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nightcalver

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Here's an interesting read. Now that the packers have been taken to task we need to look at a new target so we can divert focus from a lack of marketing capacity by many producers who are blindly being led around by an organization that is trying to protect it's interests, namely the LMA who collects a commission on every head marketed through their doors. They keep telling us not to market our cattle any way but through them as it's the only true way of price discovery. What about knowing what are cattle are worth for us to make a profit?


Will Retailers' Share Kill Demand?
2/11/2005by Nita EffertzEach 1,300-lb. steer produces about 550 lb. of retail beef. At $4/lb., that's $2,200, and half that income goes to the retailer and other upstream "value adders." Even as the (inflation-adjusted) farm-to-wholesale spread declined since the mid-1970s, as producers and processors became more efficient, the wholesale-to-retail spread widened. Higher prices in the meat case dampen consumer demand for beef, and it is a short leap from there to lower cattle prices."The trend is alarming," says noted expert on the subject, Wayne Purcell, Virginia Polytechnic Institute ag economist. "Producers need to quit viewing the packer as a villain and start directing questions at the retail level."Cause conjectures. No one-not even Purcell-can say whether the growing retail piece of the pie is justified. Price spreads don't differentiate between costs and profits. But although pressure from producers has shined some light on such numbers from processors, the industry remains largely in the dark about beef economics upstream. The long-term, mainly downward, trend in the farm-to-wholesale spread reflects improved efficiencies at the producer and packer levels. But the spread between the packer and retailer has done nothing but climb. "If retailers had just increased their margin in lock step with inflation, that line would be flat," explains Purcell. "But it's climbing even after adjusting for inflation, so in real dollar terms, it's screaming up." Economists can rationalize the recent bump up in the wholesale or packer spread because they understand more about that segment. Packer margins declined from the '70s through half of the '90s as the efficiencies of larger plant size, new technology and consolidation actually reduced per-head processing costs. More recently, added food safety and security costs at the processing level have widened this margin-but only slightly after inflation adjustments. "The best industry estimates show packer profits in the '90s averaged about $6.50 a head-no gold mine," says Purcell. "They likely make some money on the premium lines of cattle and use commodity cattle to maintain the volume they need to be efficient." Loss of efficiency? Higher retail margins, on the other hand, are harder to validate. A recent USDA Economic Research Service report on price spreads chalks up some of the increase in the spread to a decline in grocery store productivity. While other segments of the supply chain have adopted practices that reduce costs, the report suggests that retailers have actually become less efficient at merchandising.Perhaps the meat and produce departments are shouldering the overhead for the balance of the store, Purcell conjectures. "That's where the money is. And supermarkets aren't tracking things close enough to be able to allocate costs and returns to different products. For the most part, they are just marking it up and putting it out there." Grocery stores have switched their product mix over time toward more food service, which requires more labor, observes Bill Hahn, author of the USDA report mentioned above. "That would lead to lower productivity for the store as a whole, regardless of the performance in a particular department [such as fresh meat]." If the expanding margin at retail is due to their inefficiency, that's worrisome, says Purcell. If retailers truly are inefficient beef marketers, they will require continually higher consumer prices that, in effect, ration the product and ultimately require fewer feedlots and ranches, he notes. "We might like to say to the retailer, 'Hey, get some cost-reducing technology in here so you don't have to keep expanding your margin every time something goes up a bit.'"You can make a case that when it comes to beef, retailers are actually taking more for doing less. Most have dramatically downsized their meat cutting and packaging operations, presumably to become more efficient.Some giants, such as Wal-Mart, eliminated the back room entirely. "Their only labor expense is for the college kid that takes the pre-priced, case-ready beef package out of the box and stocks the shelf," says Bill Mies, national account vice president for eMerge Interactive, Inc. and former Texas A & M beef specialist. The improved shelf life that comes with better packaging should translate to less waste, as well. Accounting. "Understanding meat department profitability is a challenge for retailers," says Mies. "They know how much money they put in and how much they got out, but how they got it is somewhat of a mystery."Purcell agrees. "Retailers aren't sophisticated enough to know which beef cuts make