safe drinking water. Concentrations up to 1,000 ppm begin to move you into marginal water quality. “As you move up from that, you can potentially start having various types of problems,” McCollum says.

Those problems are substantial:

  • Several South Dakota State University (SDSU) studies show water sulfate levels of about 3,000 ppm or greater reduced performance and health of growing steers in drylot during summer months.

  • Steers grazing native rangeland had lower gains when supplied water with sulfate levels of about 4,000 ppm or greater.

  • In studies involving cow-calf pairs, water averaging 2,600 ppm sulfates resulted in little impact on calf growth or milk production, but did result in small reductions in cow bodyweight and body condition scores.

  • In another SDSU study on cow-calf pairs, animals on high-sulfate water (averaging 3,045 ppm sulfates) had lower 12-hour milk production in August (7 lbs. vs. 9 lbs. for low-sulfate water). Calf average daily gain tended to be higher for low-sulfate treatment groups (2.56 lbs./day compared with 2.45 lbs./day). A greater percentage of cows on low-sulfate water became pregnant during the first 25 days of the breeding season (81% compared with 64%) and final pregnancy rates were higher for the low-sulfate group (92% to 83%).

  • A three-year SDSU study found no differences in the incidence of polioencephalomalacia (PEM) between steers on high-sulfate water receiving supplemental thiamin, and those on high-sulfate water receiving no thiamin supplement. Thiamin injections are often used to treat sulfate-induced PEM in beef cattle, but the SDSU study was looking at what role supplemental thiamin might have on PEM.

Bottom line

“Usually around 3,000 to 4,000 ppm of sulfates in your water, expect some bad consequences,” McCollum says. Those consequences may include unexplained reproductive and health problems, reduced gain and, at the extreme, unexplained death loss.

Minnesota research found sulfate levels of 1,000-2,000 ppm may result in diarrhea and limit copper availability. Levels from 2,000-3,000 ppm may cause a substantial reduction in copper availability. That's important in herd health, McCollum says, as the effects of mineral deficiency come to the fore.

One of those effects is a severely compromised immune system, according to John Peirce, veterinarian with AzTx Cattle Co. in Hereford, TX, a cattle feeding and ranching operation. In Peirce's experience, calves originating from ranches with high sulfates in the drinking water simply don't respond to a vaccination program.

And in research from Saskatchewan, sulfate concentration at 7,000 ppm results in death due to sulfur toxicity or PEM. The Quinns can testify to that. At the time they were losing cattle, their waterholes tested from 5,500-13,500 ppm sulfates.

Also at the time they were losing cattle, it was summer and a drought — two factors that can substantially increase the potential for sulfur-toxicity problems. Cattle may drink more than 2 gals. of water/100 lbs. of body weight when temperatures exceed 80° F, more than twice the intake of a 1,000-lb. animal at a temperature of 40° F.

Then factor in drought. As tanks draw down, the salts will concentrate. “Under normal rainfall, ranchers may not have a problem (with sulfate concentration in waterholes),” McCollum says. “But in times where those ponds are drawing down and concentrating, they may see some problems.”

The same thing can happen with wells. And if those wells draw from a stratum with a high mineral content, that's going to show up in the water.

Just like surface tanks, minerals can concentrate in the well water as the water table draws down. Conversely, if the water column moves into a stratum containing less sulfate-bearing minerals, water quality may actually increase.

The point is, McCollum says, you don't know unless you test your water. And while it's not necessary to retest every year, it might be advantageous to test your water every couple of years, especially if you're battling drought.

That's even more important if you're looking to add distillers grains or corn gluten feed to your supplement menu. If your water is running 1,000-2,000 ppm sulfates, you can usually get by with minimal consequences, McCollum says, as long as no additional sulfur intake occurs.

“Then you start using corn gluten feed or distillers grains as a substantial portion of the diet, which increases the overall sulfur intake from the feed,” McCollum says. “And you've suddenly gone from a situation where you used to not have a problem and now you do.”

Feed research

Research is underway at SDSU to find a feed additive that can help reduce sulfur toxicity, says Ken Olson, SDSU Extension beef specialist in Rapid City. When an animal ingests a sulfur compound, free-range hydrogen ions roaming around the rumen cause a conversion to hydrogen sulfide, which is the toxic agent.

