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Articles from 2002 In August


Middle Ground

Value-based marketing alliances appear to be becoming more alike than different.

More alliances are marketing more cattle for similar premiums, but reported requirements are loosening, and more are reaching back to the cow-calf producer to source the cattle their customers want.

Taking a read on the evolution of beef alliances is akin to charting the stars with a rubber band and thumbtack. Distance, dynamics and proprietary information mean you can't ever be sure about what you're seeing, yet the process can confirm previous conjecture and uncover new ideas.

There is nothing scientific about the alliance information presented in these annual BEEF Alliance Yellow Pages. The various programs participate if they want and provide the information they choose. Considering the information compared to the past, however, does serve up some observation and speculation worth tracking.

Based on the information reported by 34 consumer-based alliances this year compared to that reported by 36 organizations last year, here's what we're seeing: (BEEF's observations are in italics):

  • A total of 4.7 million head of cattle were marketed through alliances in 2001, a 20% jump over 2000. This number includes 2 million head reported by Certified Angus Beef.

    That's certainly in keeping with the increased volume of cattle trading away from the spot cash markets, as well as the growth of branded beef products.

  • Twice as many alliances (10) marketed 100,000 head or more.

    As major retailers begin establishing partnerships with supply chains, volume becomes its own reward.

  • A total of 38% of the alliances participating in this year's BEEF Alliance Yellow Pages report offering some sort of post-harvest premium to cow-calf producers who raise the cattle that ring the performance bell. This is regardless of whether or not those same producers retain ownership in their cattle through the feedlot.

    A couple of years ago, only a couple of programs offered economic incentives ahead of the feedlot. The growing use of this tool underscores how much added value the right kind of cattle in the right situation bring to the equation.

  • The premiums cited this year represent a dramatic widening in the range of value. The top premium cited this year is $270/head, compared to $60/head last year. Take a couple of these stratospheric premiums out of the mix, however, and the premiums are virtually the same, ranging from about $10/head to $60/head.

    On the extreme end, it makes sense that cattle that must fit a tighter window should be worth more. A similar range across years might underscore the fact that there's a point at which cattle aren't worth any more, no matter what you do to them.

  • A total of 44% of the alliances this year cite a minimum number of cattle as a requirement, compared to 53% last year.

    Rather than moving away from the efficiencies of moving loads of cattle, this might indicate more pooling and commingling of calves so that operations of all sizes have more opportunity to participate.

  • Of this year's programs, 56% cite some type of management or identification requirement, compared to 65% last year. Of those, 37% require that cattle be managed to meet natural beef specifications.

    While the numbers are similar, possibly some requirements once deemed as an added-value luxury, such as health management, are becoming a standard of admission.

  • A total of 82% report offering pricing grids — either yield-based, quality-based or both — compared to 94% last year.

    Certainly, there seem to be more systems transcending pricing models based in the commodity market and moving closer to the consumer; typically working more closely with the packer and retailer to determine value.

  • Choice Yield Grade 3 is cited by 63% of the programs as the par point in their pricing system, compared to 56% last year.

    True to the past, this continues to be the middle ground of value for the majority.

Right Up Your Alley

Tyson's Trading Activity?

A July article in the Washington Post inaccurately reported that Tyson Foods Inc. shipped $250,000 worth of frozen chicken parts to Iraq through a broker in Jordan. This statement is a misrepresentation of the facts, says Tyson.

The statement appeared in an article reporting on alleged embargo violations by several U.S. companies.

Tyson says the transactions in question were made by Hudson Foods in 1996. Tyson acquired Hudson Foods in 1998, two years after alleged violations occurred. Though Tyson had no knowledge of any violations at the time of the acquisition, Tyson nonetheless acquired the liability and, therefore, elected to settle the matter in 2001.

Tyson claims the conglomerate strictly complies with all U.S. trade embargoes.

Brand Name Joint Venture

Excel Corp. and Hormel Foods have signed a letter of intent to form a joint venture to market nationally branded, fresh, case-ready beef and pork under the Hormel Always Tender brand name. The products will be sold in supermarkets and club stores.

The joint venture, Precept Foods LLC., will be based in Hormel's headquarters in Austin, MN. Excel will supply the fresh beef and pork. Each company will independently maintain existing fresh case-ready programs and other meat programs, such as Excel's branded premium meat products. — TCFA

Russians May Ban More Chicken

It's no secret that this year's poultry trade disruptions with Russia have increased domestic supply and pressured poultry and red meat prices. Now, it's being reported that the Russians may ban U.S. poultry again as of Aug. 1.

Developing a veterinary certificate that meets safety standards, as defined by Russian leaders, is still a major problem. Russian media reports imply the U.S. has done little to date to address their issues. Some U.S. poultry industry people say there are still many unresolved issues on this trade dispute.

A USDA team is in Russia this week working on this issue. The U.S. has raised concerns about Russia joining the World Trade Organization due to the poultry trade problems. U.S. officials, however, seem hesitant to strain relations with Russia too much as the nation is a key oil-producing country and is supporting the U.S. war on terrorism. — Livestock Marketing Information Center

Effect Of Exchange Rates

U.S. farm exports have been shut out of key international markets and some foreign farm products are stronger competitors in our domestic marketplace due to the strong value of the U.S. dollar. That's what American Farm Bureau Federation (AFBF) president Bob Stallman recently told the Senate Banking Committee.

The comparative advantages that U.S. producers generally enjoy — abundant, fertile natural resources, access to high-quality inputs and technology, for example — are offset by the rising value of the dollar against other currencies.

“Exchange rate is the single most important determinant of the competitiveness of our exports,” says Stallman.

The overall economic health of U.S. agriculture depends on more stable exchange rates that do not overvalue the U.S. dollar.

AFBF doesn't advocate isolation as a shield from the economic forces that shape world trade. However, Stallman says it's tough for U.S. producers to manage their enterprises in a world where competitors' exchange rates suddenly depreciate.

AFBF also is concerned about countries that devalue their currency to gain an export advantage for their producers. Stallman says trade-weighted exchange rates for agricultural exports from all of the major competitor-countries — Canada, Australia, Argentina, China and Malaysia — have exhibited a long-term trend of depreciation against the U.S. dollar, contrary to market fundamentals.

Agriculture is one of the most trade-dependent sectors of the U.S. economy. It's maintained a trade surplus for more than two decades, but the surplus is shrinking. The strong U.S. dollar is one of the primary factors.

“U.S. farmers and ranchers have lost export sales for the past three years because the dollar is pricing our products out of the market, both at home and abroad,” Stallman says. “In addition, the U.S. dollar's higher exchange rate has resulted in rising agricultural imports due to increased purchasing power.”

Controlling E. coli

A simple electrolyte water treatment technology first developed in Russia may enhance food safety by improving the control of E. coli O157:H7.

The treatment uses water containing 0.1% electrolyte solution, which is put through a process that changes the solution's pH levels.

