My2cents,
I am going to apologize up front for what's going to be a lengthy response but we have a lot of ground to cover.
I am going to highlight your quotes to make my responses easier to follow. Thanks for your civil tone and I will try to respond to you in the same manner.
"SH, First off, even if I don't agree with you I have to admit that your writing comes across as you being an educated person. I may come across as ignorant here because I want to ask alot of questions, but I don't care. I'm not here to impress. I'm here to learn what I can from those I agree with, as well as those that I don't."
You don't come across as ignorant at all and I'm sure I could learn a lot from you. You come across as someone who believes what you hear from those you trust as opposed to someone who bases their opinions on facts that they know for certain to be true. Please do not take that as an insult. I too believed many of the same market manipulation conspiracy theories espoused by R-CALF & Co. until I started doing my own research. The more research I did, the more disgusted I became with what I was being led to believe. There is a good reason that R-CALF has such a dismal record in court. I'm surprised they still have a following as many times as they have lost in court. The fact that you are asking questions just as I did proves you are not ignorant and not closed minded.
As far as my education, my education about cattle / beef issues is mostly self taught. I graduated high school then attended 2 years vocational school for production agriculture before returning to the ranch. Beyond that, I did a ton of my own research on issues affecting the beef and cattle industries. I don't claim to have all the answers but I have enough to know when I am being misled.
Let me give you one of the most vivid examples I can think of regarding how disgusted I am with the R-CALF mantra. When BSE was discovered in Canada, R-CALF used BSE "fear mongering" as a means to try to stop Canadian imports. Rather than believing in the science of BSE, they chose to ignore the science in order to try to stop Canadian imports. Due to the precautionary measures that were taken, USDA's scientist assured consumers that there was no threat of BSE as long as certain precautionary procedures were adhered to such as removal of any spinal columns and brain material in animals of a certain age.
Well guess what, a BSE positive animal was found in the US after R-CALF was trying to convince the world that Canadian cattle were unsafe due to BSE. So now what was R-CALF's position going to be? BSE in Canada is different than BSE in the United States? Well ahh ... geee ... ahh .... golly .... ah ...... er .......I mean ...... Either BSE precautionary measures have been taken to assure that the beef supply is safe in either country or the BSE precautionary measures taken do not assure that the beef supply is safe in either country. If the precautionary measures taken are the same regardless of the country of origin of that animal, you can't say that Canadian beef is unsafe but US beef is safe and that's exactly what R-CALF tried to do. It was more important for them to try to stop Canadian imports than to worry about turning US consumers away from eating beef. Luckily, the US consumers didn't put much stake in R-CALF's BSE "fear mongering" either.
Now here's the worst part of that whole fiasco. The US is in a global beef market. If Canadian cattle were not allowed into the US, they would have most likely ended up in a country that we export to which would have decreased the demand for our beef from those countries. Canadian cattle were not going to disappear off the world market if R-CALF had been successful in stopping them. In addition, Canadian cattle are such a small portion of US beef consumption.
So the bottom line is that all R-CALF accomplished was to scare consumers away from eating beef if they happened to believe R-CALF over USDA's scientists.
While I am on the topic of R-CALF and their beliefs that I disagree with, another of their statements that really gets to me is, "we don't have enough beef to supply our own domestic market right now". yeh, but AT WHAT PRICE???? Of course US consumers will consume everything we produce but the issue is not how much they consume, the issue is how much they consume AT WHAT PRICE???
The more beef they consume at above average prices, the more cattle we can sell at above average prices. Our competition is not imported cattle, our real competition is poultry, pork and fish and how consumers believe the value (price and quality) of those products stacks up against the value of beef. I don't have to look past my own wife's shopping habits to see what matters to most consumers. Beef has a way of pricing itself out of the market at times.
Another of my favorite R-CALF misconceptions is their focus on cattle supplies rather than total beef supplies. Do your calves weigh the same as your dad's calves before you? Most would say no. How many cattle there is only tells you half the equation. The important fact to know is what is total beef production produced from those cattle. In other words, what is happening with carcass weights. Less cattle does not mean a reduction in beef supplies if an increase in carcass weights equals out the decrease in cattle numbers.
2. "Can you explain this part about the margin operators better? I understand how for the feeders it's the margin between what the cattle cost, what it costs to put gain on them, and what they can sell them for, etc. and you also included the packers margin. Can you tell me what the usual lag time is between when fat cattle are priced and that beef is sold? Can you explain the retailers margin? And why you left out the producers?"
