Animal Science Department

 

Title

Macro Influences on the Beef Business

Document Type

Article

Date of this Version

December 2003

Comments

Published for Proceedings, The Range Beef Cow Symposium XVIII December 9, 10, and 11, 2003, Mitchell, Nebraska.

There are many major economic focuses at work in the sector. In late 2003, a start to the herd building phase of the cattle cycle is imminent. Export markets are coming back after faltering during 2002, and beef demand, domestic and international, is growing again. We have not seen the combination of heifer holdback to build the herd, which will reduce per capita beef supplies, and increased demand for beef since the early 1970’s. Unless corn prices surge, and this is unlikely, calf prices will go above $1.00 and generally stay there for the next several years—perhaps as long as 5 to 6 years.

As the supply-side cycle and resurgence in beef demand contribute their influences, the organizational structure of the marketplace continues to change. Quality grades in beef have been outdated for 25 years. Such important product attributes as tenderness have not been brought into the grades, and that policy failure has ensured that the price driven system could not be effective as a means of coordination and quality control. Our meat scientist colleagues were finding toughness problems in 20 to 25 percent of the Choice fresh cuts in the 1980’s, and little progress has been made in more recent years. Selling everything at one average price each week does not give the producer any reason to change genetics and management and marbling only explains about 30 percent of the variation in tenderness. That simply is not good enough. The first step the producer-initiated vertical alliances typically take is to guarantee tenderness which is testimony to the importance of this quality issue. It is hard to have the consistently positive eating experience all of us want to see with the beef consumer when the product failure rate in the form of “too touch to chew” is as high as 25 percent. The pricing mechanism could have provided the coordination and quality control, perhaps, if grades had been modernized and technology adopted to get to individual animal measurement and pricing. But that did not happen, and we moved to non-price means of coordination and quality control.

When the industry moved to the controversial non-price means of quality control like vertical alliances and contracts, we saw a surge in the much needed investments in new quality-assured and consumer-friendly product lines by the large packers. I hope we don’t cut off those new investments by passing laws to block the trends away from the failed price-driven systems. If we like price-driven systems, and I do, then we need time and energy spent on modernizing the quality grades so the price-driven system would have a chance to work, but I predict that will not happen. About one-half of the cattle feeding sector is being paid more than their cattle are worth, and they will not join in any consensus effort to get the grades changed. Remember the debate surrounding taking the B-maturity cattle out of the Choice and Select grades? Recognizing, then, that producers will get caught up in forced change and controversy about policy and process, there is nonetheless a big opportunity in front of us. Let’s look at the important economic forces that will be at work in the coming years and look for the strategic moves that should be considered at the producer level.