Iowa State University (ISU) economist John Lawrence is convinced the U.S. beef industry faces some serious challenges in the coming millenium, but he isn't as bearish about cattle prices during that period as some forecasters.

Cattlemen, he says, are making serious reductions in cattle numbers. Heifer retention is down and the cow herd is getting older.

He also believes peak slaughter is behind us, but feedlot losses will filter back to the feeder cattle market this fall. Prices will depend on corn and fed-cattle prices, with prices weakened by recent feedlot losses.

The demand picture remains troubling as large supplies continue into winter. Beef's market share will continue to decline from the current 63 lbs./capita on a carcass basis because the nation will produce 10-15% fewer cattle by the year 2000, he says.

"The growing share of exports means fewer pounds for the U.S. consumer to buy," he says. "When spread over one percent more people each year, the number gets smaller. Does that mean consumption will drop to 25 percent? Maybe?"

Despite this harsh environment the next two years, Lawrence believes the outlook is not all bad. Hedgeable profits are there on fed cattle at current feeder and corn prices. He predicts an Iowa-based price range on Choice steers at $62-64/cwt. the first quarter of 1999.

For the cow-calf producer, Lawrence suggests considering retaining ownership through slaughter. Regardless, there are opportunities for innovative operators with good quality cattle who can read market signals and participate in programs that help them gain and use information. Profitable times are ahead in the cattle industry.

But don't look for a miracle, he warns. Instead, he suggests supporting new programs like Iowa Quality Beef (IQB).

The IQB program was launched last month to give smaller, independent producers in Corn Belt country more clout. Its unique feature is electronic identification (EID) for absolute source verification from calf to consumer.

The Iowa Cattlemen Association (ICA) and ISU Extension workers and supporting groups are busy applying special electronic eartags to cattle throughout the state. The Bloomfield Livestock Market at Bloomfield, IA, will use the pilot program in its special IMBIO (Iowa Missouri Beef Improvement Organization) sales this fall.

The venture is sponsored by ICA with assistance from the Iowa Beef Center, a broad Extension-based support group headed by ISU's Lawrence. Financial support is provide by such agencies as the Iowa Farm Bureau Federation.

Be An Entrepreneur "We talk about moving into a knowledge-based mode," Lawrence says. "Smart people will win - those with good innovative ideas and entrepreneurial savvy and information to make the decisions, and who have the marketing and managing skills to use that information."

The successful cattle producer will probably be full-time managers who have resources and use technology and skills to make the right decisions, he adds. "Their limitations in this very capital-intensive business will be how to get hold of those resources - like land and cattle to put on that land.

Future For Smaller Producers But what will happen to the thousands of smaller, independent producers like those in Iowa corn country who also own creek pasture or timber that can be utilized only by cattle or ruminants?

"In many cases those producers have cows. But, they also have other interests, such as crops, and haven't kept up on beef industry information or technology," says Lawrence.

The solution could be "vertical cooperation," a phrase Lawrence and others coined a half-decade ago in the pork industry. That's what you do when you hire a professional feedlot manager to feed out your calves.

"Find someone with a full-time cow herd to rent your grass," says Lawrence. "The full-time cow herd operator will deliver the cows and calves, bring in a portable corral and work them, and get them at weaning time. But, the farmer will take care of them."

Lawrence has another term he calls "horizontal integration." That's not a packer or feedlot running the cow herd, but another cow herd owner working with a landowner who also provides daily management, he says.

"If I can put more money in your pocket, or make your quality of life better by not calving or chopping ice in the winter, you might be interested," he adds

Of course, you can network producer to producer as long as you want to, but you still have to go vertical to reach the consumer, Lawrence says. There are three ways to achieve the end goal:

* Integrate ownership;

* Contractual integration;

* Or simply have better communication and coordination between segments in the chain.

The latter is the goal of Iowa Quality Beef, Lawrence contends. "It's better coordination through the system, yet maintaining individual ownership of assets," he explains. "Not that you dictate how that is done. The highway is built and the information bus is on the road. Now, the individual cattle producer has to choose how to use it."