by: Wes Ishmael

An economist told me one time that what he liked most about being one is that no one ever expected him to be right. Another former economist told me he left the profession because there came a day when he could no longer accept being wrong all of the time. The following interpretation of current industry events and reality surely falls right in there somewhere.

Slide the beads whichever way you want on your trusty abacus and it's difficult to believe that efficiency and all of its requisite trappings isn't quickly becoming less of a comparative advantage and more of a necessity in the cow-calf business.

Yep, chatter about the nature of efficiency, ways to measure it and manipulate it is likely as old as the industry itself. And, some sort of added efficiency has been achieved when you consider how many fewer cows today produce the same tonnage of beef as a few decades ago. But, I'm talking about the efficiency necessary to make fewer cows cash-flow the same or more than more cows.

Smaller and Getting Smaller

It's no secret that last year's epic drought in the Southern Plains and the associated cow liquidation meant this year began with the smallest beef cow herd since 1962.

Just as plain is the fact that the cow herd has been contracting for better than a decade, for all practical purposes.

Volatile prices and mind-numbing equity requirements are reasons. Mostly and arguably, though, the overarching cause has to do with a collision of antagonistic realities that the cattle business appears to be approaching in a hurry.

This year's drought—the worst in the Corn Belt for at least 20 years—encompasses a vast section of the nation. Where a record corn crop was needed and expected, yield and hopes are shriveling, rocketing prices so high that the corn pits are starting to feel like a redux of the commodity bubble a few years ago.

Similar to last year, but across more country, cattle are entering the market channel earlier as forage runs out. Once again, producers are being forced to liquidate cows.

Unlike last year, the widespread nature of this year's drought, especially its affect on feed prices, along with early cattle marketing, means calf and feeder prices have been running South in a hurry.

Once the dust settles, you can make a case for the fact that the cattle left will be worth even more than they would have been otherwise because there are fewer of them.

On the other hand, leading into this drought, cattle feeders were already bleeding red ink in historic amounts, before the latest run-up in corn prices. Packers have been sucking dregs, too, cutting work shifts to trim supply to the point that they've hoped beef buyers would pony up enough for them see economic daylights. Some weeks it seems to have worked. Overall, though, U.S. consumers appear unwilling to pay more for the beef available. Yes, part of that has to do with heavier beef supplies resulting from the drought last year and now this year. But short of a significant uptick in the economic wherewithal of domestic consumers, you get the notion that grinding it out is the best that can be hoped for in the foreseeable future.

Like the last couple of years, these struggles could be chalked up on the temporary side of the board…until the corn started to shrivel.

Corn prices are climbing so high so fast in order to achieve what markets do when supplies appear to be significantly less than needed: ration demand. Along the way, incentive grows for cattle producers to not only delay herd expansion, but to take a hard look at further liquidation.

Again, none of that is new.

Somewhere along the way, though—there's no magic number or formula I know of—economic logic says industry infrastructure (cattle feeding capacity, beef packing capacity, etc.) must also liquidate in order to normalize with what increasingly appears to be a permanently smaller cow herd.

Some of this infrastructure has already gone away as marginal capacity exited the business the last couple of years. But, there seem to be a feel in the air that industry is just now tottering on the cusp of significant realignment.

If and when that happens, cow-calf producers lose the leverage they've had with so much excess capacity chasing so few cattle in relative terms. When that happens, it sure seems like the cattle business once again becomes more visibly cyclical, while retaining the excessive market volatility and elevated equity risk that helped drive us here to begin with.

I could be wrong. I hope I am. How close or far reality falls from these meanderings, one thing seems sure. Efficiency in all of its forms, questions about it and answers to those questions, take on a whole new level of importance. It also seems like, for cow-calf producers, those questions begin with the basics.

Recalibrating What's Known

Speakers at this year's annual meeting of the Beef Improvement Federation offered plenty of fodder for those basics of the intractable kind, as well as those rules of thumb often taken for granted that have in fact changed to the point that once was true is now false.

In terms of unchanging basics, as an example, Steve Hammack, Professor and Beef Cattle Specialist Emeritus with Texas AgriLife Extension offering an overview on cow size and efficiency.

“Just as with growing animals, size and efficiency interact,” Hammack explained. Larger (and higher-milking) cows tend to be more biologically efficient when forage supply, quality, and consistency are high and environmental stress is low. Smaller (and lower-milking) cows are favored where those conditions are reversed. Optimum size also is affected by acceptable range of carcass weight. For both the cow-calf and growing-finishing segments, economic efficiency often differs from biological efficiency.”

He went on to explain how the use of complimentarity between breeds and even within them can be utilized to further exploit inherent advantages while diluting weaknesses.

Hammack also pointed out, “It has been estimated that the cow-calf segment requires about two-thirds of the total nutrients consumed from conception to product. Economics dictates these nutrients must come primarily from relatively low-cost forages. The U. S. beef industry will not be sustainable if this is ignored. Market preferences are important, but size of cattle will ultimately rest on what is feasible in the nation's cow herds.”

Other speakers hit on other basics that continue to deserve focus, everything from cow longevity as an economically relevant trait, to the economic benefits derived from crossbreeding and heterosis.

As for the topics where closely held assumptions have given way to falsehoods, Larry Cundiff offered a fascinating overview of Bos Indicus (eared) cattle, their uses, the industry need for them and the current state of affairs. Cundiff is an internationally recognized research geneticist retired from the U.S. Meat Animal Research Center (MARC)

Incidentally, Cundiff said, “I'm concerned that influence of the American breeds (Bos Indicus) has declined from optimal levels.” When you look at how much of the U.S. climate is tropical or subtropical, where cows with at least 25 percent Bos Indicus thrive, and you compare that to annual registrations, Cundiff estimates current use is at least half of what optimum use levels suggest.

Talking about cow size and efficiency, Hammack explained, “Today, not only have all breeds become larger (mature size) in the last 40 years, and are still increasing in size, but also differences among breeds have largely disappeared.”

Cundiff used data from the Germ Plasm Evaluation Project at MARC to underscore how breeds have become more alike over time rather than different, how some breeds have become something totally different than what they were.

For instance, in looking at the massive weaning and yearling growth in the Angus breed, Cundiff explains, “It's hard not to consider Angus a terminal breed today.”

Think of that. Cundiff's comment is neither condemnation nor applause. It's merely a salient example of how much breeds have changed, how considering their use today based on yesteryear's perceptions can lead producers in exactly the opposite direction they had in mind.

As folks consider the future, whether to stand pat, cut back or expand, these are the kinds of basic breed and breeding system questions that must be asked and answered in the name of doing more with fewer cows.

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