Economic conditions will realign the beef-production complex, economist says.
“I don't set trends. I just find out what they are and exploit them.” That's the strategy Dick Clark says made him a very rich, pop-culture icon from the 1960s on. And it's in the spirit of aiding cattle producers in positioning themselves for the coming decade and beyond that Olathe, KS-based economist Bill Helming is making his latest pronouncements regarding changes he sees ahead in the U.S. beef complex.
Owing to growing costs of beef production, and an economy he believes is far from returning to normal growth and consumer spending levels, Helming foresees a return to the non-fed beef levels of 40-50 years ago. That is, rather than virtually 100% of the available calf crop being placed on feed and marketed as full-fed cattle as is currently the case, that figure will be 55-70%, with the remainder going into grass-feeding (5-15%) and half-fed (20-35%) programs.
Another factor in this prediction is that Helming projects average annual fed-cattle prices to trend lower in the next decade to the $72-$88/cwt. range.
“U.S. and global economic conditions and consumer budget concerns over the next 10-15 years simply mean it no longer makes economic sense for 100% of the U.S. available calf crop to be placed on feed and marketed as full-fed cattle,” Helming says.
It's a trend, however, that significantly enhances the U.S. beef industry's natural advantage over its pork and poultry competitors, he adds. Beyond that, he sees it as a plus for enterprising producers in all sectors who take the time to study the added end-product options such an evolution would offer.
“When I became the first chief economist for what was then the National Cattlemen's Association in November 1965, the total non-fed beef and dairy cattle slaughter (cattle that did not go through a feedlot) was 42% of the total commercial cattle slaughter on an annual basis (compared to 20% in 2008). Meanwhile, 58% of total annual cattle slaughter at that time consisted of fed cattle (cattle placed on feed and marketed as fed cattle).
“Bottom line, I strongly believe that real-world market forces impacting consumers, particularly starting in the 2010-2013 time period, will result in significant increases in lower cost and more affordable ground beef production and consumption over the next 10-15 years, compared to today's levels. The odds are high that 10-15 years from now, the percentage of the total available U.S. calf crop that consists of full-fed steers and heifers on feed will be closer to 55% than to 70%,” he says.
Moreover, Helming estimates that, within 10-15 years, 25% of the total U.S. calf crop now available to be placed on feed will be placed on feed and marketed as half-fed cattle. These will be steers and heifers on feed 70-90 days and sent to slaughter at 950-1,050 lbs. In addition, another 10% of the total U.S. available calf crop will be harvested as grass-fed cattle.
Half-feds and grass-feds
He envisions these half-fed and grass-fed cattle as being predominantly of beef and dairy genetics that currently tend to grade USDA Standard or Select.
“These half-feds will be left on grass for significantly longer periods of time than is now the case. They will more typically be fed a relatively high-roughage ration, i.e., corn silage, haylage, some distiller's grain, hay and various feed by-products that contain very modest amounts of grain,” Helming says.
The combination of about 10% of the total U.S. available calf crop going direct to slaughter as grass-fed cattle, plus the 25% of the available total U.S. calf crop being marketed as half-feds, will make it likely that the total beef consumed in the U.S. as ground beef will be 65-70% of the product mix within the next 10-15 years. That level is 55% today.
Meanwhile, of the available total U.S. annual calf crop, Helming predicts that in the next 10-15 years, about 65% of them will be placed on feed and marketed as full-feds, as compared to 100% today, excluding heifers and bulls retained for breeding purposes.
Helming says those full-fed cattle will typically be cattle currently grading 55% Choice or better, most likely of significant English-bred genetics. These cattle will remain on a full feed and grain ration for 140-180 days, with live and carcass slaughter weights very similar to what they are today.
Here's the opportunity Helming foresees for the various sectors in his “hamburger society” scenario:
Cow-calf and stocker operators
Cow-calf and stocker operators will be able to target, produce and market calves for either a growing ground beef market or the higher-priced, value-added but shrinking middle-meat marketplace.
Next Page: Cattle feeders
Previous Page: Half-feds and grass-feds
“One size will not fit all, and individual cow-calf and stocker cattle operators can and will be able to sort out and determine which of these two markets will give them the greatest opportunity to make more money year after year,” Helming says.
Ability to use more grassland, pasture, hay, other roughage and corn silage (if available) to put significantly more pounds on steers and heifers and market them as grass-fed or half-fed cattle. Cow-calf and stocker operators also could retain total or partial ownership of half-fed cattle, primarily for the U.S. ground beef supply channels.
Opportunity to sell substantially more pounds of grass-fed beef, while minimizing production costs, thereby making beef more price- and cost- competitive for the U.S. consumer.
Feedlots located in areas where they can be cost-competitive and efficiently handle both half-fed and full-fed cattle will have a competitive advantage, Helming says. However, some feedlots specializing in half-fed or full-fed cattle feeding will also be in a position to be financially viable and competitive. Surviving feedlots will largely be operations with the financial capacity to own at least 90% of the cattle on feed and maintain at least an 85-95% capacity utilization level.
The demand for corn and other feed grains over the next 10-15 years — and thus their cost — will decline because of the significant reduction in the total number of cattle on feed and the decline in the average days on feed due to the increase in half-fed and grass-fed cattle.
Medium size to larger feeding companies will have the ability to enter into specific supply, marketing and value-added longer-term agreements with beef packing plants and companies for half-fed and/or full-fed cattle. Burdened by excess packing capacity, forward-looking packers will seek out longer-term supply and pricing grid agreements with medium and larger sized feeding entities, as well as with cow-calf and stocker cattle operators. This represents a very good opportunity for a win-win partnership for all parties from a cost reduction and value-added standpoint.
For feedlots and owners of cattle on feed, the opportunity to target and feed cattle for two major and viable U.S. beef markets domestically will be a big advantage, compared to today's single market, Helming says.
What about imports?
High-quality beef has always been the U.S. strong suit. But economist Bill Helming predicts ground beef will take on a larger role in the U.S. beef product mix in coming years. Will that open the door for cheaper foreign product? He doesn't think so.
First off, the Olathe, KS-based economist says the current beef import quota law places a ceiling on such trade. Plus, the cattle herds of Canada and Mexico, the most likely sources, are shrinking more precipitously than that of the U.S.
Meanwhile, it's more advantageous for Australia and New Zealand to ship to less distant destinations, and South America has a foot-and-mouth disease (FMD) issue that Helming doesn't see as being resolved anytime soon. “FMD is a pervasive and serious problem in South America; eradicating it to U.S. standards is a long ways off,” Helming says.