Perhaps I could have explained this better. It's not like the rancher doesn't also operate on a margin but what the rancher receives for his cattle is based primarily on beef supplies and beef demand. As Harlan Hughes data revealed out of North Dakota State University, there is a huge difference between low cost and high cost producers. If memory serves me right, Harlan's data from the ranches he monitored showed as much as $250 per head difference between high cost and low cost producers. A large part of this was differences in feed costs and related machinery expenses.
Based on that, I can't even begin to discuss individual profit margins at the ranch level with you. I can only tell you a few things to look at. First is pounds weaned per acre and the second is pounds weaned per cow exposed. One measures pasture production as well as cow production while the other measures cow production and fertility. Other items to track are feed efficiency and feed costs. When you start tracking these items, you quickly learn how weaning weights are misread when they are costing you in fertility, longevity, and additional feed costs.
Aside from retail beef prices, the other big factor in the price the rancher receives for his cattle is based on the price of corn delivered to the bunk where the cattle are going to be fed. When I fed cattle, every 5 cents change in a bushell of corn equaled a $1 change in the price of feeder cattle ALL OTHER THINGS BEING EQUAL (caps for emphasis not yelling). Based on that, if corn went from $2 to $4 delivered to the bunk, feeder cattle prices for cattle of the same weight would drop $40/cwt ALL OTHER THINGS BEING EQUAL. With that in mind, can you imagine where feeder cattle prices would be today if we were looking at historic corn prices?
The other thing that plays into corn prices is when you have higher costs of gain, feeders tend to kill cattle when they are ripe rather than backing them up in the feedlot waiting for higher prices. Backed up cattle equals higher carcass weights which equals more beef production which results in lower prices (supply and demand) ALL OTHER THINGS BEING EQUAL. It's a viscious cycle.
Sooooo, when R-CALF & Co. is blaming packer concentration, captive supplies, and imports for lower cattle prices and not even considering the change in corn prices from year to year, they are only setting themselves up to look foolish.
As far as retail margins, I am more familiar with feeder margins and packer margins than I am with retail beef margins. What I do know is there is a lot of products to consider that come from a single carcass such as hides, edible and inedible ofal, bone, trim, ground beef, chucks, rounds, middlemeats, etc. That's a lot of different products to price relative to competing meats. That's also why the more value we can add to these individual products, the more we will receive for our cattle. Consider one such success story, the flat iron steak. Through the beef checkoff, it was discovered that there was a muscle within either the chuck or the round that if cooked properly would rival the best middlemeat steak. So now, instead of receiving chuck or round price for that piece of beef, we now received middle meat prices for that product which added value to the carcass which added value to the cattle. As always, the cattlemen has the most to gain from this added value because the retailer, the packer, and the feeder pay us accordingly.
To understand the possible profit margins at the retail level, you would have to know how many pounds of chucks, rounds, middle meats, & ground beef (70/30, 80/20, and 90/10) an individual retailer purchased, what they sold those products for (including featured prices to move product) and what amount of these products had to be discarded if they were not sold by their expiration dates. It would be interesting to know what percent profit they would need to have as a return on their investment.
What I do know, is the retail beef market is highly competitive and any oportunity for profits would be quickly taken advantage of by new companies if those profit opportunites became too great. I know that for sure. There's nothing to keep you and me from marketing the beef from our cattle short of finding a packing plant to process our cattle, interstate meat inspection laws, and finding a market. Many ranchers have tried it. If the profit levels were as great as some believe, more would be doing it.
As far as the lag time between when fat cattle are bought and when the beef from those cattle are sold, I should know this more exactly but unfortunately, I don't. I could venture to guess but I won't with so many vultures normally circling over my posts.
Why do you believe the beef research, promotion and education buck stops at the ranch level?
Great question! I hope I have answered that question above but it's not so much what I believe as what I know to be fact. What the feeder pays for cattle is based on what he believes he can get for those animals when they are finished (fat cattle futures market) relative to the costs of feeding them, what the packer pays for those cattle is based on what they can get for the beef and beef by products from those cattle, what the retailer pays the packer is based on what the consumer is willing to pay for beef products relative to competing meats, and what the consumer, both foreign and domestic, is willing to pay for beef products is based on their disposable income (demand) relative to the supply of beef, relative to the value of competing meats.
The consumer is only willing to pay so much for beef relative to competing meats and other food sources, the retailer pays the packer accordingly, the packer pays the feeder accordingly, and the feeder pays the rancher accordingly so we have the most to gain.
Do you believe it does little or nothing to benefit the packer and retailers?
