by: Wes Ishmael

“Despite a very positive outlook from the cow-calf producers' perspective, it is not clear that larger cattle inventories are in fact economically sustainable from an overall industry profit perspective,” say USDA Economic Research (ERS) analysts in the February Livestock, Poultry and Dairy Outlook.

That single sentence encompasses evolution of the beef cattle business since the 1960's.

By now, you're likely aware beef cow numbers as of January 1 this year (29.9 million head)—according to the USDA Cattle Inventory report—are more than three percent less than a year ago. The 2011 total calf crop is estimated at 35.3 million head, the smallest since 1950. The total cattle inventory (90.8 million head, including dairy) came in two percent less than a year earlier, the shortest inventory since 1952.

There are obvious reasons for the decline in beef cattle numbers last year, namely historic drought in the Southern Plains and limited profitability overall. The fact is, though, you can make a convincing case for the fact that the U.S. beef cattle industry has been contracting overall for the better part of four decades.

Between 1975 and 2011, the number of beef cows in the U.S. declined 36 percent, while beef production remained generally flat. Between 1980 and 2010, the U.S. population grew 36 percent to approximately 309 million people. Bottom line: a whole lot more people in the domestic population show no desire to eat any more beef today than a whole lot fewer did 30-40 years ago.

“Since 1975, the number of cattle has declined from 132 million head to 90 million in 2000. That's the picture of an industry shrinking because of the lack of profitability,” said James Mintert, an agricultural economist at Purdue University, at the American Farm Bureau Federation meeting earlier this winter. “…Beef producers are recouping production costs by putting less meat on consumer plates…”

According to CattleFax marketing analysts at that organization's 2012 Industry outlook in Nashville in February, net per capita beef supplies last year were at a 50-year low of 57.4 lbs. They expect net per capita beef supplies to decline to 55.6 lbs. this year and 53.5 lbs. in 2013.

Expansion Signals Expand

With that as a backdrop, yeah, there should be at least limited expansion over the next couple of years, though inventory statistics may not reflect it until 2013.

For one thing, though it's compared to a historically low number the year before, beef replacement heifers were 1.4 percent more on January 1, according to the inventory report.

Anectdotally, producers in the Northern Plains and some in the Northwest—those with grass—began laying in a few more cows and replacements at least 18 months ago. States like Nebraska picked up a good number of cows from the drought exodus.

Moreover, though price is certainly not equivalent to profit, estimated cow-calf margins for the next several years suggest there should be economic incentive to expand. During the Beef Cattle Economics Webinar in February, Glynn Tonsor, agricultural economist at Kansas State University used data from the Livestock Marketing Information Center (LMIC) to paint the picture.

According to LMIC data, Tonsor explained average returns over cow cash costs were estimated at $80 per head last year; they're estimated at more than $150 per head this year and next.

No matter the forecast you look at, prices are expected to be record high for calves, feeder, fed cattle, wholesale beef and retail beef this year. Though they may not reach record levels, input costs are projected to remain historically high, too, accompanied by gut-wrenching volatility and steeply increasing equity and credit access requirements.

“Consumers will likely continue to trade down for more affordable purchases, meaning demand for ground beef will improve compared to higher priced steak items,” said CattleFax analysts at the Industry Outlook. That's in response to high retail prices and continues a trend that began at the onset of the Great Recession. At what price level domestic consumers trade away from beef altogether remains unclear.

The silver lining in all of this has been record beef exports last year, equating to about $206 per head of fed slaughter. “Demand for U.S. red meats has never been stronger and we are well positioned to build on this success…,” says Phil Seng, president and CEO of the U.S. Meat Export Federation.

Efficiency must Increase, but…

Heretofore, U.S. cattle producers have exploited genetics and technology to boost beef production with a declining cow herd. Whether or not increased production also defines increased efficiency is open to debate.

“People don't want to hear it, but I can find no credible evidence suggesting the average weaning weight per calf has increased in this country for the last 10 years,” says Stan Bevers, extension agricultural economist at Texas AgriLife Extension Service. Using data from Southwest Standardized Performance Analysis (SPA), Bevers points out three key measures of cow productivity—calf weaning weight, cow calving rate and pounds of calf weaned per cow exposed—remained static or declined between 1991 and 2009. That was during a time of rapid breed genetic improvement for growth.

Bevers wonders whether cow productivity has peaked, relative to a given year's weather-based forage and a given environment. In other words, short of modifying the environment, including increased feed, how does the industry become more efficient, which is demanded by narrowing margins?

Both new and old technology come to mind.

As an example, though the nation's cow herd has become straighter bred (mostly Angus), there's no denying the efficiencies lost with declining heterosis.

“Heterosis can be used to increase the weight of calf weaned per cow exposed to breeding by 20 percent. Crossbred cows remain in the herd 1.3 years longer and have a 30 percent greater lifetime production than straight-bred cows.” That comes from Keith Gregory and Larry Cundiff, former researchers at the U.S. Meat Animal Research Center.

With that said, deftly executed straight-breeding can outshine haphazard, mismanaged crossbreeding. The point being, there's plenty of room for increased, strategic genetic selection and focus, whatever the breeding system.

For that matter, there's plenty of industry opportunity to adopt some of the most basic reproductive management. According to data from the National Animal Health Monitoring Service, about 55 percent of the cows in the U.S. were exposed for a defined breeding season in 2007-2008. That means 45 percent are bred when they're bred, calve when they calve, leaving pounds and opportunity on the table.

By and large, artificial insemination continues to remain on the shelf, too, despite advances in mature cow estrus synchronization that can yield the same conception rates as natural breeding, without heat detection.

Even without altering breeding or reproduction, there's opportunity—and will likely continue to be opportunity—to add more pounds to calves on forage before they head to the feedlot. Value of Gain continues to offer economic incentive for forage-based gains.

Then there's new and emerging technology.

Consider Residual Feed Intake (RFI) as a way to get at feed efficiency without indirectly also selecting for increased gain and mature cattle size. In basic terms, it is the difference between what cattle are expected to consume and what they actually consume, based on body weight and level of production. It's moderately heritable, similar to growth traits. Research suggests 10 percent savings over time. In other words, the potential is there to select bulls balanced in other traits that also offer superior RFI. Maintaining selection pressure on RFI over time, keeping back heifers out of those bulls and the like, could offer a 10 percent savings in the annual cow feed bill or the chance to run 10 percent more cows on the same resources.

Pressure Destroys and Creates

So, producers contend with increased price volatility, extreme new demands for more equity and credit access. They're working amid shrinking cow numbers relative to feeding and packing capacity; capacity that will seek out new equilibrium by sacrificing current capacity. All of this in an age of escalating political and regulatory risk.

On the other side of the fence is a growing global population in need of being fed. The global population today is 6.9 billion; it's expected to peak at 8.5-9.5 billion by 2050. Various analysts suggest the world's food supply must double in the next 40-50 years in order to keep up with the demands of the growing population.

All of these pressures, often opposing forces, are giving birth to a new cattle and beef business. No one knows exactly what it will look like or when the finished product will arrive at a point of recognition.

In the meantime, that statement made by ERS economists deserves pondering: “Despite a very positive outlook from the cow-calf producers' perspective, it is not clear that larger cattle inventories are in fact economically sustainable from an overall industry profit perspective.”

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