If researchers can find an agent that binds those hydrogen ions, they hypothesize that they can reduce the production of hydrogen sulfide and reduce the effects of sulfur toxicity.

Work last summer looked at Zeolite, a mineral compound fed to dairy cattle and swine that binds ammonia in the gut and reduces the amount of available ammonia in the manure. However, when fed at levels recommended for an ammonia response, no response was found in the level of sulfur toxicity.

“So our silver bullet is still waiting out there for us to discover it,” Olson says. They've done some lab work over the winter to get a better idea of dose rates, and will run a second set of trials this summer.

If they do discover an agent that reduces hydrogen sulfide, Olson says it may also allow greater use of distillers grains and other corn-milling products in both feedyard and pasture operations.

Management considerations

If you've got pastures with high sulfate concentrations in the water, about all you can do is figure out how to live with it. That's what the Quinns do. “The way we handle it is to go into those areas with poor water when the demand for water is less,” Connee says. “That would mean winter and early spring. We stay out of those areas in the hot summer.”

Since mature animals are slightly less susceptible to sulfates than young, growing animals, McCollum says another option is to use pastures with poor water for cows and run your steers or replacement heifers in pastures with lower-sulfate water.

And if no other options are available, Olson says you may have to haul or pipe good water to your pastures. Then you can either mix it with the high-sulfate water, or shut off the wells and provide alternative drinking sources with the imported water.

While the Quinns' experience was difficult, they say it's raised awareness that water quality is a bigger issue than some producers had realized. If you've got high-sulfate water, your options are limited and there are no good choices. But the dose makes the poison, and while you may have to suffer through some summer sulfate problems, help may be on the horizon.

Editor's Note: Lance Nixon, who contributed to this article, is an editor in South Dakota State University's AgBio Communications Unit.

The Toughening Of America

Let's face it — for the last decade it's been pretty fun to be in the cow-calf business, says Tom Field, Colorado State University professor of beef cattle systems. Despite rising input costs, competition for resources and tenuous government policy, Field isn't ready to wave the flag of defeat.

Instead, he says now is the time for cattlemen to be rational and consider the new marketplace realities. The good news about economic stress today, he says, is “we're going to toughen up the American people a little bit. And that's not a bad thing, because as a nation, we've become far too soft.”

Field points to seven key areas.

  1. A rational energy policy

    “Our own environmental and economic policies have forced fuel prices to their current level,” Field says. As a nation, we need to discuss taxation and possible fuel rebates for truckers, farmers and other economic-use areas.

  2. A misguided ethanol policy

    “Where we are with ethanol today is beyond the law of diminishing returns,” Field says. His “worst-case” fear is that corn-based ethanol isn't sustainable without significant subsidies, the lack of which will force consolidation, and closings of some ethanol plants that will “drive a lot of equity out of rural America.”

    An 18-month view

    He cites a report indicating that the only way to make a biodiesel system work today is within a subsidized system, with the product shipped to Europe for sale in a subsidized market. Bottom line, Field says, we need a sped-up timeline on phasing out all subsidies for ethanol production in the U.S. “If it can't stand on its own, then we shouldn't be doing it,” he says.

  3. Competition for resources

    “We're in a global marketplace. It's not so much that supply went bad, but demand went way up,” Field says. This is a result of China and India joining the global economy and creating a burgeoning middle class. “This is not going to go away,” he says; we need to learn to deal with it.

  4. Beef demand has staying power

    “If we get into a serious economic crisis, yes, the price of food is going to have some impact, but the demand for our product is going to be good.” He reasons that cattlemen are producing their best product ever, with more options for the marketplace and more value to low-end cuts.

    “We are providing a healthier, more nutritious product than we've ever produced,” he says, but demand growth is going to be dependent on access to international markets.

    “We must not turn away from our opportunity to be the world's best provider of high-quality beef,” Field says, noting there will be regional and local markets for limit-fed energy diet beef and grass-fed beef. But that's not where the U.S. will play competitively in the long run.

  5. Access to international markets is important

    This is a key in not only growing beef demand, but creating the demand signal to stabilize and potentially grow the U.S. cowherd. In the short run, a shrinking cowherd has sustained prices for cow-calf producers, Field says, but there's a balance where infrastructure shrinks to the point where it's difficult to keep pace with demand. Field believes access to international markets is the signal that keeps the U.S. cowherd at a stable-to-rising level.