If one packer captures additional value for certain products due to their marketing or promotion as compared to the marketing or promotion of the other packers, then yes, they would have the opportunity to capture that added value themselves and still pay a competitive price relative to the other packers and retailers but new innovation spreads quickly to other companies just as it does in every major business. It's not long and the competition also finds a way to capitalize on those products. When that happens, all the packers and retailers will have to pay accordingly or their competition will.
Can you explain all of this at a simple, elementary level - so any idiot can easily understand the concept you are getting at? Also, foreseeing any contradictions or misconceptions and clarifying them ahead of time. (in order to save time from being countered back and forth on things)
I'll do the best I can and will assume having as much trouble explaining this as someone else has in understanding it. Having had a lot of these discussions over the years I think the part of our industry that is the least understood by most ranchers is how competitive the packing and retail industries really are.
First off, lets define competition.
Competition is defined as "
a contest in which people compete".
Compete is defined as "
to try to get what others also seek and which all cannot have". Now you and I both know this definition already but competition is not defined solely by the amount of bidders you have, as many believe, but rather by the buying power of two or more bidders. It only takes two to have competition and anyone who has ever attended any auction knows that buying power is more important at an auction than the total number of bidders. In the packing industry we have 5 major players and 10 - 12 level 2 packers that are in competition for the same cattle. If one packer doesn't pay enough, you find another. The reason they are all willing to pay close to the same price is that their profit margins are based on pretty much the same retail beef prices. The differences between packers is in how efficiently they can kill cattle which is why you hear about "chain speeds". The other differences are in any value they can capture beyond commodity retail prices such as branded beef products that guarantee tenderness or implied safety such as antibiotic free (which is not an issue if producers adhere to proper withdrawl times, etc). Don't you find it rather ironic that there is far more cattlemen claiming there is no competition in the packing industry than feeders when the feeders are the ones who actually sell to the packers?? I certainly do.
Again, the basic premise in a free market that creates competition is that if there is a large profit to be made easily, companies are going to spring up accordingly to capture those profits.
3. It's interesting how ranchers "get what is left" when we are the beginning of the chain, not the end of it.
It is interesting but it's true. The consumer determines the value of the beef relative to competing meats which is where beef is priced at the retail level. The retailer pays the packer accordingly, the packer pays the feeder accordingly, and the feeder pays the producer accordingly (relative to feed costs). We get what's left. It's always been that way unless you are an invester in US Premium Beef, which is one of the largest packing companies and now 100% producer owned, where you can also capture packer and some retail beef margins for branded products.
Incidentally, here's another picture perfect factual example of how packer profits are not as much as R-CALF & Co. have led many to believe. USPB's patronage dividends to their investors INITIALLY was around $25 - $26 per head for their share of the profits. In addition, USPB producers received around $25 average in carcass premiums paid for the above average quality of carcasses produced from USPB cattle. Combined it amounted to an additional average of about $50 per head for most producers. The added value of the beef came from the marketing of branded beef products. The added value of the carcasses came from the emphasis on certified angus beef type carcasses.
In contrast, a lot of the cattle that syphon through the Tyson, Excel, and JBS plants are brahman cross and holstein cattle so the good cattle receive less than they should and the poor cattle receive more than they should but it's easier than having to justify big differences in price.
6. Would you agree with this statement? "When everyone is paying into a program, they all deserve a voice in how those funds are being spent."
Absolutely! Without question. I believe that everyone deserves a voice in how those funds are spent even if R-CALF & Co. would rather spend their dollars filing ridiculous lawsuits against packers that hurts the producers rather than new product development that will benefit producers. I can only hope they are outvoted by those who understand what actually contributes to higher cattle prices.
7. I don't know if I'd call concentration an evil thing, but I do consider it a bad thing.
I don't consider it a bad thing at all. It's funny how some folks cuss Walmart because it takes jobs away from smaller companies that can't compete. Once again, that's only half the equation. If consumers save money in one area, they spend it in another. Money saved on products bought at Walmart could easily be used to pay a carpenter for an addition on to a house. One job is lost and another created.
8. Who says everything smaller is less efficient?
In most cases in the packing industry, smaller is less efficient or you wouldn't have the level of concentration we now have. If the smaller companies could compete (cattle costs, processing costs, and prices received for beef and beef by products), they would still exist.
The smaller packing companies have to compete by adding value to their products to the point that consumers are willing to pay more for those products to compensate for the normal higher processing costs of smaller processors.
I don't get how you call this a contradiction: "There's no competition in the packing industry" and "smaller packing companies can't compete with the larger packers." To me, that is not a contradiction at all. I take it to mean that smaller ones can't compete, because there's no competition.