“Preliminary research suggests we can totally clear E. coli O157:H7 from a water trough using this technology,” says Sam Stevenson, a PhD student studying the technology. She's working at Agri-Food Canada's Lethbridge Research Centre.

“Further research is planned to see how it works under normal feedlot conditions, but we are very optimistic about the positive results,” she says.

The major food contamination risk is the transfer of the pathogen from the animal's intestine to the carcass during the slaughtering process. But scientists increasingly view farm management strategies, such as keeping feed bunks and water troughs clean, as a crucial component of reducing E. coli in the environment and further up the food system.

Lethbridge researchers got the idea from Russian researchers who have been investigating the electrolyzed oxidizing (EO) water treatment for more than two decades to control a variety of pathogens. Developed by the Canadian/Swiss company Biostel North America, the latest technology is under evaluation in Canada and may be introduced into commercial livestock facilities in a few years.

“A big advantage is that it's potentially very easy and economical to use — only a small concentration of treated water is enough to kill the bacteria in cattle drinking water troughs,” says Stevenson.

Further study is also important to fine-tune the technology under normal feedlot conditions, she says. “In a regular water trough, the ‘bugs’ can hide in protective material such as scum or fecal contamination, so studies will consider this factor.”

Potential applications include using the technology as part of multi-step controls to reduce pathogen loads in feedlots or packing and processing plants.

For more information, contact Stevenson at 403/317-3469.

Compiled by Clint Peck, senior editor. Submit contributions to 406/896-9068, 406/896-9069 (fax) or [email protected].

Who does NCBA represent?

In May, U.S. Sen. Craig Thomas (RWY) took a courageous step in defense of U.S. cattle producers. He asked Congress to convene immediate investigative hearings into repeated, inexplicable collapses of the cattle market in recent months.

A few weeks later, 28 local, state, regional and national cattlemen's and industry organizations co-signed a joint letter to key congressmen requesting the same. I am one of the people who helped organize the effort because our cattle pricing system is broken.

During the same week our letter of request was delivered to the chairmen of key Senate committees, the National Cattlemen's Beef Association (NCBA) delivered its own letter to the U.S Congress. NCBA asked Congress for “research that would get to the bottom of volatile markets and low prices for cattle producers.”

It's obvious NCBA doesn't get it and isn't going to. I don't need a consortium of business schools to tell me what's wrong with the cattle market I've been part of all of my life.

This is another time-buying tactic by an outfit that no longer is a cattlemen's organization but a front for the packing and retailing segments. While the NCBA-requested study is being conducted for who knows how long, independent cattlemen will suffer at the hands of the packers and retailers reaping record profits.

I've been an NCBA dues-paying member for 50 years. I've kept my NCBA dues current so that I can't be “blamed” for not being part of NCBA's “solution-oriented process.”

NCBA continues to lose membership. Its CEO, Terry Stokes, related that message to Colorado cattlemen at their recent convention. The mystery is why NCBA leadership refuses to understand the exodus, because out here in the country, we know why we no longer want to be part of NCBA.

Years ago, our hard-earned dollars drove the organization. Today, profit-reaping packers and retailers have bought and paid for NCBA and its representation. We must work to strip NCBA of the reputation in Washington, D.C., that we built so many years ago.

I want NCBA president Wythe Willey and incoming president Eric Davis to clearly know that NCBA is in serious danger of losing the support of an entire bastion of “old-timers” in their membership, who have kept their dues current for no other reason than traction. In years past, I took great pride in being part of the old National Cattlemen's Association and was actively involved both in time and financial support. No more.

I hope every rancher who believes as I do will call their congressional delegations and tell them NCBA no longer speaks for them. Tell your local and state cattlemen's groups that any affiliation with NCBA is a complete waste of good money that can be spent more effectively elsewhere.
Tom F. Spencer
Pueblo, CO

Producer Joe Tugaw, a long-time NCBA member, responds:

Throughout his career, Tom Spencer has played a key and impressive role in the workings of the cattle industry. He's given much of his time, energy and resources to make this industry better for those who make their livings in it. That's why his comments about the National Cattlemen's Beef Association (NCBA) are disturbing.

He says NCBA no longer represents the interests of the grass-roots cattle producer and has fallen in line with packers and retailers in its policy decisions. The logical question that arises from this claim is: How many grass-roots producers are making these decisions on NCBA's board, and how many packers are represented?

  • About 62% (84 members) of NCBA's board are cow-calf operators. They're appointed by their state cattle organizations. These are grass-roots cattle producers.

  • About 30% (42 members) of the board are feedlot operators and also represent their state cattle organizations. These are grass-roots producers.

  • Fewer than 2% — just two individuals — have votes as representatives of the packing industry. How can two people control the actions of a board made up of 138 people who are elected primarily by their state organizations?

Rather than presenting his complaints in the media, we prefer Tom demonstrate his disagreements by using his influence to bring together cow-calf operators on the board — who represent a clear and overwhelming majority — to institute the policies he wants. He could go even further by encouraging more cow-calf operators to become active, thereby securing an even greater majority in the democratic proceedings of the organization.

The cattle industry is going through enormous changes and tough times. As the industry's largest organization, NCBA is a prime target for people unhappy with market conditions. But it's important to remember that the organization is a collection of grass-roots producers from the state affiliates and breed and industry organizations that constitute the membership.

NCBA has survived for more than 100 years because of its ability to see the big picture — because of its tenacity to focus on tough issues for as long as it takes. Sometimes issues need to be tackled from the ground up.

To effectively fix the cattle pricing system, we must be willing to look at all meat and poultry pricing. I stand behind our president Wythe Willey and his letter asking Congress for the money already earmarked for this process.

I agree action needs to be taken quickly. That's why NCBA is also working proactively with the Chicago Mercantile Exchange and the Commodity Futures Trading Commission on short-term solutions for the wreck our market is in.
Joe Tugaw
Twin Falls, ID

Brazil's expensive progress

I eagerly read Clint Peck's fine and accurate article on Brazilian beef production (June and July issues). As a cow-calf, stocker and fattening operator in Brazil's Mato Grosso state for nine years, I can attest to the potential of the beef business here.

Cheap land, a great growing season and cheap labor spell profit. But don't be fooled by the fact that Brazil is operating at half of its production capacity and that they could “double production without having to tear down another tree.”

The numbers are true, but it is also true that the authorities here are masters at propaganda. They know just the right things to say to convince foreigners just how good the Brazilian landowners are behaving.

There are hundreds of thousands of hectares of degraded lands that could be put back into production. But there are also millions of acres of forests to be felled to achieve the same ends but at a much cheaper cost.

