My View From The Country

Why All The Talk About Expansion?

The need for industry expansion is all about ensuring that the industry has the numbers and infrastructure to compete in a growing world economy.

A cattleman who I rely on for sage advice said something to me this week that really got me to thinking. He asked why everyone is encouraging expansion so loudly. His point was that his operation looked like it might be more profitable than any time in the past; so why does everyone seem so concerned about encouraging expansion?

I’ve always been a big believer in letting the marketplace work, and producers will expand or contract depending on the economic signals we are given. But I think the talk about the need for expansion is twofold.

Experts want producers to position themselves for today’s good times and those ahead by beginning to increase inventory now. Historically, if you wait to expand until everyone is expanding, the window of opportunity is narrow and the cost of expansion is significantly higher.

Secondly, as good as things are in the short term, the confluence of events with ethanol and droughts may have caused us to actually reduce the numbers more dramatically than required. The industry has to be concerned about losing market share, and the all-important infrastructure that will be difficult to regain.

Without question, the goal is to increase demand to the point where we aren’t sacrificing profitability and sustainability by expanding. We all benefit from an industry where all segments are efficient and profitable. We can’t return to the fallacy promoted through the decline in beef demand and cattle numbers that the culprit was one segment benefitting to the detriment of other segments. Instead, we have to focus on building a growing industry that will allow us to feed a growing world population – a world population that is willing to purchase our product at price levels that allow all segments to be profitable over time.

Discuss this Blog Entry 3

jeff Horn (not verified)
on Mar 9, 2012

WE've always been canibals. The most money I ever made feeding cattle was when I paid farmers $1.50 for corn. Old fashioned GREED keeps all segments from being profitable at the same time. The long breeding cycle always gives us too much beef at the wrong time and then we become unprofitable for too long because we endure the pain of adjusting to needed supply. WE always hear that this cycle will be different. Look at $10,000/acre corn ground! Now we hear that a growing world population will be "willing to pay at levels that will make all segments profitable" My concern is Whether they will be ABLE to pay prices " that will allow this

on Mar 11, 2012

Let me throw something out there to get feedback: I think the problem with the whole expansion issue is supply and demand, ceilings and floors, and power.

The ceiling is consumer willingness to pay for beef. We know that there's a consumer pain threshold - they just won't pay more than X dollars for hamburger, steaks, etc. We've only just made the smallest improvement in creating products that increase their desire for beef. Expanding won't raise the threshold or magically make our product more desirable.

We're probably really talking REDUCE prices at the meat counter so the world will buy more. Of course, there's room to stimulate more demand by coming up with better product that meets the consumers desires, that is easier/quicker to prepare, etc., but the bottom line is often/usually (especially in our Wal-Mart world) make it cheaper.

The FLOOR is our ability to reduce costs all along the supply chain (and what a chain it is) so that it costs less to produce a pound of beef AND then share that extra savings with all the people who build beef. Now we have to remember that at this point the rancher is a price taker not a price maker. So ranchers have little or no power to capture some of the reduction in costs or improvement in prices UNLESS we control (or simply benefit from) a limitation in supply.

Essentially we're cutting our own throats by expanding. When there's plenty of beef those down the supply chain have more freedom to pay what they want. Can't blame them: it's just natural when they're getting squeezed by the factors Jeff lists. So, my question is: would you and I benefit by trying hard to raise more calves or are we pretty happy with the price per calf/pound, etc that we're getting right now?

Paul (not verified)
on Sep 15, 2012

You can never command a price fore anything when you have to much of if..

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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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