Smaller companies can't compete because there's no competition? You are going to have to explain that one to me because I have no idea where you are getting that from.
To best of my understanding, the reason smaller packing companies can't compete is because the packing industry is very competitive. In order to compete, smaller packing companies are either going to have to process cattle at less cost per head than the larger packers or they are going to have to get more for their beef and beef by products than the larger packers because they are certainly going to have to pay the same for fat cattle or they won't get any bought.
Again, the fact that many smaller packing companies were not able to compete with the larger packing companies proves that competition exists. As mentioned previously, ask the folks from Future Beef why they had to close their doors while Tyson, JBS, and Excel continued to operate. Bottom line, they paid more for the cattle than they could recover from the sales from the beef from those cattle.
9. I'll stick to my belief of being in the cattle industry.
You are in the cattle industry but the value of your cattle is determined by the value of the beef from those cattle.
11. Maybe there's a conspiracy among the packers with them saying, "Hey, they're onto us. Maybe we should start paying more for cattle for awhile to confuse those stupid ranchers and throw them off of their theory."
Now you can believe that the higher prices we are receiving today are a result of "they're onto us" or you can simply look at the retail beef price charts, corn price charts, and relate it to the price of cattle. The choice is yours. I can prove my theories on cattle prices, can you prove your theories?
Answer this one simple question for me because Bill Bullard, Johnny Smith, and Mike Callicrate would not answer the question.
If packer concentration, captive supplies, and imports are the reason for lower cattle prices as these guys have stated, what has changed about any one of these three factors to allow prices to go higher? Are packer less concentrated? Have captive supply arrangements been reduced? Has imports decreased?
Common sense would tell any reasonable person that if those are the only factors playing on lower cattle prices that one or more of those factors would have to change to allow prices to go higher?
The other option is that these guys are clueless when it comes to understanding what factors affect cattle prices. When they can't even mention the price of corn, I tend to believe the latter. I would think Mike as a feeder would at least mention any changes in the costs of gain of fat cattle.
12. I really don't think Tyson's investers would care what was going on as long as they were making a profit.
I think you are selling them short. They didn't invest in the 5 major packing companies, they invested in Tyson Foods.
14. I can't afford to invest in a packing company.
Then you apparently don't really believe the profit potential in the packing industry is that great because if I was a betting man I'd bet you've invested more money in other areas of your business as a result of higher cattle markets? Of course I know nothing about your business but I know that many ranchers have invested their profits in other areas of their business that they believe will return them more profit or reduce their costs such as buying more land in hopes of returning more profit.
15. Or are packing companies not popping up all over because they can't compete with monopolies?
Monopolies????
Lets define "monopoly" shall we? Monopoly is defined as "
exclusive control of the supply of a product or service in a particular market". I'm sure you already knew that so why would you consider the packing industry as "monopolies" when you know there is 4 - 5 major players (Tyson, Excel, JBS, USPB) and numerous level 2 packers like Caldwell Packing and Greater Omaha?
If smaller packing companies can't compete, it's only because they can't slaughter cattle at the same processing costs or they can't get more for the beef they sell because they aren't going to be able to pay less for the cattle than their competition and get any bought. It's that simple.
16. I get your point here. I'm sure there are some misconceptions. I'm a rancher. I'm not a feeder, packer or retailer. I have a general idea about their end of the business, but no experience or expertise. One could argue that unless one experienced all segments of the industry one does not have the knowledge necessary to fully comprehend.... but regardless, we all have the desire to argue our opinions anyway.
One certainly may have the desire to argue their opinions but if they are not based in fact they will soon be corrected by those who would rather deal in facts.
I have noticed how you seem to sympathize with all ends of the industry except for the rancher. From your writing ability I have a hard time picturing you out feeding cattle, haying, fencing, calving out, and doing all of the manual labor. Seems like a waste of intellect, more useful elsewhere.
Ouch! LOL! To the contrary, it's my passion for the cattle industry that led me to my understanding of the feeding and the packing industries. I have been involved in the cow/calf business at least on part time basis for my entire life. Been involved in numerous facets including artificial insemination, production testing, and range management. I have done my share of haying, fencing, calving, and shoveling shidididit. I sympathize with the rancher probably more than anyone you know but I really sympathize with those who spend their time with baseless market manipulation conspiracy theories as opposed to thinking of ways to reduce their costs and/or increase their profits.
Been good visiting with you. Sorry for the length of this response. If I didn't care about the cattle industry, I wouldn't waste my time talking about it.
~SH~
My hat is off to both of ya! Regardless of where we stand on this issue, we, as ranchers, have to stand together at days end or we will fall a part!