Crunch the numbers and you will see that economics drive policy, and that is why the Amazon forest will be torn down. Brazil offers some of the world's cheapest forage costs, but there is a reason for that.
John Carter
Mato Grosso, Brazil

Great Coverage

I really enjoyed the article on Brazil. I'd like to learn more and travel there someday. Thanks for the article!
Tracy Brunner
Cow Camp Feed Yard
Ramona, KS

BRD Is Everybody's Problem

I'm glad to learn that shipping fever (BRD) is finally getting some attention from ranchers (“Ship Shape,” July BEEF page 6). As a cattle feeder — almost an ex-cattle feeder — BRD was and still is by far our greatest health problem, far greater than all other health problems combined. The predominate attitude of ranchers and cowherd owners is still, “BRD is the cattle feeders problem, not ours. Feeders were healthy when we loaded them.”

By the time we, the feeders, receive them, it's mostly too little and too late. If I had nothing else to do, didn't have to feed, harvest, etc. and had a couple helpers, I could keep BRD fairly well under control.

Employees do not like Sunday and holiday work. So often, that's when a batch of BRD appears. By Monday, it's too late. By tagging the sick, I've found that those which apparently recover are often the ones who die suddenly before they're market ready.
Jim Smith
[email protected]

Send reader letters, with name and address, to BEEF, 7900 International Dr., Suite 300, Minneapolis, MN 55425; or e-mail to [email protected] business.com BEEF reserves the right to edit for length.

Biocontrol research centers on stable flies

Pesky stable flies may have met their match. Researchers at the University of Nebraska-Lincoln and USDA's Agricultural Research Service are testing tiny parasitic roundworms as biological control agents. They want to determine if the roundworms, also called nematodes, can provide cattle producers a reliable alternative to chemical insecticides.

In experiments, up to 99% of fly maggots died within 48 hours of infection by S. feltiae, the researchers' top fly fighter. The nematode kills the flies' maggot offspring by wriggling into their bodies to feed, mate and reproduce.

The research primarily targets stable flies because they cost U.S. beef and dairy cattle industries up to $1 billion in annual production losses. The biting flies cause blood loss, stress and feed efficiency problems.

So far, researchers have screened about 20 species and 50 strains of fly-infecting nematodes. They're particularly interested in those capable of surviving in manure around feedlots or soiled bedding in calf pens, where 80% of the flies' brood hatch and feed.

One of the drawbacks to controlling flies with chemical insecticides is that they must be reapplied as fly populations rebound or migrate from other areas. In addition, the emergence of insecticide-resistant fly populations is a concern.

For more information, check out the July issue of Agricultural Research magazine, available on the Web at www.ars.usda.gov/is/AR/archive/jul02/flies0702.htm.

Some girl wasps just wanna kill flies. And that fact may eventually bring livestock producers a biocontrol tool for flies, according to researchers at the Lethbridge Research Centre in Alberta, Canada.

Scientists there are investigating the potential of the bacterium Wolbachia to cause female-biased sex ratios in species of tiny wasps that are natural enemies of house and stable flies.

The effect of Wolbachia in producing more female wasps could provide increased fly control, researchers say.

Here's how the process works: Female wasps lay eggs in fly pupae, the eggs hatch, and the wasp larvae feed on the developing fly. These wasps eventually emerge as adults from the dead fly pupae and go on to repeat the cycle, killing more developing flies.

The ultimate goal, researchers say, is to use Wolbachia to produce all-female wasp populations that could be released to control flies.

At this point, scientists are trying to identify the strains of Wolbachia by their DNA, pinpoint the effects that each strain may have on an insect, and then select the best strains for targeted and effective pest control strategies. Researchers hope to find a strain that causes all-female offspring, which would allow all-female populations of wasps to persist generation after generation.

What's more, because Wolbachia is widespread in many insect pests throughout the globe, this fundamental DNA research has broad implications. Wolbachia is thought to infect 20-70% of all known insect species, and researchers say they are only beginning to learn what the bacterium can do.

For more information, contact George Kyei-Poku at 403/317-2232 or visit www.agr.gc.ca/science/lethbridge.

“Feeder Research” is compiled by Diana Barto, [email protected].

Think twice about selling at weaning

Producers and bankers have contacted me for my thoughts on fall 2002 calf prices. Market prognostication is a tricky process, even without the heightened uncertainty settling in on today's cattle markets.

During the turn-around phase of the cattle cycle, which we are in currently, the previous year's marketing experience is of little or no value in designing this year's marketing program.

Today's markets are changing so fast that I'll focus this month's column on my current, short-run market price analyses. I'll begin with my short-run price projections for 2002 calves and use these prices to evaluate alternative strategies for marketing 2002 calves. I'll then describe two key factors influencing the economics of these marketing alternatives. Finally, I'll present a sneak preview of fall 2003 price projections.

My current, price-line projection for fall 2002 is presented in Figure 1. Each point on this price line is my price forecast for a specific weight of feeder steer.

This graphic enables you to identify the appropriate price for the calf weight you'll produce this fall. The slope of the price line between any two points gives the average price slide for that weight of feeder steer.

Fall 2002 price projections for 500- to 600-lb. steer calves are in the $81-$84/cwt. range (marked in yellow in Figure 1) for the Northern Plains. You'll notice it's down $10-$13 from fall 2001 prices (Figure 2). These planning prices suggest a $61 profit/cow from my demonstration cowherd from selling 2002 calves at weaning.

My demonstration herd has a 90% calf crop weaned and a production cost of $70/cwt. of calf. This compares to a $113 profit/cow for this same herd selling 2001 calves at weaning and $124/head for this same herd selling 2000 calves at weaning. Profits from selling 2002 calves at weaning are projected to be about half of 2000's high.

Figure 2 presents actual fall price lines for 1998 to 2001 and puts the projected fall 2002 price line in perspective with these previous years. Fall 2002's price line is situated above fall 1998's price line and below fall 1999's price line.

2002 Calf Strategy

Given these relatively low projected calf prices, should a rancher sell at weaning or hold his 2002 calves? Table 2 presents my projected planning prices for evaluating alternative strategies for marketing 2002 calves. Figure 3 presents my current planning prices for corn grain. I integrated these two sets of planning prices into a set of production budgets designed to evaluate several traditional marketing alternatives for 2002 calves.

My study suggests this might be the year to delay marketing your 2002 calves until 2003 when stronger prices are projected (Table 1, center box).

  • Backgrounding 2002 calves with a high average daily gain (2.5 lbs/day) then marketing in January 2002 is projected to generate an added $21 profit/head above the $61/cow projected for selling at weaning.

  • Growing and finishing 2002 calves in a retained ownership enterprise is projected to generate an added $55 profit/head above the original $61 at weaning.

Combining the projected weaning profits ($61/cow) and the projected retained ownership profits ($55/head) gives a projected weighted profit potential of approximately $116/cow for this herd. This herd has a 90% calf crop and $70 unit cost of producing a cwt. of calf.

Other Influential Factors

Two factors heavily influencing the current cattle market are record-high meat production and the continuing drought in the U.S. and Canada.

As I write this in late June, we've just completed a six-year high in weekly beef production. This comes after a record April beef production of 2.19 billion lbs.-13% larger than April 2001. Add in record pork production, and April set a new meat production record of 3.9 billion lbs.

