Why would success strategies in a business predicated upon cheap feed and cheap energy work when the opposite is true?
That's a query John Lawrence, livestock economist and director of the Iowa Beef Center at Iowa State University, posed to participants at this year's BEEF Quality Summit (BQS).
“The world in which you live has fundamentally changed. Have you changed your business?” Lawrence asked.
After all, it's getting tougher to wish away the inherent implications of subsidized ethanol production, including higher beef production costs and higher consumer food prices (see “Ethanol Changes Everything,” page 34).
Though the ethanol business is anything but secure, federal energy policy and America's belief that ethanol can reduce its dependence on foreign oil promise to maintain subsidies for it. Subsequently, corn prices, as well as the cost of other grains and forage competing for acres, will probably remain high and volatile.
Barring an international financial meltdown, global oil demand should keep oil prices propped beyond lifetime familiarity, too.
As Lawrence pointed out, long-held drivers of the cattle business and their relationship to one another have changed.
Figure out average first
If you accept that, then a question as pressing as whether or not you're changing how you do business is if you know where you're at so you know how to change. That applies to both individuals and the industry.
For instance, in an industry that will apparently have fewer net-energy supplies at its disposal for feed, do we know what shape the factory is in? In this case, do we know if average cow weights are sustainable? That assumes we know current weights. Informal polling and gut instinct say there are fewer 850- to 1,000-lb. cows out there than lots of folks believe.
Similarly, is the average level of milk production sustainable? The pat answer often given is, “The milk in our herd is just moderate,” but what is moderate? Judging by the genetic trend for milk in the most heavily used breeds, “moderate” today might be what used to be regarded as high milk production useful in only lush environments.
What about weaning and yearling growth potential? Seedstock producers have bent the relationship between birth weight and growth traits beyond recognition over the past decade. Arguably, and all else equal, the quest for growth made sense when feed was cheap and plentiful. Looking ahead, though, if there is a maintenance cost for the unexpressed genetic potential lurking in the commercial industry, what is it?
For that matter, what level of maternal heterosis exists and how much benefit from direct heterosis can be factored into the industry's long-term strategy? Indications are that maternal heterosis is declining in the commercial industry, though dwindling input resources suggest the opposite is more sustainable.
None of this is to suggest little, no-growth, low-milking, mongrelized cows are the answer. Open little cows are as efficient as open big ones. Less milk in some environments impairs efficiency. Pounds are still the key economic incentive. The most succulent fruits of heterosis are grown with planned, complementary, systematic crossbreeding.
Efficiency — defined here as producing the most pounds of market-acceptable beef per cow exposed, with the least feed, health, labor and energy resources — will continue to be achieved by producers in multiple ways, given the gargantuan diversity of the production environment. But what is an ethanol cowherd, and how different is it from the nation's herd today?
There are many other basic questions, likely without easy or concrete answers on an industry basis. However, they demand exploring if the industry and individuals are going to figure out how to change to meet the production and product demands of an ethanol world.
Moreover, the past may offer little guidance in a world of altered fundamental relationships where price volatility appears to be the new norm.
“Trend analysis is great in relatively stable times; it's critical. But it's going to take more than that,” says Barry Dunn, executive director of the King Ranch Institute for Ranch Management. Dunn provided a summary of this year's BQS, as well as provocative insights to what the ethanol revolution means to producers.
Dunn encourages producers to embrace systematic, informed strategic planning. This is the sort that goes beyond the simple “if and then” penciling many of us typically use in place of deeper, broader analyses.
In the short run, Dunn also points to a growing need for producers to consider risk management:
- Use futures carefully
- Cut unit cost of production
- Diversify sources of income
- Build in flexibility
- Lower investment
- Source and process verify
- Forward contract
“Now is the time to step back, evaluate your ranch operation and determine how it fits the realities of agriculture's future,” Dunn says.