  6. Consolidation in research and development

    Five years from now

    With input costs increasing, Field believes producer innovation will help minimize the impact of higher costs. It's a record of innovation that's historically been aided by a national network of agricultural research and development centers, which Field says is facing consolidation.

    “I don't believe anybody is going to pour more resources into the existing (ag research) infrastructure. As an industry, we need to figure out how to consolidate, realign and restructure our existing resources for maximum benefit.” This is both at the federal and land-grant university level, he adds.

  7. Realignment

    “How do we align our feeding and beef-packing infrastructure with product demand and the available supply of cattle out there?” Field asks. He estimates there is 15% overcapacity in beef packing and 20% in feeding. That indicates some shrinkage is necessary, but how is that accomplished in the right way?

Nationally, the shrinking of infrastructure is good, but on a regional basis the effects can be devastating. Field points to what happened in the Midwest during the 1980s with the closing of midsize packing facilities and feedyards. “When we shrink infrastructure in a region, it's really hard to build it back.” Shrinking infrastructure the right way, in Field's opinion, is incremental and not within the same region.

Field, who ranches with his family, is optimistic; the ranch is not for sale. “We think the long-term is still good enough that we're not in panic mode by any stretch of the imagination,” he says. That being said, they are considering consolidating some operations. Unable to find affordable fertilizer this spring for pastures, they expect less hay production and a cutback in their herd size come fall.

It's a scenario Field believes many producers face — looking at their enterprise mix and trying to find the best combination of time, talent and resources.

Field predicts there will also be more focus on risk management. At the cow-calf level, that primarily entails an analysis of the enterprise mix, trying to lock in input costs and contracting the sale of cattle. It will also push consolidation of the U.S. cowherd.

Expect the stocker sector to gain more importance, he says, as the industry strives to mitigate higher input costs by more forage feeding to achieve heavier feedyard in-weights. Feedlots can expect more innovative cattle partnering, as well.

“We can't underestimate the weak U.S. dollar in this whole mess, including oil,” Field says. “A weak dollar tends to be very stimulatory to exports,” which strengthens the position of U.S. products in the international marketplace. Low interest rates, on the other hand, will make retained-ownership ventures more attractive.

Field says the storm is really set up to differentiate value on the buy. “Cattle that will perform will be in demand,” Field says. “Problematic cattle — cattle that are chronic, don't eat, grow, yield or grade — those cattle will bear the weight of this pain in the marketplace.”

Tom Field, Colorado State University professor, is optimistic. Here's his five-year prognosis:

  • We've figured out that we have to balance environmental, economic and trade policy in a way that yields the best possible outcome, where we optimize, as opposed to maximize or minimize, any one area of our policy.

  • We have a nation of citizens who want a rational government. This creates a better environment for business, including rural business.

  • We have amazing technology available to us, and a very bright and talented human resource that knows the next few years will be tough, but it will strengthen us.

  • Strong demand for our product will continue and strengthen in international markets. But we must become effective negotiators in a global economy.

  • We are the generation that will find a way to keep our businesses alive. “I believe my children's generation, and their children's generation, are going to have a magnificent opportunity in agriculture.”

  • We won't forget the lessons we're learning from oil. Our nation can't afford to be dependent on someone else for food.

  • We need to get back to the notion of self-reliance, and building strong families and communities.

  • We'll always be an industry that faces risk from weather, costs and government policy, but we're innovative and resourceful enough to sort it out.

Silver linings

It seems tough to find upbeat aspects in media reports about the economy these days, but even a tougher economy may sport a silver lining or two for beef producers.

The “U.S. Grocery Shopper Trends 2008” report released in May by the Food Marketing Institute (FMI) concludes that economic concerns are compelling Americans to cook at home more and eat less often at restaurants (71%). In fact, families are eating their main meal at restaurants only 1.2 times/week this year, compared to 1.3 in 2007 and 1.5 in 2006.

In addition, the report says nutrition is very much on the minds of shoppers; 41% indicate they're “very concerned” about the nutritional content of the foods they eat, and 47% are “somewhat concerned.”