James Mintert, Kansas State University economist, reports beef production during the first half of 2002 was 4.6% higher than in 2001. When Nevil Speer of Western Kentucky University plugs the current total meat production levels into his predictive equations, he concludes that total meat supply (beef, pork and poultry) and beef by-product values go a long way toward explaining today's cattle prices.

In fact, the Livestock Market Information Center, Denver, CO, says “Our price problem seems to be from the supply side and not consumer demand.” We are simply awash in meat.

I also believe the current price downturn is heavily drought-driven. Once the drought passes, we should see heifer retention trigger a cattle cycle price kick. As heifers are diverted from feedlots to the breeding herd, feeder cattle prices should again strengthen.

The biggest marketing challenge is figuring out when the drought will end and drought-stressed ranchers will begin to repopulate their herds.

I currently project a price kick from 2003 heifer retentions triggered by ranchers' post-drought repopulations. Tax laws should motivate any rancher that depopulated in year 2000 to repopulate in 2003, or they will need to pay income taxes on those 2000 drought-induced sales.

As a result, fall 2003 (or maybe fall 2004) calf prices should approach fall 2000's cattle cycle highs. This suggests a double price top for this cattle cycle. My current fall 2003 projected price line is in Figure 2.

Harlan Hughes is a Professor Emeritus of North Dakota State University. Retired spring 2000, he is currently based in Laramie, WY. He can be reached at 701/238-9607 or [email protected].

Table 1.
Traditional marketing alternatives
(2001 calves)
Traditional marketing alternatives
(2002 calves)
Traditional marketing alternatives
(2003 calves)
Marketing strategy Buy/sell margin Cost of gain (COG) Profit/head Marketing strategy Buy/sell margin Cost of gain (COG) Profit/head Marketing strategy Buy/sell margin Cost of gain (COG) Profit/head
Sell at weaning XXXXX $0.70 $113 Sell at weaning XXXXX $70 $61 Sell at weaning XXXXX $70 $122
Bckg high ADG -$14 $0.45 $7 Bckg high ADG -$8 $0.45 $21 Bckg high ADG -$8 $0.50 $44
Fin bckg steers -$15 $0.48 -$57 Fin bckg steers -$9 $0.52 -$6 Fin bckg steers -$11 $0.49 $36
Grow & finish -$29 $0.40 -$13 Grow & finish -$15 $0.44 $55 Grow & finish -$19 $0.41 $111
Steers on grass -$14 $0.45 -$33 Steers on grass Steers on grass
Fin grass steer -$8 $0.49 $17 Fin grass steer Fin grass steer
Projected week of June 28, 2002
Table 1.
Suggested Planning Prices Projected
lbs. Fall '00 Mar '01 Spring '01 Fall '01 Jan '02 Mar '02 Spring '02 Current
June 28, '02
Fall '02 Jan '03* Mar '03* Spring '03* Fall '03*
425 $115 $117 $117 $104 $109 $128 $106 $89 $86 $86 $85 $85 $98
500 $105 $110 $109 $97 $100 $114 $99 $87 $84 $84 $83 $83 $96
600 $96 $102 $100 $91 $91 $99 $91 $84 $81 $93 $80 $80 $93
700 $86 $93 $92 $86 $84 $87 $84 $81 $78 $78 $77 $77 $90
800 $88 $85 $85 $83 $79 $79 $77 $77 $74 $74 $73 $73 $86
900 $89 $78 $79 $82 $77 $74 $72 $73 $70 $70 $69 $69 $82
Slaughter $70 $78 $73 $65 $70 $68 $65 $64 $67 $67 $69 $74 $77
*Projected week June 28, 2002 with slaughter basis included

Chain Reaction

When the notion of branded beef finally gained lasting traction in the beef industry at least a decade ago, it was easier to supply differentiated beef products than it was to convince skeptical retailers they should care about them.

In fact, Bill Mies, director of supply chain management for eMerge Interactive, explains, “When the first programs started, you could cooler-sort carcasses and come up with the candidates to fit a branded program. It wasn't difficult to match cattle to brands.” The total beef supply was that deep and demand for branded volume was that thin.

Today, some industry estimates peg total branded beef production at 25% of all fed cattle and expect it to command half of all production within a few years. With that growth as an impetus, both retailers and producers are scrambling to source or develop vertically coordinated systems capable of consistently supplying the specification beef retailers believe can differentiate them from the competition.

For perspective, the nation's big-four beef packers are fully engaged in providing customers with at least one brand choice. Tyson-owned IBP is churning out the Thomas E. Wilson Brand. Excel offers Cattlemen's Collection. Swift (formerly ConAgra Beef) is a brand name in itself, and National caters Farmland branded beef.

Furthermore, the nation's largest retailers are already teaming up with packers to provide them with specific brands on an exclusive basis.

“Retailers working with brands in one or two of their divisions are anxious to expand into other divisions,” says Mies.

As a rule of thumb, supplying beef to a single store within a division requires about 1,000 head each year, he says.

“When you start getting retailers liking branded programs, the numbers required for them to expand to all of their stores gets pretty astronomical pretty fast,” he says.

So as the total supply pie is carved up into more and smaller slices to guarantee consumers a specific branded product year-round, more attention is being paid to supply chains rather than the open market.

“These systems have been driven by both ends,” says Steve Hunt, CEO of U.S. Premium Beef (USPB), a self-contained, member-owned supply chain that owns an interest in National Beef and marketed about 700,000 head through its system last year. “Producers want to be rewarded for their efforts in management and genetics, and consumers say they want more of a specific product they are willing to pay more for.”

What's A Supply Chain?

Mies says each retailer wants to differentiate its brand. “He wants to be known for high-quality, big cuts, little cuts, whatever he believes will make his product more attractive to customers than the product at the retailer across the street. Whatever he's going to use as his draw, a supply system will have to source him the cattle that fit those characteristics,” he says.

In simple terms, Mies says a supply chain is any system that manages the logistics demanded by the product you're providing. It could be as simple as a cooperative of order buyers providing feedlots a guaranteed volume of cattle that fit certain specifications. Or, it could be as complex as a fully integrated system providing individual identification and source, gene and process verification for every cut of beef sold under a particular brand name.

For that matter, Mies points out the recently legislated mandatory country-of-origin labeling that's supposed to be in place in 2004 represents a supply chain in itself. “That will accelerate this whole process,” says Mies. “Beef products labeled for country of origin represent a brand, and that will require supply chain management.”

John Butler is CEO of Rancher's Renaissance, one of three suppliers to the Cattlemen's Collection brand. He says besides guaranteeing a consistent supply, a supply chain — what he calls a value chain — enables producers and customers to capture efficiencies across the production spectrum whatever the specific system. In the case of Cattlemen's Collection, as an example, the product encompasses 24 quality-control points from pasture to the retail meatcase. Whether or not individual components overlap between production segments, Butler explains coordination of the supply is what makes such comprehensive consumer assurances possible.

