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“When basic
relationships change, as they have in the corn market with the
exploding demand in the industrial usage for corn, trends
change. The result is that the past may no longer be a good
predictor of the future,” explains Barry Dunn, Executive
Director of the King Ranch Institute for Ranch Management in
Kingsville, Texas.
Indeed. More than any
other force this past year, federally subsidized ethanol
production and resultant high corn prices, in turn pushing up
other feed prices, have placed the industry in a volatile
quagmire, and will for a while (see Will Work for Feed—page 16).
It’s not just a
matter of production inputs, ethanol is also rearranging what
consumers have to spend for beef. According to a recent report,
ethanol has already increased consumer food prices $14 billion
annually (see Consumer’s Ethanol Pains—page 16).
“We recognize the
importance of the United States diversifying its energy sources
to enhance energy security,” said J. Patrick Boyle, president
and chief executive officer of the American Meat Institute, one
of the study sponsors. “But this study clearly shows that we are
reaching a tipping point, and that over-reliance on corn-based
ethanol to meet stringent government mandates would further
drive up retail food prices, reduce domestic meat and poultry
production, and erode our vital meat and grain export markets.”
Since corn price is
being driven by demand rather than supply, any hiccup in optimum
growing conditions this summer will likely push those prices
higher and faster.
There’s a major
weather-related hiccup shaping up in the West, too, with
drought, which will have plenty to say about how many cows are
left to take advantage of the next up-tick in the cattle cycle,
which should be a few years down the road.
“For the record,
Mike Hayes, Associate Director of the National Drought
Mitigation Center (NDMC) says…the worst nationwide drought
period in modern history occurred in 1934-1936—the Dust Bowl
years when 70% of the nation was experiencing severe or extreme
drought. During the worst recent years—2000, 2002 and 2006—Hayes
says about 40% of the nation was experiencing the same level of
drought.
“What’s more, Hayes
explains scientists who analyze tree rings to gather historical
climatic data say it appears the drought in the 1930’s was
normal by historical standards,” (see Gone Dry—page 58 and When
the Grass isn’t There—page 60).
The crux of drought
and ethanol-fueled feed prices, alone, mean that the nation’s
cowherd is likely to grow less and more slowly than during
previous cattle cycles (see Cycle-Static—page 38).
“This cattle inventory cycle essentially began in 2004 with
record large returns to cow-calf operations but was then
impacted with a dark cloud of BSE and international trade
disruptions combined with many cow-calf operations having to
deal with the drought of 2006,” explain analysts at the
Livestock Marketing Information Center. “The cyclical build-up
in the total U.S. cattle and calf inventory has been dampened
significantly compared to historical cycles.”
Now, throw in
questionable domestic consumer beef demand (see Down, Up, Down
Again—page 46).
“Ponder what has
occurred during the past few years. The discovery of Bovine
Spongiform Encephalopathy boosted cattle prices when Canadian
cattle were locked out of the export market and before U.S.
cattle were. When it was discovered here, prices took a quick
and painful nosedive but recovered quickly…
“Likewise, as corn
prices have escalated calf and feeder prices have remained
historically strong. Consider that a 50-cent change in corn
price typically accounts for about $6-$7/cwt. change in the
breakeven purchase price of a 750 lb. steer (assuming deferred
futures) according to Cattle-Fax.
“In each case, supply relative to demand has saved the day.
Though beef supplies are projected to remain fairly static this
year, any decline in demand makes that production worth less.
That at the same time input costs continue to increase.”
Domestically, the
fact that the percentage of cattle grading Choice remains static
at best continues to confound (see Choosing Choice—page 40 and
Choice Challenges—page 44).
“It takes about
five years for a generation of selection at the seedstock level,
and another five years for a generation of selection at the
commercial level before we should expect to see much change,”
explains Dan Moser, associate animal science professor at Kansas
State University. In other words, the ingredients and selection
pressure may have been exerted, but there hasn’t been enough
time for it to show up phenotypically in the nation’s annual
average mix of quality grades.
“There is no obvious, non-genetic trend that would result in a
significant increase or decrease in quality grade, with the
possible exception of drought,” says Pete Anderson, vice
president of Sales and Services for the VetLife Benchmark
Performance Program, which collects live performance, carcass
and financial data from approximately 40% of al U.S. fed cattle.
