Need to grow

Dec 10, 2010

Cattle markets have been a nice surprise the past few weeks. Market advances have exceeded what most analysts were expecting. Maintaining fed prices in the $1 per pound area for an extended period of time is remarkable. Cattle supplies remain low in North America and you have to wonder if we’ll see some herd rebuilding start soon.

Commercial replacement heifer values are also very strong, as reported in recent sales. The real fancy kind, that are well detailed, bred right, and ultrasounded to calve in a 15- to 30-day window, are trading around the $2,000 mark and the more standard-issue bred heifers are trading $200-300 higher than they did a year ago, between $1,100 and $1,400.

With fed cattle prices finding some stability in the $100 range, it makes you wonder if $1,500 for bred cows and heifers will become the norm. We all know that the cow herd has been shrinking and it appears that this trend really hasn’t changed, even with higher prices. We expect to see the January cattle inventory come in with even fewer beef cows in production.

Judging by bred stock values, I would like to think cattlemen are getting serious about herd expansion. Cow and heifer slaughter remains high, so if there is any herd expansion, it is on a regional basis at most.

Right now, all the market signals are pointing to expansion. Profitability levels across the industry are strong, and the continued prospects for profitability appear strong for the long-term. If you’re able to grow your cow herd, it appears that there is no better time than now to make those long-term decisions.

Strong global demand and the prospects for increased domestic demand should put U.S. cattle markets on solid ground. With economic recovery worldwide, there will be great global demand for beef, and it would seem that we’re on the front end of what could be accomplished on a global basis. All we have to do is take advantage of the global and domestic marketing opportunities. When you stop and consider where this industry was 20 years ago, it’s remarkable how the industry has responded to trends and changed the position of beef in consumer minds.

In the early 1990s, beef industry groups made the decision to become more consumer-focused and addressed the reasons beef was losing market share. Those decisions ultimately had a profound effect on how the industry operates today. Remember when the first beef quality audit revealed that one-in-four steaks was unacceptable by consumers? Roughly 25 percent of the beef produced was turning off consumers and sending them to other meats.

Today there is a predictable level of consistency with beef products. Retailers have been developing their own branded beef products, a program they wouldn’t be able to accomplish without industry wide coordination. You can only brand a product if you’re confident enough with the consistency of the product to stand behind it. Branding a product you’re not proud of or unsure of is close to insanity.

After 20 years of effort, the various segments of the beef industry have created a multitude of market opportunities for producers. Raising cattle to a certain specification has rewarded producers and satisfied consumers. Many branded-beef programs are reporting solid growth as a result of consumer demand for those consistent products. Today’s markets, whether it’s selling a grass-fed product, Certified Angus Beef or Ranchers Reserve, all require producers to produce a consistent and high-quality product. Those specific production requirements ensure a level of consistency that’s not available when you’re selling a pen of live cattle on the average. Producers today need to be able to hit the same production targets day in and day out. By doing that, the beef industry is securing its place in the protein market and building future demand. Reverting back to the old ways isn’t in the best interest of producers, packers or consumers. Only by continuing the industry’s consumer-focused efforts will we be able to ensure the growth that is vital to the future of the cattle and beef industries. That’s the only way to continue to provide long-term profitability. This effort, combined with making sure we can meet our long-term supply needs, should provide a solid foundation for the industry to grow. — PETE CROW