Without a system in place, these kinds of consumer assurances would either not be possible or would come at extra cost through duplication by each supply segment.

Moreover, with a brand, Butler says, “Our members are no longer selling a commodity product, we're selling a product with a promise.” Consequently, there's no room for failure, either in the consistency of supply or in the promised attributes of the product within that supply.

Opportunities And Challenges

Whether born out of alliances, cooperatives of alliances or systems built from the ground up, the challenges and opportunities of providing retailers with a consistent supply of branded beef are universal.

“The one characteristic retailers are unanimous about when it comes to delivering branded-beef products into their systems is volume,” says Mies. “If your truck doesn't back up and unload the proper amount of beef that day, you're gone.”

Unfortunately, maintaining volume in a branded system is more complex than matching cattle to the promised volume. Mies explains, “Dealing with specials becomes the huge issue in supply chain management. That's really the big speed bump.”

For instance, a supply chain may have the total tonnage it needs to meet a customer's needs. But the day that store decides to run a special on briskets, ribs or whatever, tonnage makes little difference; it's tonnage of specific cuts.

Each step of the way, Hunt explains supply chains are really a microcosm of the total industry. Having product year-round means having calves lined up to go into feedyards or out to grass, then coming out of the feedyard and going to the plant — all just in time to supply customers with the branded fresh beef products that were promised.

Adding volatility to the challenge comes with the fact that none of these supply chains are the only game in town. Few, if any, demand that cow-calf producers or feedlots sign a binding legal document to ensure the supply.

“One of the biggest challenges is the market itself,” says Butler. “It sends signals to producers that may not be relative to what we're doing.”

In other words, rather than staying committed to a branded program's economic model and pricing system geared to offer more net return over the long haul, a producer can be tempted by spikes in the commodity market to bail out of a supply chain and back into the commodity market for a short-term gain. After all, the opportunity to make more than average is the crux of what led enough cattle producers to make alliances and supply chains possible in the first place.

“Clearly, I think the industry over the last five to six years has evolved toward some sort of value-based pricing whereby the producer has approached buyers and requested a pricing system that would provide a premium based on carcass performance,” says Hunt.

What's more, depending on the system, these premium opportunities are also derived closer to the consumer.

“We refer to ours as a designed supply system,” says Hunt. “We identify what the consumer is willing to pay a premium for, then we provide a pricing system to attract those kinds of cattle.”

USPB is unique in that not only does it offer a premium-based pricing system, but as a closed cooperative — you own a share for every head you market annually — members also receive an annual dividend. Last year, the average grid premium paid was $18.59/head, but the annual dividend added another $25.87/head.

Besides providing specific production targets, “one of the major values in these kinds of systems is that value is determined in the center of the consumer's plate as opposed to looking at the value of feeder cattle or fed cattle. That's a major shift,” Butler says.

As such, both Hunt and Butler say market transparency and producer communication are critical to making supply chains work.

As an example, Mies points out the laws of competition shift in a supply chain environment. Rather than a seller setting the goal of finding as many different bidders as he can, Mies explains the driving factor becomes finding the buyers who need your particular cattle the most.

“That will not be atypical when you get several supply chain management systems and brands competing for the cattle,” says Mies. “Competition goes from raw numbers to competition for the highest best use of a set of cattle.”

Think about that. Since a supply chain has promised to deliver a certain amount of product, they have no choice but to deliver. Since the branded products they promise to deliver are defined by non-commodity specifications, they have fewer options when it comes to finding cattle that fit. Mies says that in the future there's a very real possibility producers can receive money based on whether or not their cattle — fitting other required specifications — happen to be born at the time of year when the fewest cattle are available.

“As we move forward, I think we will see more interest in these integrated and aligned systems,” says Hunt.

Neither Hunt, Butler nor Mies believes producers will have to swear allegiance to a particular system, but they do believe playing in supply chains will require producers to understand the needs of each system. More importantly, it will require producers to know what their cattle are capable of providing, relative to those needs.

“Study the different systems. Each of us has different customers with different consumers demanding different products. We're always looking for the right kind of cattle. We never have all that we need,” says Hunt.

Middle Ground

Value-based marketing alliances appear to be becoming more alike than different.

By Wes Ishmael
Contributing Editor

More alliances are marketing more cattle for similar premiums, but reported requirements are loosening, and more are reaching back to the cow-calf producer to source the cattle their customers want.

Taking a read on the evolution of beef alliances is akin to charting the stars with a rubber band and thumbtack. Distance, dynamics and proprietary information mean you can't ever be sure about what you're seeing, yet the process can confirm previous conjecture and uncover new ideas.

There is nothing scientific about the alliance information presented in these annual BEEF Alliance Yellow Pages. The various programs participate if they want and provide the information they choose. Considering the information compared to the past, however, does serve up some observation and speculation worth tracking.

Based on the information reported by 34 consumer-based alliances this year compared to that reported by 36 organizations last year, here's what we're seeing: (BEEF's observations are in italics):

  • A total of 4.7 million head of cattle were marketed through alliances in 2001, a 20% jump over 2000. This number includes 2 million head reported by Certified Angus Beef.

    That's certainly in keeping with the increased volume of cattle trading away from the spot cash markets, as well as the growth of branded beef products.

  • Twice as many alliances (10) marketed 100,000 head or more.

    As major retailers begin establishing partnerships with supply chains, volume becomes its own reward.

  • A total of 38% of the alliances participating in this year's BEEF Alliance Yellow Pages report offering some sort of post-harvest premium to cow-calf producers who raise the cattle that ring the performance bell. This is regardless of whether or not those same producers retain ownership in their cattle through the feedlot.

    A couple of years ago, only a couple of programs offered economic incentives ahead of the feedlot. The growing use of this tool underscores how much added value the right kind of cattle in the right situation bring to the equation.

  • The premiums cited this year represent a dramatic widening in the range of value. The top premium cited this year is $270/head, compared to $60/head last year. Take a couple of these stratospheric premiums out of the mix, however, and the premiums are virtually the same, ranging from about $10/head to $60/head.

    On the extreme end, it makes sense that cattle that must fit a tighter window should be worth more. A similar range across years might underscore the fact that there's a point at which cattle aren't worth any more, no matter what you do to them.

  • A total of 44% of the alliances this year cite a minimum number of cattle as a requirement, compared to 53% last year.

    Rather than moving away from the efficiencies of moving loads of cattle, this might indicate more pooling and commingling of calves so that operations of all sizes have more opportunity to participate.

  • Of this year's programs, 56% cite some type of management or identification requirement, compared to 65% last year. Of those, 37% require that cattle be managed to meet natural beef specifications.

    While the numbers are similar, possibly some requirements once deemed as an added-value luxury, such as health management, are becoming a standard of admission.

  • A total of 82% report offering pricing grids — either yield-based, quality-based or both — compared to 94% last year.

