Forget ethanol; the key long-term driver of change and opportunity in the U.S. beef cattle industry is its continued decline in size.
Since 1980, this nation's beef cowherd has shrunk by 4.2 million head of cows and more than 300,000 cow-calf producers, says Ted Schroeder, Kansas State University agricultural economist.
Even now, with calf prices at or near record highs, despite the longest run of cow-calf profitability anyone can remember, few producers are racing to expand their herds.
You know the reasons; you live them every day: higher input costs that are diluting net-profit potential, everything from energy and fertilizer costs, to feed, to land purchase and lease prices, to increasing risk upon rising equity requirements.
Conversely, Schroeder explains global beef consumption has increased 17% the past decade, but beef's share of global meat consumption (beef, pork, poultry and turkey) has declined 4% as pork and poultry grows faster.
In terms of global beef production, Schroeder says Brazil will likely overtake the U.S. as the largest global beef producer within the next five years. He adds, “Brazil grew their beef export industry last year, and this despite the presence of foot-and-mouth disease in that country.”
That's beef production. Keep in mind that U.S. production remains near record-high levels, although cattle producer and cow numbers continue to dwindle.
There are plenty of reasons for the steamy growth in Brazil and other countries, but price and cost surely float to the top. Perhaps you noticed in September that Cargill Meat Solutions introduced an Australian grain-fed beef product aimed at both the international market and U.S. beef consumers.
Exploiting new opportunity
Understand, declining cattle numbers over time isn't the same as saying that opportunities for beef producers are waning.
Even with today's high calf and feed costs, recapturing export market share lost to BSE would amount to another $175/fed animal, says Duane Lenz, a Cattle-Fax analyst. He says Cattle-Fax expects pre-BSE beef export levels to be achieved within three years or so.
The reason is quality. While the rest of the world holds sway in the cost arena, no other country can produce the quality of beef U.S. producers can.
Moreover, Shelby Horn, operational vice president of marketing/retained ownership for Farm Management Company (which includes the Deseret Ranch in Florida), explained to a gathering of producers in August that there are four basic responses to commoditization as a business:
Surrender the notion of differentiation and adding value, and compete on cost and efficiency alone.
Consolidation, whereby you try to get large enough to outlast the competition.
Innovate new products and services.
Differentiate current products and services from the competition.
Though the collective beef industry response for at least the previous two decades has been focusing on cost and efficiency, Horn sees a world of opportunity for differentiation. The market already recognizes it.
Consider premiums paid — or discounts not rendered — for such things as age verification, preconditioning and natural-beef production.
So perhaps the future revolves around exploiting competitive advantage as much as anything — quality beef production as a nation — and differentiation as individual operations within it.
The teamwork advantage
Those opportunities will likely be limited though, if the industry continues to embrace divisiveness.
Before the industry looked in the mirror, began listening to beef consumers and reversed annual losses in domestic demand, Schroeder points out there was a lot of finger-pointing going on. Declining demand was the fault of the media, the packer, the feeder, the futures market, those pesky and uneducated consumers, and so on.
Today's not much different, except that producer attrition and short supplies have insulated producers from price shocks that would have otherwise accompanied BSE and rocketing corn prices.
E.coli 0157:H7 in frozen ground beef, melamine in pet food, bone fragments in beef exported to South Korea — those are all someone else's mistake. Canadian cattle, traceability, marketing agreements… get rid of all those notions and it's back to the good old days.
“A significant effort the industry needs to work toward is working together by sharing information horizontally and vertically in the value chain,” Schroeder believes.
In relative terms, there just aren't that many cattle producers left — about 800,000 or so, according to the 2002 Agriculture Census. But when you consider that also means beef-cattle operations represent about one in every three U.S. agricultural operations — almost one in two when you account for all cattle operations — they have a loud and significant voice capable of being heard over the cacophony of both markets and politics.
At least they do when that voice is united.