Push beef, not cattle

Cattle Market & Farm Reports, Editorials
Sep 20, 2004
by WLJ
Last month's announcement that a moderately-large-scale Tama, IA, cattle and beef processing facility was being shuttered, at least temporarily, brought back a lot of not-so-fond memories concerning independent cattle producers and the hard time they seem to have getting started in the packing business.
The most alarming thing to me about the 1,200-head-per-day-capacity Iowa Quality Beef cooperative's situation is that the closing happened just over a year after the plant, which was an existing facility, was renovated and opened for business as Iowa Quality Beef. It's eerily familiar with what went down with Future Beef Operations, which filed for bankruptcy and permanently closed its doors within 18 months of beginning its "ahead-of-its-time" slaughter and processing operation.
Officials with Iowa Quality Beef indicated they would get the plant re-opened, however, no timeline has been given. It seems unlikely to me that the plant will re-open or that when it does it will experience a different result from the first stint of operation.
The official reason behind the closing was significant industry losses, primarily due to BSE and its hindrances on the cattle/beef markets. Prices paid for cattle between last July and this July were anywhere between $5-12 above "normal expectations," and that led to a lot of extra procurement costs.
It's hard for me to fathom that even under "normal conditions" that a new cattle packing facility can start to show much profit now days, particularly when startup costs, overhead costs and capital investments are at the forefront of issues to be dealt with. And, with the dynamics of the cattle market the past six months, that makes the proposition of making money by processing cattle almost impossible, it seems.
I wish Iowa Quality Beef the best and hope that they prove me wrong, however, myself and several other onlookers had the same fears with Future Beef and several other startup cattle processors, and those fears turned into reality, unfortunately.
Last week I was involved with a beef product research and development (R&D) seminar, hosted by the Cattlemen's Beef Board and National Cattlemen's Beef Association (NCBA). After setting through several presentations by wholesalers and retailers and watching a demonstration on cutting out some of the new "beef value cuts," it became more and more clear that beef processing goes way beyond slaughtering cattle, and that focusing on beef instead of cattle could be more lucrative.
The problem with the cattle portion of the packing industry is that is where the most expense is. The largest portion of overhead costs comes from processing live cattle and getting the intact carcass through the processing chain, getting into storage and then getting it cut up into primal boxes.
Last week's R&D symposium showed how lucrative the business of taking those primals and separating them out into various new products can be. For example, one of the hottest new products at the retail and restaurant level is the Flat Iron Steak, which is cut from the shoulder, normally an underutilized primal.
According to Tony Mata, Ph.D, meat scientist and a lead researcher in the beef value cuts program, the whole shoulder primal has a wholesale value of $1.10-1.75 per pound. The flat iron steak costs anywhere between $4.50-7 per pound retail, and restaurants are selling it for anywhere between $12.99-19.99, and that is for a 10- or 12-ounce cut.
It seems logical that it would be worthwhile to look into a business venture where raw primals are purchased and then further processed into more valuable, consumer-demanded products—call me crazy.
While such a venture is not devoid of some capital and overhead expenses, it sure doesn't entail all the expenses associated with a live animal processing operation, and the amount of time to overcome those initial expenses before recognizing a profit is cut to a fraction, compared to live cattle packing.
Why kill cattle when it appears to kill profits, at least in the beginning and when the market dynamics are irregular. Oh yeah, what's a "regular" cattle market, is there such a thing? — STEVEN D. VETTER