them money and which doesn't. For many, it's not net, it's still gross." With the obvious exception of Wal-Mart and perhaps a few others, retailers don't know whether they are making money on their ground beef versus round steak or a ribeye. "They could put the animal back together again if they wanted to, but I'm not sure it matters that much to them,"says Purcell. "If you can just expand your margin whenever needed, who in the system has any incentive to do it better?" Mies believes that competition from behemoths like Wal-Mart and the ever-increasing value of retail space gives retailers incentive to improve. But he doubts the rest of the industry will ever be able to measure its progress accurately. "One of the biggest mistakes we make is thinking retail grocers are cut out with a cookie cutter," says Mies. "They are about as different as cattlemen in the way they run their operation and the customers they sell to. It is a real problem if you're trying to look at information from that segment in aggregate." That information has always been difficult to get and will only get harder with consolidation and the move from a commodity to a vertical network supply system. "We are probably headed in the opposite direction," says Nevil Speer, Western Kentucky University economist. "Retailers have always been careful about sharing information, and it's only going to get harder to get industry-wide data that are very accurate or meaningful. The IRM [Integrated Resource Management] model-sort of a rising-tide, 'lets help each other' approach-is already being replaced with a more proprietary system of benchmarking within a network." That could leave conventional commodity producers in the dark regarding their performance, much less upstream market information. But because it achieved some transparency at the packer level, Purcell believes producer pressure should be able to shed similar light into the growing black hole at retail. "If there's a social concern about performance along the supply chain between the producer and the consumer, it ought to be directed at retail and not at packers," he says.Misleading information?Part of the problem in sorting out profitability in the food chain is that the data that go into USDA's wholesale-to-retail price spread have some shortcomings. In fact, some simply dismiss the information, saying the value adding and featuring activities at retail these days render it irrelevant, if not in error. "I don't think the retail spread is really that wide because I don't believe the price series on the top side of the equation," says Cattle-Fax analyst Dave Weaber. Just as one can argue with the components of the Consumer Price Index, meat-counter indexes may need adjustment. USDA uses Bureau of Labor Statistics (BLS) data to piece together the retail value of a fed steer based on the retail price of a standard mix of relatively low-value cuts. Although the standard retail product mix today reflects more boneless and closer trimmed products than the 1970s model, it doesn't include cooked or value-added products. Neither is it volume weighted to reflect the amount of beef moved at feature (sale) prices. But don't throw the baby out with the bath water. "Analysts who cite increasing value added as a factor in the widening price spread misunderstand how it is calculated," says USDA economist Bill Hahn.Grocery stores buy just the cuts they want to sell, in both type and quality. So the retail prices used to figure price spreads aren't likely to be a good measure of what consumers pay for beef in general or even in the grocery store. But they do build a composite that reflects the grocery store value of a whole animal in a way that is consistent enough to be comparable, he argues. USDA rarely makes changes to the method-such as when boxed beef rather than carcass sales became the norm-and then recalculates all the historic data to reflect current industry practices. "The goal is to be able to compare price spreads in a consistent way over time," Hahn explains. Retailers are quick to point to the ribeyes they recently bought for $6.98/lb. and sold for $4.98 as evidence that USDA's price spread is overstating their take. And such a sale feature can easily move 600 lb.instead of 65 lb. of ribeyes that week. In fact, in an attempt to speed delivery of retail price information, USDA's Economic Research Service now gathers such volume-weighted "scanner" data, as mandated by the 1999 Livestock Reporting Act. Alas, this new scanner information is actually slower to arrive than the traditional BLS information. However, were USDA to switch to scanner data, the spread would likely be less than it is presently, Hahn says. On the other hand, the spread would widen if the agency incorporated higher-margin value-added and cooked items. The continual chatter about price spread methods misses the point, according to Virginia Tech's Purcell, who has analyzed some of the new retail price scanner information. "Scanner data will likely lower the average retail price some, but not by that much," he says. "So it drops retailers from taking 45% to taking 42%-what are they doing to merit 42%? And if selling a ribeye for $2 a pound less than you paid for it helps sell more crackers and bread, why isn't beef getting credit for the additional customers or sales?"
 
