Cattle Today

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HUNTIN' DAYLIGHT -- RIGHTING THE SUPPLY

by: Wes Ishmael

Ever notice how some folks start boasting about supply when the inventory of cattle begins to dry up—as it is now—pushing cow and calf prices higher? Then those same folks begin wheezing about demand when inventory climbs, pushing prices down, and they start wondering why someone isn't helping them find a home for all the stuff grazing the back ninety.

Actually, it seems like the opposite ought to be true, if survival means anything. Consider the last few years just before consumer demand, true consumer demand, stabilized and began inching back up. You couldn't put two cattle producers in the same meeting room without talk turning to the fact that something had to be done about demand. “Fix demand and our troubles are over.” Which of course is another way of saying, “Figure out how to sell them what we produce and we wouldn't be having this conversation.”

But even as the demand curve was heaving through the last painful throes of a two-decade, 20 percent decline in demand, the folks concentrating on supply discovered the only problem they had with demand was the fact they had too many customers for the supply.

Specifically, while there are other examples, just consider the inroads Certified Angus Beef has made and continues to make to America's supper table. The program began in 1978 and literally came within a single board vote of closing its doors before it really ever began. By 1986, about 30.1 million pounds of beef was sold as CAB. Last year CAB had grown that figure to an astonishing 565 million pounds or roughly five percent of all of the fed cattle in this nation. Even as the rest of the beef industry was getting the marbling slapped off its T-bone, CAB was growing customers by leaps and bounds.

Certainly, there are lots of reasons for such a mammoth consumer hit, but on the outside looking in there is no question that at least part of Angus' branded beef success mushroomed from the simple notion of getting a handle on the attributes of supply. Forget the volume and concentrate on how consistently each number making up the volume fits pre-defined goals. Identify what consumer want, supply them with the fulfillment of that promise consistently and watch demand take care of itself.

On the surface, this observation sounds awfully dog-eared. After all, arguably, the success of CAB provided the impetus for other folks setting their own specifications for particular market targets, which has led to a relative explosion of coordinated beef production and marketing systems (alliances) which has in turn caused plenty of speculation that branded products will soon supplant commodity as the standard rather than the exception. Old news by now.

Split-Shift

However, what has received little industry discussion so far is how the accelerated move toward coordinated production and marketing systems widens the gap between industry players and potentially splits the industry into separate entities.

On the one hand, few folks with an open mind and a clean conscience will look you in the eye today and predict a complete demise to the commodity cattle business. Even though the break-even-at-best economics of commodity production take at least two whistling swings at sustainability, there will likely always be at least some sporadic opportunities to buy price in someone else's mistake, then try to make money with weight gains by selling on the average where mediocrity is subsidized by superior quality.

For example, during one recent visit to the sale barn here were several pens of bulls, not killer bulls mind you, but bulls brought from somebody's pasture to sell to someone else for their breeding needs. Never mind the fact that we live in an age when we know crossbreeding works, when we know that expected progeny differences are more accurate indicators of genetic potential than actual performance, when we know pedigree and performance history counts, here stood bulls representing a phenotypic nightmare: ranging in size at the hip from the top of your belt buckle to the top of your best straw; some with muscle, some without; some with testicles dragging the ground, some looking like steers; some with volume, some with fewer guts than a starved hummingbird. Forget genetic potential, in most cases you couldn't even say with certainty what genetics were supposed to be represented. Bottom line, these bulls, similar to the rainbow you can find at sale barns scattered across the country would do a fine job of putting someone in the commodity business for years to come.

On the other side of the fence, you have producers weary of the commodity market—and that's all there was until recently—who have been taking their financial lumps selling on grids and entering coordinated systems to see if there is a way to actually get paid for bringing something beyond average to market.

For instance, there is a ranch in Nebraska, as there are other places, running literally thousands of cows more similar than kernels of corn in a Del Monte can; moderate framed cows, bred as heifers at 13 months of age, AI—across the herd, a 96 percent weaned calf crop per cow exposed; steers head to the lot after weaning at 150 days of age and die by the time they're 12.5 months old, converting at 5.0-5.5. These cattle gain 3.5-4.0 lbs. per day—they go to the rail and dress at 64 percent; quality grade at 70-75 percent; Yield grade 1-2 65-70 percent and bring a $30 per carcass premium selling on particular pricing grid.

The folks producing these cattle know what every calf is—they even DNA the natural service bulls and calves so they know exactly.

Choosing Paths

So, in both cases, there are producers sincerely trying to make cows pay their way, but the gap between their ability to make them cash flow is growing wider than the extreme examples offered above. Moreover, it's growing wider than Aunt Bessie's apron because of the information producers are seeking and utilizing.

While it could certainly be argued that as an industry we are technologically wealthy, but application impoverished and data rich but information poor, it can also be argued that beef producers with equal opportunity are taking advantage of those opportunities disproportionately.

On the one hand, there are producers embracing EPDs and artificial insemination on a commercial basis, and even electronic decision making software that accounts for all of the genetic and physical inputs in their herds.

On the other hand there are folks who truly believe they have a preconditioning program even though the only health management they provide is a blackleg shot before stampeding calves on to a waiting truck.

We have producers receiving reams and reams of feeding and carcass data, squeezing their brains trying to figure out if group or individual data offers them more bang for the buck and how to use it in their selection programs.

Conversely, there are producers who have never even talked with one of their buyers to know what kind of conversion, gain, yield and quality grade those buyers expect if they are going to give top price.

What's more size seems to have little to do with a producer's leanings toward one production and marketing ballpark or another. Yes, it's true that 76 percent of the beef producers in this country own about 30 percent of the cows in herds of 100 head or fewer—62 percent of the producers have 13 percent of the cows in herds of 50 or fewer—and they may not have as much economic incentive to push the profitability envelope in their operations. But it's also true that some of the two percent of producers who own about a third of the cow herd in herds over 500 head continue to embrace commodity production as a model for low-cost, low-margin, high-volume returns.

The point is that the beef industry seems to be standing upon the threshold of a major transition that will mark it for years to come. With the benefit of 20-20 hindsight these good old days may well be remembered as a time when individual producers decided to take their own unique operations down the commodity road or the branded one.

You bet, no one will ever stop someone from switching ponies once the race begins, but ponder this: If you buy the fact that information is at the root of the growing gap between both production camps, keep in mind the volume of information continues to double every 18 months or less. In other words, all of the information in the world today, every scrap and shred from the Covenant in the Ark to the map of the human genome, all that will double within the next 18 months.

So, you can switch to any pony you want, whenever you want. But you have to catch him first.

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