    Certainly, there seem to be more systems transcending pricing models based in the commodity market and moving closer to the consumer; typically working more closely with the packer and retailer to determine value.

  • Choice Yield Grade 3 is cited by 63% of the programs as the par point in their pricing system, compared to 56% last year.

    True to the past, this continues to be the middle ground of value for the majority.

Alliance Web Address

Contact

Year estab.

Cattle in
alliance
in 2001

Average
premium
paid/head

Cost

Minimum
head

Grids
geared to
QG, YG or both
(see key)

Par point
on grid

Consumer-Based Programs

Angus America
www.angusamerica.com

Mark Nelson
402/462-2057
[email protected]

1996

120,000

$13/hd

$1-6/hd

35

QG

Choice YG3

Angus Gene Net
www.genenetbeef.com

Ken Conway
785/628-3004
[email protected]

1998

100,000

$19.64/hd

$3/hd

20

both

Choice YG3

B3R Country Meats
www.b3r.com

James Henderson
940/937-3668
[email protected]

1986

30,000

$60/hd

none

40

both

Choice YG2

Beef Advantage Project
www.beefadvantage.com

James E. Herring
806/374-1811

1996

confidential

confidential

none

one load

both

confidential

Brangus Gene Net
www.genetbeef.com

Ken Conway
785/628-3004
[email protected]

1999

100,000

$19.64/hd

$3/hd

20

both

Choice YG3

Caprock Industries

Sharing Total Added Value

Ben Brophy
806/371-3711
[email protected]

2000

40,000

$23/hd

none

120 hd, one sex

both

Choice YG3

Certified Angus Beef LLC
www.cabfeedlots.com

Steve Suther
785/889-4162
[email protected]

1978

2 million

Ch/Se + $3/cwt.

none

1

both

vary with packer

Certified Hereford Beef
www.herefordbeef.org

Rob Ames
816/842-3757
[email protected]

1995

93,821

N/A

none

1

both

YG 3 or less
Select or better

Charolais Gene Net
www.genenetbeef.com

Ken Conway
785/628-3004
[email protected]

2002

100,000

$19.64/hd

$3/hd

20

both

base-Choice YG3

Coleman Natural Products Inc.
www.colemannatural.com

Jim or Scott Coakley
303/297-9393
[email protected]
[email protected]

1979

60,000+

N/A

none

1

QG

Choice YG2 & 3

ConAgra Better Beef LLC
www.conagra.com

Al Perez
970/506-7798
[email protected]

1995

250,000

N/A

no cost group data
$1-3 individual data

load lots

both

Choice YG3

Country Natural Beef
www.countrynaturalbeef.com

Doc & Connie Hatfield
541/576-2455
[email protected]

1986

33,000

cost of production/return on investment

member of co-op

NA

both

high Select, low Choice YG1 & 2

Decatur Beef Alliance
www.krvn.com/decaturfeedyard

Warren Weibert
785/475-2212
[email protected]

1994

40,000

Confidential

$12/hd

load lot of same sex

both

N/A

Farmland Supreme Beef
www.agribeef.com

Dusty Turner/John Parker
620/624-6296

1995

40,000

$18.01/hd

$2.50-4/hd

one load or 70 hd

both

Select YG3

Five-State Beef Initiative
www.5statebeef.org

Ron Lemenager
765/494-4817
[email protected]

1998

8,000

N/A

None

1

both

N/A

Future Beef Operations LLC

Ronnie Green
303/209-1866
[email protected]

1998

420,000

N/A

none

one load of either sex

both

depends on which grid; Angus grid/muscle grid

Gelbvieh Alliance
www.gelbvieh.org

Dennis Fennewald
303/465-2333

1995

44,000

$9.69/hd

$1/hd

1

both

regional averages

Glacier Beef Inc.
www.glacierbeef.com

Bill Nice
815/772-4386
[email protected]

1999

14,000

$20/hd

$10/hd

500 - all steers

both

Select YG3

Iowa Quality Beef
Supply Network

Phil Core
515/296-2266
[email protected]

1999

125,000

$23/hd

up to $5/hd

30

Both

Choice YG3A

Lean Limousin Beef Co.

Carlton Noyes
308/234-9787

1988

6,000-7,000

$3/cwt.

none

1

YG

N/A

Maverick Ranch
Natural Lite Beef

www.maverickranch.com

Bob Rolston
303/294-0146
[email protected]

1985

35,000

N/A

none

load lots

both

Select YG1

Nebraska Corn-Fed Beef
www.necornfedbeef.com

Jo McElwain
402/475-2333
[email protected]

1997

25,000

$12/hd

$4/hd

1

both

Choice YG3

Nolan Ryan's Tender
Aged Beef

www.nolanryanbeef.com

Charlie Bradbury
936/436-1622
[email protected]

2000

60,000

N/A

none

1

N/A

N/A

Painted Hills Natural Beef
www.paintedhillsnatural-beef.com

Glenda or Mehrten Homer
541/763-2333
[email protected]

1996

6,000

N/A

none

1

QG

Choice YG3

Performance Plus-Retained Ownership

Don Cain Jr.
888/269-8387
[email protected]

1993

confidential

$29.49/hd

$7.50/hd

1

both

N/A

Performance Plus-Sale Barn

Don Cain Jr.
888/269-8387
[email protected]

1993

confidential

$22.33/hd

$8/hd

1

both

N/A

Power Genetics
www.powergenetics.com

Jason Anderson or Mark Tracy
308/493-5604

1993

confidential

confidential

none

35

both

confidential

Premium Quality Foods Inc./Red Oak Farms Premium
Hereford Beef

www.pqfinc.com

Pete Hudgins or Steve Berendes
712/623-9224
[email protected]

1996

41,000

N/A

none

1

QG

Select YG3

Ranchers Renaissance

John Butler
303/662-1945

1997

100,000+

confidential

confidential

confidential

confidential

confidential

Red Angus Feeder Calf Certification Program
www.redangus.org

Ann Holsinger or Blake Angell
940/387-3502
[email protected]
[email protected]

1995

96,000

depends on location

$1.25/hd

1

QG

Choice YG3

U.S. Premium Beef Ltd.
www.uspremiumbeef.com

Tracy Thomas
866/877-2525
[email protected]

1996

700,000

over $25/hd average, top 251 = $45/HD

membership and share access

20

both

50% Choice YG3

Western Beef Alliance Inc.

