Table of Contents:
- The Bearish Math On The Beef Industry Doesn’t Add Up
- Drivers of industry size
- Efficiency advantages of competitors
- Consumers less willing to settle
Profitability in the beef industry is influenced by many factors, but none more so than the number of consumer dollars coming into it for our products.
Another important point is that, at today’s per-capita consumption level of 56 lbs., consumers aren’t as willing to substitute pork and poultry for beef as they were when it was in the lower 70-lb. range. Without question, the battle for the center of the plate will be determined in part by production efficiencies; that’s an area the beef industry has decidedly more opportunity to improve than our competitors. However, quality also plays a crucial role in that.
Sadly, the doom and gloom crowd will have plenty of ammunition over the next couple of years, as supplies are expected to continue to tighten as expansion begins and as population and exports rise. Total beef supplies will certainly decline, but profitability will increase, and thus eventually production.
Probably the most absurd math of all is when the bears point to the trend for more consumer demand for ground beef. Certainly, cooking methods have changed in the past few decades. There aren’t as many roasts being consumed, and the industry has been addressing the decline of the value of the non-middle meat cuts. In fact, we’ve actually seen good success in this area, with the value of those cuts rising in comparison to the middle meats. The bottom line is that the overall value of the carcass has been moving forward at a very healthy pace. Ground beef is the king of foods, but consumers love and are still eating their steak as well.
The reality is that – along with the efficiency of beef production – land values, ethanol, transportation costs, labor etc., have all increased dramatically. Cattlemen are, and will continue to be, very astute business people. The commodity business model has forced the industry to adopt a low-cost producer mindset, and it will continue to be the key to survival. That’s just a competition that will never cease.
However, it all comes down to the value equation, and we will not and cannot win that competition based solely on price. Everyone supports market differentiation and niche marketing, but it’s misguided at best – and arrogant at worst – to suggest that the current mainstream model has developed because the industry does not understand the consumer and that the grass-fed model or other niche markets are the answer.
We’ll continue to lower costs of production through genetics, improved management, and new technologies, but the ultimate focus has to be demand because it determines the dollars flowing into our industry. And the dollars flowing into our industry will be the primary arbitrator of industry size.
Many other industries have attained their efficiencies by applying new technologies and reducing labor costs. Rarely did they gain those efficiencies by downgrading the quality of their product. The market is doing a better job than ever of signaling what it desires, and the American cattlemen are doing a tremendous job of responding to those signals.
If anything, we need to redouble those efforts. Returning to the production model of the past may be the answer for some, but it isn’t the answer for the industry as a whole. It is really simple math, if we take the time to listen to a changing marketplace.