by: Wes Ishmael

As unsettling as it might be to suggest or consider, by some projections, the next two decades could be the most profitable the U.S. cattle business has ever seen.

Optimism for such an outlook includes the current paltry U.S. cowherd, which is just now having the opportunity to expand in earnest, though folks in the West are still mired in drought.

Optimism also includes the growing domestic and global population, which is also expected to have more jingle in their pockets, says John Paterson, Ph.D., executive director of producer education for the National Cattlemen's Beef Association. He was speaking at the recent annual Beef Improvement Federation (BIF) Symposium.

“The more money you make, the more meat you want to eat,” Paterson says.

Historically, as disposable incomes increase, consumers choose higher quality protein—from vegetable to meat and then from poultry to pork to beef.

According to Paterson, research suggests that by 2050, there will be 3 billion consumers—currently at low-income levels—that have made their way to higher levels of income.

“Worldwide, as median incomes of consumers increase from $500/year to $2000/year, it is projected that yearly meat expenditures will increase from $19 to $170,” Paterson says. “Likewise, increasing income from $2,000/year to $9,000/year will further increase total meat expenditures to a projected $397/year.”

Though trade barriers, a stronger U.S. dollar and other headwinds are pressuring U.S. meat exports currently, there's no question the rest of the world has a growing appetite for American meat.

According to the latest USDA data assembled by the U.S. Meat Export Federation (USMEF), January-April beef exports equated to 13 percent of total beef production and 10 percent for muscle cuts only – down slightly from last year. Export value per head of fed slaughter averaged $292, up 10 percent from a year ago. From January through April, beef exports were nine percent less than the previous year but were four percent ahead of last year's record pace in value at $2.12 billion.

Likewise, in June marketing comments, Derrell Peel, Oklahoma State University Extension livestock marketing specialist explained that despite bans or restrictions in most markets for U.S. poultry—due to Avian Influenza—broiler exports in April were fractionally higher, although down 8.4 percent for the year to date.

Closer to home, it's important to note that although domestic beef demand remains less than in 1990, it has shown more resilience than many expected, even with historically high retail prices.

At the same time, Glynn Tonsor, agricultural economist at Kansas State University noted in a recent issue of In the Cattle Markets that competing meats might not pose the same substitution threat to beef that they did in the past.

“When one observes the increased prevalence of dual-income households, adjustments in food-away-from home consumption, etc. over the past couple of decades, a strong argument can be made that significant change in meat purchasing patterns has occurred, leading U.S. consumers to be less sensitive to relative prices of competing meats than they used to be.”

Tonsor looked at two prominent meat demand studies from the mid 1990s that included demand data for 1970-1993 and 1976-1993. These support the common, dog-eared notion that increased supplies of cheaper pork and poultry serve as substitutes for more expensive beef.

However, Tonsor also considered two studies of more recent vintage that account for demand data for 1982-2007 and 1982-2008. In these, he found no statistical evidence that cheaper pork and poultry serve as substitutes for more expensive beef. In other words, consumer meat purchasing patterns are evolving.

“While there will always be an economically relevant impact of developments in the pork and poultry industry on the beef industry, there is no reason to believe those impacts must be the same as they were in the past,” Tonsor says. “Similarly, it is not written in stone that future impacts across industries will resemble those observed today. All industry stakeholders are encouraged to recognize these broader changes and implications.”


Opportunity Favors the Broad minded and Adaptable

Of course, there are plenty of challenges to the bright future mentioned at the beginning.

For one thing, Paterson point out close to two-thirds of the nation's beef production capacity (cows and pasture acres) is owned by producers older than 55, according to the most recent Census of Agriculture. By all accounts, these folks may not be easily replaced.

Political risk is sky high, too. Consider just a short list of current government audacities, from EPA's attempted land-grab via the Waters of the United States regulation, to the lackadaisical approach to fostering free trade agreements around the world, to the lack of proactivity when it comes to addressing critical, growing problems like the lack of a national water policy.

Historically high cattle prices and land prices also mean that cattle production comes with more financial risk than ever.

Supposing you figure there's lots more upside to the cattle business future than down, though.

Mother Nature has already forced producers into an advantage. By many estimates, all of the drought-driven culling in recent years means the nation's cowherd is likely the youngest in history. If so, and if genetics work, which they do, that also means the cowherd should be the most genetically advanced in history.

What's more, commercial and seedstock producers have more opportunity to evaluate and select genetics with more precision than ever before. Think here in terms of things like genome-enhanced Expected Progeny Differences and genomic diagnostic tests.

Although much work lies ahead, this means that at least at a rudimentary level, producers have more opportunity to mix and match genetics that give their operations the chance to be more efficient.

Yes, efficiency is an expansive umbrella with varying definitions that folks apply to different parts of the operation. In general, though, it's that notion of extracting more output from the same resources or maintaining current output with fewer inputs.

The safe money says increased efficiency will matter even more going forward. That same money also says costs will continue to be easier to control than selling prices.

Moreover, efficiency is tied to the unique goals and resources of each operation. It's impossible to achieve a goal you don't have. It's much easier to hit a target that is more specific rather than less.

In other words, whatever the future holds, it seems fair to suggest that the producers who have the most opportunity to profit the most will have defined herd and business goals, as well as defined business and herd benchmarks from which to monitor their progress.

A willingness to view the world differently will likely be helpful, too. That could mean reconsidering technologies or management practices forgone in the past.

For instance, at the BIF meeting, Cliff Lamb shared his experience with transitioning a bull-bred herd (several hundred cows) to synchronization and timed artificial insemination. He's assistant director of the North Florida Research and Education Center (NFREC).

The NFREC is a research and education campus for the University of Florida (UF). The cowherd is managed as a commercial cattle operation. When Lamb arrived eight years ago, many veterans of the operation thought the notion of gathering cows and putting them through the chute multiple times—in order to synchronize and AI—was downright nuts.

With fixed-time AI, Lamb and his crew shaved 50 days off of what was a 120-day breeding season. They've increased season-ending pregnancy rates by 10 percent. All told, holding calf value constant from year to year, Lamb explains the move to fixed-time AI returns NFREC about $50,000 annually, compared to their natural-service days.

This isn't to suggest fixed-time AI, or any other technology or management practice is some sort of proverbial silver bullet. It's an example of how significantly economics can be altered by making a change.

More than anything, exploiting the opportunities mentioned at the outset will revolve around identifying and utilizing the highest-value opportunities to improve production and financial efficiency.

Paterson shared a telling observation made by Peel that may be worth keeping in mind through all of this: “Cattle producers thrive on adversity, but they're sometimes ill equipped to handle prosperity.”

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