Terry O'Neill
406/373-6016
[email protected]

1994

2,200

$58/hd

$0-7/hd

40

both

YG2.8 and Choice - Select +

WRB All Natural Premium Beef

Carolyn Carey
530/233-2334
[email protected]

1998

N/A

$130/hd

$3/hd

1

both

Choice YG3

Western Grasslands Beef

Carolyn Carey
530/233-2334
[email protected]

2002

N/A

$270/hd

$3/hd

1

N/A

N/A

Calf-Based Programs

Agri-Beef
www.crinet.com

Jon Janssen
715/526-7551
[email protected]

2000

6,000+

$4.50/cwt. over market

none

none

CAB/Both

N/A

Land O' Lakes/Farmland Beef Connection

Doug Stanton
620/276-0992
[email protected]

1999

15,000/hd
2001-2002

work with several grids

$3/hd

20

N/A

N/A

MFA Health Track Beef Alliance
www.mfahealthtrack.com

Mike John
573/876-5573
[email protected]

1998

41,000

$27

none for members

1

N/A

N/A

Montana Beef Network
www.mtbeef.org/beefnetwork

Adrienna Hines
406/442-3420
[email protected]

1999

8,000

N/A

$2/hd

1

N/A

N/A

Piedmont Cattle Producers Association
www.pcmabeef.com

Phil Slay
334/864-0407
[email protected]

1994

2,100

8¢ over market

$1.25/hd

20

N/A

N/A

KEY:
Grids geared to QG = quality grade, YG = yield grade, Both = quality and yield grade
Practices Required: S = source verification, W = weaning, P = preconditioning, N = natural (i.e., typically prohibit the use of antibiotics and growth hormones)

Bale monitoring made easy

Bale-monitoring accuracy and control moves to a new level with Vermeer's Accu-Bale® Plus Bale Monitoring System. Easy to read, program and install, the monitor's precision belt-monitoring system provides extensive diagnostic data, along with control and operating conveniences, to produce high-density, square-shouldered bales without leaving the tractor. Operators can set and adjust bale size, adjust overfill settings and switch from twine to net wrap with the touch of a button.
(Circle Reply Card No. 101)

Stock Prod Line

The Allflex Stock Prods line includes two models in the High-Performance 200 series, as well as the Value 150 and a handheld model. The 200 and rechargeable 250 offer three motor settings — high, low and tone only. Allflex offers flexible shafts in five lengths, ranging from 22 to 52 in.
(Circle Reply Card No. 102)

BRD Vaccine

Intervet Inc. launches the Titanium® line of cattle vaccines under its label as a component of a co-marketing agreement with AgriLabs. The Titanium line is the industry's broadest modified-live defense available for protection against bovine respiratory disease (shipping fever).
(Circle Reply Card No. 103)

Farmhand Loaders

Farmhand's 662 and 882 loaders combine advanced engineering, welding and coating techniques with 50,000-psi, high-tensile steel and high-quality Farmhand standards to meet or exceed original equipment manufacturer loader standards. Attachment Quick Couplers are standard equipment on both loaders. The 662 and 882 have maximum lift capacities of 5,100 and 5,390 lbs., and maximum lift heights of 12-ft, 9-in. and 15-ft., 11-in., respectively, and they feature a digging depth of 8 in.
(Circle Reply Card No. 104)

Minnesota is again in front

The entire food industry, not just the meat industry, owes Minneapolis-based Dairy Queen a hearty thanks and a big thumbs up for its courage in doing what's right for American consumers.

In mid July, the national chain expanded its test of irradiated ground beef to a total of 43 Minnesota locations. The move is certain to accelerate the availability and consumer acceptance of irradiated ground beef on a national level.

So far, however, Dairy Queen's competitors, as well as commodity groups like the National Cattlemen's Beef Association, and major packers (with the exception of Excel), have largely chosen to timidly peek from the shadows. The experiences of an outfit like Dairy Queen just might get them out into the light.

Dairy Queen began market testing SureBeam®-irradiated ground beef in two franchises in Hutchinson and Spicer, MN, in February. The test was expanded to 11 more out-state locations in May. Now, Dairy Queen has taken a huge step by serving irradiated patties exclusively in 30 Minneapolis-St. Paul metro stores.

Dairy Queen didn't attempt to “hide” or soft-pedal the technology, either. News releases touted the “irradiated beef test.” Point-of-sale pieces, such as posters, tray liners and brochures, blanketed the test locations.

Dairy Queen also conducted on-location training of staff to school them on the safety and benefits of irradiation. That way, in-store personnel could better address their customers' concerns.

Obviously, the Dairy Queen folks understand the importance of education. But Glenn Lindsey, Dairy Queen vice president of research and development, says the reason such food-safety technology “sells” in Minnesota is because of the outstanding groundwork laid the past several years by a partnership of the Minnesota Beef Council, beef producers, public health agencies and a Minnesota ground beef processor (Huisken Meats).

“Dairy Queen is fortunate to be a citizen of Minnesota where education and awareness regarding irradiated ground beef patties is very high,” Lindsey says.

In fact, the public education and awareness effort has been so effective in countering opponents' misinformation and scare mongering that Lindsey says opponents have said very little during the test period. Little wonder when one considers what Mike Osterholm, former Minnesota state epidemiologist, told reporters attending the Dairy Queen press conference announcing the expanded test.

Now director of the University of Minnesota's Center For Infectious Disease Research and Policy, Osterholm told reporters, “You'll go out and try to inject what you think is balance to the story by getting opponents (to comment). There is no other side to this issue.”

Calling irradiation the single, most-studied food safety process in the history of human kind, Osterholm added, “I can find very, very few issues in the area of medicine and public health that have the unanimous agreement and support of every major public health, medical, scientific and professional organization in the world,” he said.

Yet, industry groups and companies have tip-toed around the irradiation issue like 10-year-old girls dancing around a spider. As a result, irradiation opponents have essentially been able to define the terms of the debate in most states.

The beef industry owes a huge debt of gratitude to the Minnesota Beef Council (MBC) and Minnesota's cattlemen and women. Led by Ron Eustice, MBC's executive director, Minnesota stepped forward and developed the model that every state beef council should seriously consider.

And many already have, thanks to training provided by Eustice and MBC dietitian Michelle Torno. Beef councils in 15 states are or will be adopting the Minnesota model.

Just think what the progress could be with a national leadership presence and checkoff dollars fueling the effort. Thanks once again, Minnesota!

My sincere thanks to the Beef Improvement Federation (BIF) for awarding me its Ambassador Award during their annual meeting in Omaha last month. It's truly a great and unexpected honor to receive this recognition given annually to a media person whose efforts BIF deems helpful in promoting a greater awareness of the concepts of performance evaluation of beef cattle.

The Time Value Of Money

It's an often-heard story. You've just loaded a pen of steers into a lineup of trucks. As they head out the gate, you pencil out what they're worth. Scratching your head, you remember the day when the money from only part of a truckload would buy a new pickup truck — with change leftover. Today, an entire load won't even buy the wife that new Suburban she's been wanting.

You get to thinking about what you're doing — and what you're getting for it. The money you get no longer covers the expenses it used to cover.

But that's what you get when you use money as a constant measure of value, and money as a measure of value remains imperfect, says Bob McTeer Jr., president and CEO of the Federal Reserve Bank of Dallas. Time rather than money is another way to keep score — and measure our economic progress.

To compare the “value” of our time spent working, we need to turn producers into “workers” and workers into consumers. Then we can demonstrate how our increasing productivity drives down the prices of goods and services.