A

Anonymous

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If I want to learn about retail beef profit margins, I'll talk to a retailer, not someone on the outside looking in.

These retail to fat cattle price spreads are misleading and do not accurately depict the amount of beef that has to be moved at "featured prices" where you either "sell it or you smell it".

It also does not consider the meat that is discarded if it hasn't sold by the expiration date. Figure that would impact retail profit levels just a tad?

Some folks simply have to have someone to blame. Hence, the popularity of R-CULT!


~SH~
 

Mike

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~SH~ said:
If I want to learn about retail beef profit margins, I'll talk to a retailer, not someone on the outside looking in.
These retail to fat cattle price spreads are misleading and do not accurately depict the amount of beef that has to be moved at "featured prices" where you either "sell it or you smell it".
It also does not consider the meat that is discarded if it hasn't sold by the expiration date. Figure that would impact retail profit levels just a tad?
Some folks simply have to have someone to blame. Hence, the popularity of R-CULT!
~SH~

So are you saying we shouldn't listen to economists or professors who undoubtably spend more time on a given subject than we/you do? Facts are never more than someone's opinion.

May I ask where you received your Doctorate in Economy?

Someone to blame? Isn't that the intent behind each and every single crime investigation?

Sometimes your "know-it-all" ego is downright sickening. We can only blame you for that.
 

Brad S

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Just too easy


SH, "If I want to learn about retail beef profit margins, I'll talk to a retailer, not someone on the outside looking in."


Western Kentucky University economist. "Retailers have always been careful about sharing information, and it's only going to get harder to get industry-wide data that are very accurate or meaningful

_____________________________________________________________
SH, "It also does not consider the meat that is discarded if it hasn't sold by the expiration date. Figure that would impact retail profit levels just a tad?


says Bill Mies, national account vice president for eMerge Interactive, Inc. and former Texas A & M beef specialist. The improved shelf life that comes with better packaging should translate to less waste, as well.

_____________________________________________________________
SH, "These retail to fat cattle price spreads are misleading and do not accurately depict the amount of beef that has to be moved at "featured prices" where you either "sell it or you smell it".


Here SH is making an assertion about this study's methoodology, WATCH THIS, PROVE YOUR ASSERTION THAT THIS STUDY DOESN"T INCLUDE FEATURED PRICES IN ITS BEEF AGREGATE PRICES. I know SH will NEVER an I know how long never is, SH will NEVER support his attack on methoodology here.
 

mrj

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nightcalver, can you give us the date of that information? I think I read the same one with, I believe, a 1999 date. It seems reasonable to think the numbers, and maybe even some of the conclusions would be out of date in the intervening years.

MRJ
 

rancher

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MRJ said:
nightcalver, can you give us the date of that information? I think I read the same one with, I believe, a 1999 date. It seems reasonable to think the numbers, and maybe even some of the conclusions would be out of date in the intervening years.

MRJ

You always ask this question. It is stated at the front of the article.
 

Mike

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MRJ said:
nightcalver, can you give us the date of that information? I think I read the same one with, I believe, a 1999 date. It seems reasonable to think the numbers, and maybe even some of the conclusions would be out of date in the intervening years.

MRJ

It IS out of date. Why...................it was last month? :???:
As we get older the years seem like months. :wink:
 
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rancher said:
MRJ said:
nightcalver, can you give us the date of that information? I think I read the same one with, I believe, a 1999 date. It seems reasonable to think the numbers, and maybe even some of the conclusions would be out of date in the intervening years.

MRJ

You always ask this question. It is stated at the front of the article.


rancher- Its the NCBA way of thinking-if you wait long enough some of your conclusions will finally be right ....Like the 20 years they told us how much we would be making with all the expanded world trade... Then the two years out of twenty that prices were up were because of these NCBA policies and the checkoff.... I always wondered what happened in the other 18.... :lol:
 

rancher

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I heard the beef check-off commericial on the radio again. It is promoting the Check-off to the producer and says how the demand of beef going up is due to the check-off. What a smoke and mirror ad, most people are smarter than that. Only had a 3 second promo on the meat.
 

mrj

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Well, forgive me for breathing! I must be the first person on this site to overlook something included in a post. Didn't know it was a criminal offense to want to know the date on a pasted and posted story.

rancher, I don't know which commercial you refer to. Could it be possible it is a short version of a commercial run in areas of more consumers/fewer ranchers that is being run in rural markets to show ranchers (as required by the checkoff law) how the money is used?