Powerful Beefscapes

Those are two trends that would seem to rest securely in the wheelhouse of the beef industry's current marketing and promotion efforts.

“Powerful Beefscapes” is the industry campaign launched earlier this year aimed at reinforcing “consumers' passion for beef and the protein body benefits it provides.”

Previously, the checkoff program had split its resources between two separate campaigns, one focusing on beef's nutritional profile and the other on consumers' passion for beef. “Powerful Beefscapes” was aimed at consumers looking for foods that satisfy their cravings and deliver good nutrition. Beef, after all, is an excellent or good source of nine essential vitamins and minerals, including protein.

Despite all the successful efforts made in recent years to improve its convenience profile, beef has traditionally been considered a fare for family-meal events. And FMI President and CEO Tim Hammonds points out that the FMI study indicates the great American home family meal tradition is making a comeback.

The study found that consumers equate eating at home with eating healthier, and as many as 91% say they eat healthier when dining at home. This number includes 39% who believe home-cooked food is “much healthier.”

And besides saving money (eating in costs an average of $5/person, while eating out costs $12), eating at home has a social benefit. “Research shows that children who dine regularly with their families at home are healthier, superior academic performers and less prone to substance abuse,” the report says.

Other study points include:

  • 82% of stores feature natural or organic foods, up from 80% last year, and 72% in 2006.

  • Consumers remain challenged in meal planning. In fact, 28% of consumers say they don't know the fare two hours before dinnertime on weekdays; the number jumps to 35% on weekends.

  • Consumers remain uneasy about eating products derived from cloned animals. As many as 77% aren't comfortable, including 44% who are “not at all comfortable.” That's up significantly from 61% and 31%, respectively, in 2007.

More than eight in 10 consumers (81%) believe cloned foods should be labeled, and nearly six in 10 (58%) hold this view “strongly.”

This is all food for thought as the industry plans its marketing and promotion efforts in a tougher business climate.

The Prediction Is Pain

In the film “Rocky III,” champion Rocky Balboa's nemesis is the fearsome contender Clubber Lang, convincingly played by Mr. T. When asked in a pre-fight interview for his prediction, Lang scowls into the camera and growls: “Pain.”

That's not unlike economist Bill Helming's economic prognosis for the next few years. But despite the anxiety, the price and the pain inherent in the upcoming fight, there is opportunity for beef producers who are up to the challenge, he says.

“Looking out over the next 5-10 years and beyond, I think the beef, pork and poultry industries are going to look different than they do today because someone is going to go without, and I like the beef industry's position the best,” the Olathe, KS-based Helming says.

“There will be opportunities; not a single opportunity, but multiple opportunities, for producers to develop various economically-driven supply agreements or partnerships,” Helming says. “These arrangements will give the cow-calf operator an opportunity to add value and compensate for the lost revenue and value that higher energy and grain costs will continue to exert on the market value of their cattle.”

Unlike anything else

First off, whether you call it a “downturn” or a “recession,” the current doldrums are unlike any other economic vagary ever seen, Helming says.

“What the U.S. and global economies will be struggling with for several years is simply paying the price of living beyond our means at all levels,” he says. “We are in a serious liquidity and credit crunch. When it's all said and done, I think people will look back and say, ‘this was the most serious and difficult economic period we've seen in over 50 years.’ ”

In the short term, he expects flat to sub-par economic performance for all of 2008 and 2009. He doesn't see a bottom to the real-estate market until at least the end of 2010.

But even once those challenges have passed, the days of business as usual are gone, the casualties of major and long-term structural and foundational shifts in domestic and global economies.

“We've been spoiled in the U.S. with a long history of cheap food and energy. One of the fundamental shifts underway worldwide is toward higher energy and food costs. And all producers of agricultural and food products, as well as consumers of those products, will have to get used to it,” he says.

While many blame biofuels for runaway energy prices and food shortages, Helming believes it's “a lot less than 10%” of the cause, as are a weaker dollar and weather woes. The “major enchilada,” as Helming terms it, are demands for energy and grain that are outpacing available supplies.