In doing so, McTeer, a true champion of free enterprise, credits our nation's “great productivity machine” for the declining real cost of living in America.

“Our progress is best gauged by the shrinking work time it takes to pay for the necessities and luxuries of life,” he says. “Work time enables us to compare our productivity and standard of living over the long haul.”

The Real Cost Of Living

The best way to measure the cost of goods and services is in terms of a standard that doesn't change — time at work.

For example, Michael Cox, chief economist for the Dallas Fed, says a pair of men's cowboy boots cost $3.50 in the 1897 Sears catalog. That sounds good until you consider that the average wage was 15¢/hour.

It took nearly two, 12-hour workdays to buy those boots in 1897, Cox says. Today's equivalent “work price” — at a wage of around $15/hour — for a pair of average cowboy boots would be $360.

In terms of time on the job, the cost of a half-gallon of milk fell from 39 minutes in 1919 to 16 minutes in 1950, 10 minutes in 1975 and just under seven minutes today, says Cox. A pound of ground beef declined from 30 minutes of work-time in 1919 to seven minutes in 2001.

Work-time cost for housing, when expressed in cost/square foot, fell from 7.8 hours in 1920 to 5.6 hours in 1999. And the type and quality of our houses, and the amenities in them, are way beyond those of 70 years ago.

The Cost Of Living High

Getting back to Mom's new Suburban, a typical factory worker in 1908 had to put in more than two years' labor to buy a new Model “T” — the country's basic affordable car. Today's equivalent — a Ford Taurus — costs a worker about eight months of labor.

“And, we can see an enormous improvement in the quality of cars and trucks,” adds Cox. “Today's vehicles are more reliable and last longer. They're more comfortable and safer. Although buyers are shelling out more money than they once did, cars have never been such good values.”

Item 1897 Sears catalog price - $ 2001 work-equivalent price - $ *
Carpenter's saw 0.50 48.98
1-lb. box of baking soda 0.06 5.87
100-lb. 16d nails 1.70 166.52
Telephone 13.50 1,322.46
Garden hoe 0.28 27.43
Aluminum bread pan 0.37 36.24
Pair of ladies' hose 0.25 24.48
Men's cowboy boots 3.50 360.00
Webster's dictionary 0.70 68.34
1-carat diamond ring 74.00 7,249.00
Upright piano 125.00 12,244.76
Bicycle 24.95 2,444.09
*1997 Annual Report Federal Reserve Bank of Dallas (adjusted to 2001 prices)
Prices are in terms of how much a worker would earn today working the same number of minutes or hours required to afford the product in 1897. For example, at an hourly wage of 14.8¢/hour in 1897, the worker would have had to labor 24 minutes to earn enough to buy the box of baking soda. Today, 24 minutes earns that worker $5.87
.

And when people talk about the high cost of living, Cox says they often confuse it with the cost of living high. After all, much of today's consumption centers around leisure, but our productivity is even making leisure activities less expensive.

“The price of a movie declined from 28 work minutes in 1970 to 23 minutes in 2001,” adds Cox. “A seven-day Caribbean cruise slipped from 51 hours in 1972 to 45 hours today.”

On The Other Hand

Some things, however, Americans must work longer for today. Higher education is one. Tuition and fees at public colleges and universities, Cox says, have doubled in terms of work time since the mid-1970s, even more at private institutions.

Cox reminds us though, that a worker with a bachelor's degree can earn an average of about $16,500/year over a high school graduate — up from $10,488 in 1979.

Harder to grasp is the increasing cost of medical services, including health insurance. Still, it's undeniable that the past 25 years have brought vastly improved medical care — for everything from cancer to depression to braces for our teeth.

A full set of the then-brutal metal devices cost the average person $900 in 1950, the equivalent of 625 hours of work at the $1.44/hour average wage. Today, at $3,800, braces seem more expensive, but the real cost is just 263 hours of work — to say nothing of the gains in comfort and appearance.

Up-Front Investments

Then there's the inevitable fact that virtually every new product requires an up-front investment. The first consumers usually bear much of that cost.

Critics of capitalism sometimes fret about the rich having too much in terms of material wealth — and not sharing it with the masses. Cox makes the case that it's the wealthy who make everyday consumer goods affordable to common people.

“Uneven income distribution plays a role in market development,” he explains. “The wealthy are the first to acquire hot, new products.” In effect, the wealthy nurture new industries and product lines by paying most of the costs associated with research and development.

“Without society's wealthy, fewer new goods and services would find their way to the rest of us,” he says. “Unequal income distribution is instrumental in driving society forward.”

Resigned Satisfaction?

This concept of spending time as opposed to spending money might help transform that down-in-the-dumps feeling of never getting ahead into resigned satisfaction that we all reap the fruits of America's collective productivity.

These lessons demonstrate that while we might think a truckload of steers or a paycheck don't go as far as they once did, it's important to look from a different perspective at what's behind the money, measure what we produce and what we get from it. But McTeer even takes it to another level.

“Inflation makes money elastic over time, like a rubber yardstick,” he says. “The value of our time, and what we can acquire for its exchange, is our most important and valuable asset.”

McTeer also believes that Americans should strive to better understand the system that has provided them with the highest standard of living of any nation in the world.

Says McTeer, “That will be our contribution to individual liberty.”

This article was inspired by “Time Well Spent — The Declining Real Cost of Living in America,” the 1997 annual report of the Federal Reserve Bank of Dallas. Author W. Michael Cox believes today's economy is transitioning to a new era. He battles economic doomsayers by championing capitalism in his book, Myths of Rich and Poor, which was recently nominated for a Pulitzer Prize.

Productivity And Growth Today

General economic productivity and growth declined in the early 1970s and averaged barely above 1%/year for two decades, says Bob McTeer. That changed in the 1990s, especially the second half of the decade.

“Productivity growth has doubled or tripled since 1995, depending on the measure,” he explains.

Technology is the main reason — mainly information technology and the Internet and, increasingly in the future, biotechnology, says McTeer. Globalization, in its many aspects, is another reason for growth in our nation's productivity.

“So is the collapse of communism and hard-core socialism, the collapse of the Soviet Union and the Eastern bloc, freer trade and investment, deregulation, privatization and so on,” adds McTeer.

But, as we have all seen for ourselves — the world changed Sept. 11. Even before that, however, the economies of most of the trading world had either slowed significantly or went into actual economic decline. This made it difficult for the U.S. to rely on other countries as engines of growth.

McTeer says history, monetary policy, fiscal policy, lower energy prices and reduced inventories and better information offer hope for recovery.

“I'm not saying recovery is at hand or imminent,” he says. “I see no hard evidence of that. Meanwhile, we have a higher priority — to prosecute the war on terrorism.”

That said, consumer spending has to hold up until investment spending can get back on track.

“While this bout of terrorism lowers our standard of living immediately and on an ongoing basis, that doesn't mean growth won't resume,” McTeer adds. “It will — and we will again surpass old living standards.”