My View From The Country

More Cows With Less Efficiency Is Bad Math

We’d all like more producers and/or more cows, but only if those increases are created through increases in demand or efficiency.

Three different economists have written me in the last week exasperated at the economics, or lack of economics, that some people have been applying to the whole issue of lean finely textured beef (LFTB).

The discussion centered around the contention made by some that the loss of LFTB would require 1.5 million cows to make up the protein difference, and this would be good for the beef industry. At the risk of being too simplistic, let’s say that a consumer is willing to spend $10,000 for the production of 20 cows and that production is 10,000 lbs. That would equate to $500/cow. Now, if it took you 30 cows to produce that 10,000 lbs., and all things remained equal, you would receive only $330/cow. The point is that an additional 1.5 million cows isn’t a good thing if demand doesn’t grow correspondingly.

The real math is that without LFTB, every 1 lb. of beef costs more to produce, which equates to less profit, not more. And, that ultimately will lead to a smaller herd, not a larger one. Increased efficiency per cow or per carcass is positive from a profitability standpoint.

Another way of looking at this is that if the big processors can cover the cost of processing an animal with the value they derive from the drop credit, and a smaller producer requires the drop, plus $240, to process an animal, then the smaller producer to maintain similar margins must pay hundreds of dollars less for the same animal.

These economists’ point is simple – we’d all like more producers and/or more cows, but only if those increases are created through increases in demand or efficiency. Increases that result because of lack of supply or declines in efficiency will actually lead to a smaller and less profitable industry for everyone. And, it actually encourages more consolidation within the industry.

We’ve seen the basic misunderstanding of economics being applied in the past to the export and import debate as well. We aren’t seeing these faulty arguments as much today, since the tonnage levels of exports have exceeded the amount of imports. But, even then, it wasn’t pounds that told the story, but dollars.

Actually even total dollars was misleading as it is overall carcass values that matter. This bad math usually makes the case that someone is ripping the cow-calf industry off, but it also certainly doesn’t do anything to actually lead to a larger more vibrant cow-calf industry.

Best wishes for a happy Easter!

Discuss this Blog Entry 5

Joe C. Paschal (not verified)
on Apr 6, 2012

Troy,
One point we are missing here is that we are wasting a safe lean animal protein product that was produced by live cattle and fed to human beings for their benefit. Now an additional 1.5 million cattle will be needed to replace the product that goes into pet foods or landfills. It should be an animal welfare issue, being more efficient in using less cattle and environmental resources, rather than a food safety issue.
Joe

Anonymous (not verified)
on Apr 6, 2012

This is nothing more than a smoke and mirror show by the packers to rip off the consumer.

If I take a steer to the local butcher for processing the hamburger shrinks much less than hamburger I buy from the grocery store. The hamburger bought from the grocery store not only shrinks more,from the LBFT, it leaves a sludge on the bottom of the skillet as well as having a watery flavor. The only time I eat a hamburger from any of the fast food chains is if I"m on the road and don't have much choice. They are using so much of this product in their burgers that they have little flavor.

I say quit using the LBFT not because of a health risk, but because it is simply ripping off the consumer by giving them a watered down product. (As far as the health reasons...How many products approved by the USDA and FDA are now in the midst of class action lawsuits because the turned out NOT to be safe?)

Bob Kinford
http://www.naturalcattlehandling.com

john (not verified)
on Apr 7, 2012

yes finally somebody tells the truth, i have noticed the same things and i am not a producer but a consumer, these lean trimmings are nothing more than a cheap filler that the beef industry got away with until the public was informed, and what about the ammonium they use to clean this product ? how about focusing on a quality product and not how to take the easy way out.

M Scholtz (South Africa) (not verified)
on Apr 9, 2012

My consern is that if you produce less edible beef per carcass, then you are going to increase the carbon footprint of beef. The USA may not be worried that much about glogal warming, but it is going to have a devestating effect on the African continent. What we need is less cows producing more beef.

on Apr 10, 2012

"The discussion centered around the contention made by some that the loss of LFTB would require 1.5 million cows to make up the protein difference, and this would be good for the beef industry. "
I doubt the consumer, after hearing about how LFTB has been hiding in their hamburgers without their knowledge for the last 20 years, is going to want to run out and buy more hamburger to stimulate the demand for 1.5m critters. The lack of transparency has killed demand.

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What's My View From The Country?

As a fulltime rancher, opinion contributor Troy Marshall brings a unique perspective on how consumer and political trends affect livestock production.

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Troy Marshall

Troy Marshall is a multi-generational rancher who grew up in Wheatland, WY, and obtained an Equine Science/Animal Science degree from Colorado State University where he competed on both the livestock...

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