“Only 4% of the world's population is located in the U.S., and the other 96%, while largely on a lower rung of the economic ladder than the U.S., are nonetheless growing and climbing that ladder,” Helming says. “The fact is when people can afford a better diet, that usually means more protein, and that takes more grain. China is today a net importer of corn rather than a net exporter, and the Chinese are consuming dramatically higher levels of energy and food, as are India and Russia.”

While higher-priced and shorter supplies of grain are hardly a positive for U.S. beef producers, the beef industry is better suited than its protein competitors to withstand the challenge, he believes.

“Poultry and pork producers have to use corn and meal. They really have no choice. Conversely, between 50% and 60% of the finished weight of a fed steer or heifer is on forage. That's a definite competitive advantage.”

In addition, Helming says U.S. beef has seen a demand surge in the past decade, with consumer purchases indicating a willingness to pay more for beef. “I believe that overall consumer demand domestically for beef will hold up reasonably well, though it will be impacted negatively to some degree,” Helming says.

But the most promising factor lies in exports. “Our competitive advantage in the U.S. is producing grain-fed, high-quality beef. While the U.S. population is growing, the rest of the world's population is growing even faster, while slowly climbing the economic ladder. Of that 96% of the world's population outside U.S. borders, only a small percentage will be capable of buying, or will want to buy, U.S. beef, but it doesn't take very much to make a difference. I'm very optimistic that over the next five years, U.S. beef exports could climb to as high as 12-15% of total production,” he says, compared to the current 4-5%.

Here are other projections:

  • Corn

    Helming's best-case scenario for the next five-year period is for an average farm price ranging from $4.50 to $7/bu. on an annual basis, with an average price, assuming good weather, of $5.50-$6.

  • Energy

    Fluctuating prices ranging from $90-$140/barrel over the next two years.

  • Live fed-cattle prices

    Looking through the end of 2009, Helming's best-case scenario is an average in the $94-$98/cwt. range, ranging from a monthly average of $90 to $105. His worst-case scenario through the end of 2009 is $90-$94, with an average range of $85-$95.

    Looking at a five-year period, his best-case scenario is an average of $100-$110, with the range between $95-$115. His worst-case scenario is a $95-$100 annual average, with prices ranging from $90 to $105 on a monthly basis.

  • Consolidation

    He calls consolidation “the name of the game at all levels.”

In 1950, total beef production (beef and dairy) per cow was 228 lbs.; commercial cattle slaughter carcass weight as reported by USDA was 519 lbs.; and total beef production was 9.248 billion lbs. In 2007, those figures were 629 lbs., 776 lbs. and 26.421 billion lbs., respectively.

What's more, that prodigious efficiency and production boost came with relatively the same national herd size. In 1950, the total U.S. beef and dairy cow inventory reported by USDA was 40,596,000 head. On Jan. 1, 2008, it was 41,777,000.

“We had the lowest calf crop in 2007 since 1951, so how in the world did we increase productivity so much?” Helming asks. Better genetics, larger cattle and more efficient production systems, he says. Also in 1950, 25% of the beef calf crop were non-feds; today, all beef calves go through the feedlot.

And higher grain costs, which will encourage more forage feeding of cattle, shorter on-feed periods, and the conversion of grazing land to crops will assure a further shrinking national herd, Helming says.

“The price of a calf, a stocker animal or yearling is going to be significantly less than what it would otherwise have been given the beef supply and the cattle inventory because of the price of grain. The price of grain isn't coming down,” Helming says.

Meanwhile, the cattle-feeding sector will continue to dramatically consolidate. “Among feedlots historically dependent on custom feeding, many will recognize those days are largely gone. If they're to have any semblance of a full feedlot, they'll have to own the cattle, or partner with selected cow-calf operators, beef packers, or a combination of the two.

“And the same is true for the beef-packing segment, also suffering from over-capacity. They'll have no choice but ally with cattle feeders and/or producers. And it's all driven by the same set of economics.”

All in all, Helming says he's optimistic about the industry's future. His biggest concern over the coming months and years is the role of government.

“Government and government policy could make things much worse over the next five years. Whether that's in farm bill policy, trade policy, energy policy, tax policy, etc., all these things are interrelated and affect agriculture and the food industry.

“There's that whole element of unintended consequences, and I can see the government doing a lot of things to make things even tougher than they otherwise would be just because it thinks it has to do something, which frankly turns out to be worse than what we already had. And that's a big worry.”