Just like the groundhog whose shadow scares him back into his hole, cattle producers lulled into inaction by cyclically strong calf markets could be in for a long economic winter.
If anything, that's an understatement when you consider what some of the statistics and anecdotal evidence suggests about just how fast — and how much — business as usual is changing in the beef business.
You likely already know that the number of cattle trading away from cash has rocketed in recent years — to the point that almost half of all fed cattle moved outside the spot trade last year. You also know that vertically coordinated systems (alliances) that aim to fill branded beef supplies by rewarding cattle that fit, and discounting those that don't, are accelerating their impact on the industry.
But are you aware what these trends mean closer to home? Some feedlots today will no longer bid on calves that haven't already been weaned and preconditioned. And, this is in a market where calf numbers are growing short.
Carry that a step further. At least one sizable custom feedyard that's tied to a vertically coordinated branded beef system has decided they'll let pens stand empty rather than fill in with commodity cattle they know nothing about. In cattle feeding, saying that you will let pens go empty is akin to a rancher letting pastures go vacant because he can't find the specific cows he wants. Risk of the unknown is climbing that fast.
Blame retailers if you want, but be sure to do so with the realization that the number of retailers available to buy your product is quickly shrinking. In fact, retail consolidation makes the packer consolidation producers have screamed about for years seem like a seller's paradise. Within a few years, some predict the world's grocery business will largely be controlled by as few as three to five concerns.
Moreover, the retail game is getting to be more about market share than margin. Fewer players are doing all they can to win market share — even fractional percentages — away from their competition. When it comes to beef, that means they want the consistency and cost efficiency that will bring shoppers back to buy more.
Most aren't looking for premium branded beef products they can sell for more money. They're looking for branded products that offer consumers increased consistency and value at prices not much different than what consumers are already paying for commodity product. That's market share and volume of narrower margins, not margin itself.
That's why, whether or not any of the current vertically coordinated systems succeed, the smart money says larger systems — at least integrated by means of formal agreements and cooperation — will become the rule rather than the exception in the beef industry. Consolidation in the retail sector demands fewer suppliers with more consistent supplies — both product and price consistency.
It's hard to imagine there won't always be some sort of commodity market where folks will still trade on average prices, looking to make money by correcting someone else's mistakes. It's just as hard, however, to imagine that the price spread — already grown historically wide — between the cattle that feeders, packers and retailers want, and those they don't want, won't continue to grow even wider, faster.
Taking advantage of this emerging reality means producers must be able to document what their cattle are and what they have to offer. Maybe you've grown weary of hearing it, but it's true and growing more imperative every day: the folks buying the cattle want to know more about the genetic probabilities and management behind the cattle so they can manage them to hit the targets and supply the information their customers are demanding of them.
Choosing whether or not to position yourself with information so you can choose which competing system offers the greatest return, rather than accepting what a single market offers, is like choosing which breed of bull to use. The choice is yours but, like it or not, the customer decides what he will or won't pay for.