The good news is
that the beef checkoff—celebrating its 20th year—continues to
help producers help themselves individually and collectively
meet consumer concerns and expectations (see Worth
Celebrating—page 48).
Unresolved
Issues Continue
As always, smoldering long-term issues continue to cause
volatility, worry and confusion. And, they will until the causes
are addressed rather than the symptoms.
Consider
immigration reform (see You Ain’t from Around Here—page 64). A
lack of logical, enforceable policies continues to affect all
businesses, including those engaged in beef production. The
Immigration and Naturalization Service raids on packing plants
during the past 12 months reminded folks how these policies can
impact the cattle market directly and quickly. That’s before
considering the liability and dearth of help available to small
business owners wanting to hire or retain immigrants legally
(see Employers Left Hanging—page 66).
“At its core,
illegal immigration is a problem born of the success of our
nation. The American Dream is a worldwide attraction, and many
are willing to risk their lives to gather even a glimpse of it,”
says Mel Martinez, a U.S. senator who is himself an immigrant.
“We have a booming economy and a huge demand for all levels of
labor. These realities plus our failed immigration policies and
porous border have resulted in a 20-year flow of illegal
immigration amounting to an estimated 12 million people. As
lawmakers, it is not only our duty but our responsibility to
address this problem. As a sovereign nation, we must arrive at a
solution that satisfies the security of our borders.”
Then of course there is the musty old favorite about limiting
packer ownership and other artificial devices aimed at
presumably manipulating the market in favor of producers (see
Fighting Facts with Feel-good Rhetoric—page 39). That despite a
growing body of evidence that when the market is left to its own
devices, producers, feeders and packers will figure out the
arrangements that best serve everyone, including the consumer.
Most recently, an
analysis was conducted by USDA in cooperation with the
Department of Justice, the Federal Trade Commission and the
Commodity Futures Trading Commission. It examines the extent to
which Alternative Marketing Arrangements are used, the impact
they have on price cost, and other implications such as consumer
demand (see Setting the Captives Free—page 34).
“The report states that the leading reasons ranchers participate
in AMAs are the ability to buy or sell higher quality cattle,
improve supply chain management, and obtain better prices,” says
John McQueen, president of the National Cattlemen’s Beef
Association. “The study concludes that restrictions on AMAs
would cause a decrease in the supply of cattle, quality of beef,
and feeder cattle prices.”
Then of course,
there’s the notion of a standardized national system of
individual animal identification for the purposes of animal
disease surveillance and animal health monitoring—the National
Animal Identification System (NAIS—see What the Pilot Studies
Found—page 30).
USDA ended the wonderment and momentum for such a system by
flip-flopping it’s way to declaring it voluntary (see Almost
Here-Already Gone and Influence versus Leadership—page 26).
“When USDA said in effect, ‘Here’s a program, use it if you
want,’ they robbed NAIS the opportunity to plug the gaping holes
that exist in the nation’s ability to quickly and accurately
identify animals who may have come in contact with any other
animal that turns up positive for one virulent disease or
another.
“The only real
incentive for animal ID remains to be the value individual
producers see in it for their own management or marketing
purposes.”
Through it all,
newly standard forces also shape the industry, such as BSE and
the havoc it has wreaked in America’s export market. Its effects
are so ubiquitous we haven’t even included it as a separate
force this year.
There are the basic
issues confronting producers, too, like Trichomoniasis, which
continues to rob from what could have been, disastrously in some
cases, and after all of these years (see Still Trichin’—page
70).
“Best guess studies
say that probably 15-20 percent of all western herds have Trich
and that 5-10 percent of all range bulls are infected,” explains
Gary Thrasher, DVM of Hereford, AZ, a long-time cow-calf
veterinarian. “If the incidence is that high, a bunch of us must
be living with it and don’t even know it.”
You can agree or
disagree with our assessment of the topics we’ve chosen as the
primary drivers and wonderments of the cattle industry during
the past 12 months, but it would be tough to argue that they’re
not poised to alter or are already changing how you do business.
In order to offer a
broader historical perspective, and to begin celebrating the
10th anniversary year of Western Cowman we’re also kicking off a
year of industry retrospectives in this issue (see Yesterday’s
Today—page 80). |
