Let's face it — for the last decade it's been pretty fun to be in the cow-calf business, says Tom Field, Colorado State University professor of beef cattle systems. Despite rising input costs, competition for resources and tenuous government policy, Field isn't ready to wave the flag of defeat.
Instead, he says now is the time for cattlemen to be rational and consider the new marketplace realities. The good news about economic stress today, he says, is “we're going to toughen up the American people a little bit. And that's not a bad thing, because as a nation, we've become far too soft.”
Field points to seven key areas.
- A rational energy policy
“Our own environmental and economic policies have forced fuel prices to their current level,” Field says. As a nation, we need to discuss taxation and possible fuel rebates for truckers, farmers and other economic-use areas.
- A misguided ethanol policy
“Where we are with ethanol today is beyond the law of diminishing returns,” Field says. His “worst-case” fear is that corn-based ethanol isn't sustainable without significant subsidies, the lack of which will force consolidation, and closings of some ethanol plants that will “drive a lot of equity out of rural America.”
An 18-month view
He cites a report indicating that the only way to make a biodiesel system work today is within a subsidized system, with the product shipped to Europe for sale in a subsidized market. Bottom line, Field says, we need a sped-up timeline on phasing out all subsidies for ethanol production in the U.S. “If it can't stand on its own, then we shouldn't be doing it,” he says.
- Competition for resources
“We're in a global marketplace. It's not so much that supply went bad, but demand went way up,” Field says. This is a result of China and India joining the global economy and creating a burgeoning middle class. “This is not going to go away,” he says; we need to learn to deal with it.
- Beef demand has staying power
“If we get into a serious economic crisis, yes, the price of food is going to have some impact, but the demand for our product is going to be good.” He reasons that cattlemen are producing their best product ever, with more options for the marketplace and more value to low-end cuts.
“We are providing a healthier, more nutritious product than we've ever produced,” he says, but demand growth is going to be dependent on access to international markets.
“We must not turn away from our opportunity to be the world's best provider of high-quality beef,” Field says, noting there will be regional and local markets for limit-fed energy diet beef and grass-fed beef. But that's not where the U.S. will play competitively in the long run.
- Access to international markets is important
This is a key in not only growing beef demand, but creating the demand signal to stabilize and potentially grow the U.S. cowherd. In the short run, a shrinking cowherd has sustained prices for cow-calf producers, Field says, but there's a balance where infrastructure shrinks to the point where it's difficult to keep pace with demand. Field believes access to international markets is the signal that keeps the U.S. cowherd at a stable-to-rising level.
- Consolidation in research and development
Five years from now
With input costs increasing, Field believes producer innovation will help minimize the impact of higher costs. It's a record of innovation that's historically been aided by a national network of agricultural research and development centers, which Field says is facing consolidation.
“I don't believe anybody is going to pour more resources into the existing (ag research) infrastructure. As an industry, we need to figure out how to consolidate, realign and restructure our existing resources for maximum benefit.” This is both at the federal and land-grant university level, he adds.
“How do we align our feeding and beef-packing infrastructure with product demand and the available supply of cattle out there?” Field asks. He estimates there is 15% overcapacity in beef packing and 20% in feeding. That indicates some shrinkage is necessary, but how is that accomplished in the right way?
Nationally, the shrinking of infrastructure is good, but on a regional basis the effects can be devastating. Field points to what happened in the Midwest during the 1980s with the closing of midsize packing facilities and feedyards. “When we shrink infrastructure in a region, it's really hard to build it back.” Shrinking infrastructure the right way, in Field's opinion, is incremental and not within the same region.
Field, who ranches with his family, is optimistic; the ranch is not for sale. “We think the long-term is still good enough that we're not in panic mode by any stretch of the imagination,” he says. That being said, they are considering consolidating some operations. Unable to find affordable fertilizer this spring for pastures, they expect less hay production and a cutback in their herd size come fall.
It's a scenario Field believes many producers face — looking at their enterprise mix and trying to find the best combination of time, talent and resources.
Field predicts there will also be more focus on risk management. At the cow-calf level, that primarily entails an analysis of the enterprise mix, trying to lock in input costs and contracting the sale of cattle. It will also push consolidation of the U.S. cowherd.
Expect the stocker sector to gain more importance, he says, as the industry strives to mitigate higher input costs by more forage feeding to achieve heavier feedyard in-weights. Feedlots can expect more innovative cattle partnering, as well.
“We can't underestimate the weak U.S. dollar in this whole mess, including oil,” Field says. “A weak dollar tends to be very stimulatory to exports,” which strengthens the position of U.S. products in the international marketplace. Low interest rates, on the other hand, will make retained-ownership ventures more attractive.
Field says the storm is really set up to differentiate value on the buy. “Cattle that will perform will be in demand,” Field says. “Problematic cattle — cattle that are chronic, don't eat, grow, yield or grade — those cattle will bear the weight of this pain in the marketplace.”
Tom Field, Colorado State University professor, is optimistic. Here's his five-year prognosis:
We've figured out that we have to balance environmental, economic and trade policy in a way that yields the best possible outcome, where we optimize, as opposed to maximize or minimize, any one area of our policy.
We have a nation of citizens who want a rational government. This creates a better environment for business, including rural business.
We have amazing technology available to us, and a very bright and talented human resource that knows the next few years will be tough, but it will strengthen us.
Strong demand for our product will continue and strengthen in international markets. But we must become effective negotiators in a global economy.
We are the generation that will find a way to keep our businesses alive. “I believe my children's generation, and their children's generation, are going to have a magnificent opportunity in agriculture.”
We won't forget the lessons we're learning from oil. Our nation can't afford to be dependent on someone else for food.
We need to get back to the notion of self-reliance, and building strong families and communities.
We'll always be an industry that faces risk from weather, costs and government policy, but we're innovative and resourceful enough to sort it out.