by: Wes Ishmael
In the mid-1960's, when about 42 percent of the total beef and dairy cattle slaughter was grass-fed, Bill Helming, veteran and respected agricultural economist and agribusiness consultant came to a startling and contrarian prediction.
Rather than continue ticking along to established industry rhythms and mores, Helming forecast that looming economic changes and evolving consumer demand would significantly reduce the tonnage of grass-fed beef in favor of more full-fed, grain-fed beef. At the time he shared his views in a paper aptly titled, The U.S. Hamburger Society-Part 1.
History obviously proves Helming a prescient prognosticator. If his most recent prediction is also correct, the industry is poised to come full-circle, with economics and consumer demand forcing a significant shift to more grass-fed and half-fed cattle, at the expense of the grain-fed market.
For the purposes of this article, grass-fed is synonymous to non-fed. Full-fed means the traditional system of the past four decades of feeding cattle a high-concentrate grain ration for at least 120 to 160 days. Half-fed implies cattle fed a low-concentrate grain, high-roughage diet for no more than 70-90 days, to a live slaughter weight of approximately 950-1,050 lbs.
“Changing economic conditions (see We are the Entitlement Generations) will drive and force fundamental, major changes in the U.S. cow-calf, stocker cattle, cattle feeding and beef packing sectors of the U.S. beef cattle industry,” says Helming. “American beef consumers and U.S. beef export customers want now, and will want for a good many years to come, high-quality, safe, and more affordable, lower-priced beef. The most cost-effective and practical way to meet this objective, along with changing U.S. and global economic trends, is to produce significantly more high-quality, more affordable ground beef supplies over the next 10-15 years.”
For perspective, Helming explains, “Today, very close to 55 percent of the total beef tonnage sold to and consumed by the American consumer is ground beef in one form or another. It's easy to see the day coming within the next 10-15 years when 65-70 percent of the total U.S. beef tonnage produced and consumed in the U.S. will be ground beef.”
Imagine the ramifications of such a transition. Among the insights Helming provides in his recently published The U.S. Hamburger Society-Part 2:
Total beef production and the number of cows producing it would decline.
Helming expects the total combined beef and dairy cow herd to decline by 10-15 percent in the U.S. during the next 10-15 years. By the years 2019-2021 he expects the total combined beef and dairy cow herds to number 35.5-37.5 million head, about 5.2 million head fewer than January 1, 2009.
Though cattle numbers would be fewer, and beef supplies less, prices paid would also be less.
Helming believes average calf, feeder cattle and fed cattle prices will trend significantly lower during the next 10-15 years, compared to prices received in 2005-2007. Specifically, Helming estimates average annual fed cattle prices will be in the range of $72-$88/cwt. over the next 8 to 12 years.
“The simple and fundamental reason is that overall consumer demand destruction, which began in 2005, will very likely continue over the next 8-12 years,” says Helming.
Consumer beef demand had increased for only five years before the most recent demand erosion began. Before that, consumer beef demand had declined for the previous 20 consecutive years.
Between fewer days on feed, fewer cattle on feed, and fewer cattle in the herd, feedlot and packer concentration would have to accelerate.
Realistically, Helming estimates there is 40 percent excess cattle feeding capacity today. Over the next 10-15 years he believes the excess could grow 15-25 percent to a total of 55-65 percent excess compared to today's capacity.
Likewise, Helming estimates there is already 20-30 percent excess capacity in the U.S. beef packing sector and will increase significantly in the next 10-15 years.
Producer opportunities would change
None of what Helming believes is likely to occur, driven by the global and domestic financial meltdown, suggests there is no future for beef production.
For one thing, pounds would still drive the profit equation. With more time on forage, cow-calf producers and stocker operators could add more total weight to cattle before selling them than the market allows them to do currently. Along the way, Helming points out the cheaper cost of gain due to more days and pounds gleaned from forage would make beef more price competitive with pork and poultry.
For another, such a market transition would likely create more market segmentation, offering more market targets—a wider range of value—for producers to choose among.
“The practice and thinking in the U.S. beef industry today, and for a good many years, that 100 percent of our available annual calf crop should go through the feedlot as full-fed cattle is going to be recognized as being economically flawed over the next 10-15 years,” Helming says. “The one-size-fits-all business model we now have is going to be recognized as not making sound economic sense in the years ahead.”
However the future pans out, it's no secret that the traditionally lower-value, higher-volume part of the beef carcass—the Chuck and Round—have propped up carcass values as the nation's economy has struggled. Until the last 18 months, it was higher-priced, lower-volume middle meats—the Loin and Rib—that primarily determined carcass value.
Based on Cattle-Fax data, middle meat primal values declined 8-10 percent from March of 2008 to April of this year, while the value of the Chuck and Round increased 11-17 percent.
“The net result moving forward is the Hamburger Society—Part Two,” says Helming. “This will represent a major and fundamental change and opportunity for the U.S. beef cattle industry. It will also be positive overall for the U.S. beef cattle industry moving forward on a longer-term basis.”
Bill Helming recently published a book about his belief that the U.S. economy is on the brink of a modern day economic depression, beginning this year and lasting through 2014. The book, What Goes Up Eventually Comes Down is available from Bill Helming Consulting Services at 913-768-6540; cost is $45.
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