Some ranchers do admit they don't know all there is to know about the beef checkoff...........some do not..........some even inisist it is used for things it is not!

MRJ
 

Mike

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MRJ:"Could it be possible it is a short version of a commercial run in areas of more consumers/fewer ranchers that is being run in rural markets to show ranchers (as required by the checkoff law) how the money is used?"
--------------------------------------------------------------

I guess anything is possible, but to buy airtime on local radio stations just to show how the money is being used is the BIGGEST waste of money I could think of. You have to be joking, right? A simple income & expense statement in the magazine annually should be enough to show "how the money is used".
That's the biggest bunch of baloney I'VE ever heard. Try again.
 

Sandhusker

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rancher said:
I heard the beef check-off commericial on the radio again. It is promoting the Check-off to the producer and says how the demand of beef going up is due to the check-off. What a smoke and mirror ad, most people are smarter than that. Only had a 3 second promo on the meat.

I thought check-off funds were to be solely for beef promotion and research. This certainly would be neither. Was the ad sponsored by an outfit other than the check-off?
 

Mike

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Sandhusker said:
rancher said:
I heard the beef check-off commericial on the radio again. It is promoting the Check-off to the producer and says how the demand of beef going up is due to the check-off. What a smoke and mirror ad, most people are smarter than that. Only had a 3 second promo on the meat.

I thought check-off funds were to be solely for beef promotion and research. This certainly would be neither. Was the ad sponsored by an outfit other than the check-off?

You mean promoting the Check-off is NOT the same thing as promoting beef? I'm confused. :wink: :wink: :wink:
 

rancher

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It said it was brought to you by the Beef Check-off. If the boss could get us sound I would tape it for you. :) :) :) :) :)

I see more ads lately in magazines and on the radio promoting the check-off to the producers. Wonder why? 8)
 

nightcalver

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Oldtimer says: rancher- Its the NCBA way of thinking-if you wait long enough some of your conclusions will finally be right ....Like the 20 years they told us how much we would be making with all the expanded world trade... Then the two years out of twenty that prices were up were because of these NCBA policies and the checkoff.... I always wondered what happened in the other 18.

Where in my post did I mention NCBA or even R-Calf?? It sounds like there's a conspiricy problem? The only organization I mentioned was LMA, and if someone can prove me wrong I'll gladly listen but, it better be done with honest facts.
 

nightcalver

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SH: do you own a retail outlet? The retailers could price beef out of reach of consumers and then they'll bypass the beef counter and go to the chi**** counter. I don't begrudge anybody a profit but, greed can kill ya!

Rancher: "where's the beef" with the checkoff. It is in the law that checkoff money be used for producer education and a few years ago there was an uproar from beef country as to why they didn't get to see how their money was being spent. Are you one of the folks that think that the only reason we have high cattle prices is because the Canadian border is closed to live cattle? What about the near record imports of Canadian beef, the fact that the US cow herd inventory is the lowest since the early 60's due to drought and the normal cattle cycle, and the fact that demand is up by over 20% since the check off was started.
 

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I can't speak to ALL retailers but I witnessed a deceptive practice by one of my local grocers/retailers awhile back. (A large chain too)

On the packages of "New York Strips" was written; "Butchers Choice". Being curious I rang the bell and waited for the butcher. When he came out I asked if this "Butchers Choice" was a quality grade or an in house store designation. He wouldn't or couldn't answer my question and went into the back and sent another gentleman out to address my question. This guy sputtered and stammered a few minutes and eventually admitted it was "USDA Standard" meat and the "Butchers Choice" was their own personal stamp. I sure hope these type practices are isolated incidents.
 

mwj

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Mike
This is like the ''low carb'' stickers on bottled water :???: Anything to catch the shoppers eye and does not have to be anything related to comon sense.
 

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