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The problem with diamonds

Feb 3, 2017

I held down the fort last week while Pete and a few others from WLJ attended the annual Cattle Industry Convention and National Cattlemen’s Beef Association (NCBA) Trade Show in Nashville, TN. Being closer to home also meant I got to attend the American Sheep Industry (ASI) annual convention here in Denver, CO.

I’ve always found people in the sheep industry very warm and welcoming—perhaps it’s all that wool?—even to a generally cattle-focused person like me. And why not? The sheep and cattle industries are natural allies with shared concerns, expertise, and even personnel. Despite jokes about Old Western animosities between Team Cattle and Team Sheep, the two industries are more alike than not.

Both are steeped in tradition and stewardship of the land. Both are heavily dependent on public lands, leaving both at the whim of sweeping federal agency actions. Both can be proud that they provide healthy food and quality fiber to Americans and consumers around the world. And both are unfairly maligned by and have to court a consumer base that is perpetually less familiar with—and less friendly to—animal agriculture.

While the two industries share a lot of things, one thing I hope they don’t share is long-term market behavior. I worry that we’re going that way, however.

I talked with a young sheep producer from California about the domestic lamb market during the convention. He likened American lamb to diamonds. It was a great conversation, and I learned some valuable details about the lamb market’s pricing cycles, but this diamond analogy was familiar.

In of one of Miranda Reiman’s recent columns, she used Cadillac Escalades versus Chevy Suburbans as an analogy for limited beef production and quality. The take-away of her column was that—if the beef industry is going to be making fewer proverbial cars—we need to be making Escalades.

The problem with diamonds and Escalades is that they are luxury items. Luxury items by definition have a limited audience. That audience might pay well for them, but at what point does a reduced consumer pool outweigh the higher prices paid for those items?

I worry that cattle and beef might go the way of sheep and lamb in America; declining supplies will cause higher prices, which will result in an ever-shrinking market. It’s the negative economic feedback loop of a luxury item.

Beef is already something of a luxury item, but it’s an attainable, everyday sort of luxury item. I worry that it will become a $16-25/lb., have-it-once-a-year sort of luxury item that lamb now is.

Some market history: In the early ’70s, total sheep and lambs in the U.S. numbered almost 20 million head and the average American ate 3 lbs. of lamb annually with most of it being domestically sourced. Today that number is 5.20 million head and the average American eats less than 1 lb. of lamb per year total, and roughly half of that is not American lamb.

For cattle at the beginning of the ’70s, we had a 38.52 million-head beef cow herd and 46.97 million-head calf crop. The average American ate 84 lbs. of beef annually. Our cattle today put their early-’70s ancestors to shame; with our current 31.21 million-head beef cow herd and our 35.1 million-head calf crop, we are producing almost 4 billion pounds more beef. Despite that, the average American only eats about 56 lbs. of beef annually, and that’s up from recent years.

We can be proud of the improvements in the efficiency of our cattle, but there is only so far we can push biology. At some point, fewer cattle will mean fewer available pounds of beef. As the U.S. population continues to grow, the pounds of beef available per person will continue to shrink even more. And limited supply usually means higher prices.

Both the cattle and the sheep industries need to keep producing proverbial diamonds and Escalades in terms of quality. But we also need to aggressively grow our consumer base; we need more people out there eating more American beef and lamb.

Pete and other veterans of the cattle industry have told me not to worry about beef becoming America’s new lamb. I admit it is a long-ranging concern that might seem out of place given nearer-term market conditions. But I’m still young and I plan to be in this for the long haul. I want both industries to be around when I’m an industry veteran. — KERRY HALLADAY

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