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Hamburgers Are Us
by:
Wes Ishmael |
In the mid-1960’s, when about 42% of
the total beef and dairy cattle slaughter was grass-fed, Bill
Helming, veteran and respected agricultural economist and
agribusiness consultant came to a startling and contrarian
prediction.
Rather than continue ticking along to established industry
rhythms and mores, Helming forecast that looming economic
changes and evolving consumer demand would significantly reduce
the tonnage of grass-fed beef in favor of more full-fed,
grain-fed beef. At the time he shared his views in a paper aptly
titled, The U.S. Hamburger Society-Part 1.
History obviously proves Helming a prescient prognosticator. If
his most recent prediction is also correct, the industry is
poised to come full-circle, with economics and consumer demand
forcing a significant shift to more grass-fed and half-fed
cattle, at the expense of the grain-fed market.
For the purposes of this article, grass-fed is synonymous to
non-fed. Full-fed means the traditional system of the past four
decades of feeding cattle a high-concentrate grain ration for at
least 120 to 160 days. Half-fed implies cattle fed a
low-concentrate grain, high-roughage diet for no more than 70-90
days, to a live slaughter weight of approximately 950-1,050 lbs.
“Changing economic conditions (see We are the Entitlement
Generations, page 16) will drive and force fundamental, major
changes in the U.S. cow-calf, stocker cattle, cattle feeding and
beef packing sectors of the U.S. beef cattle industry,” says
Helming. “American beef consumers and U.S. beef export customers
want now, and will want for a good many years to come,
high-quality, safe, and more affordable, lower-priced beef. The
most cost-effective and practical way to meet this objective,
along with changing U.S. and global economic trends, is to
produce significantly more high-quality, more affordable ground
beef supplies over the next 10-15 years.”
For perspective, Helming explains, “Today, very close to 55% of
the total beef tonnage sold to and consumed by the American
consumer is ground beef in one form or another. It’s easy to see
the day coming within the next 10-15 years when 65-70% of the
total U.S. beef tonnage produced and consumed in the U.S. will
be ground beef.”
Imagine the ramifications of such a transition. Among the
insights Helming provides in his recently published The U.S.
Hamburger Society-Part 2:
Total beef production and the number of cows producing it would
decline
Helming expects the total combined beef and dairy cow herd to
decline by 10-15% in the U.S. during the next 10-15 years. By
the years 2019-2021 he expects the total combined beef and dairy
cow herds to number 35.5-37.5 million head, about 5.2 million
head fewer than January 1, 2009.
Though cattle numbers would be fewer, and beef supplies less,
prices paid would also be less.
Helming believes average calf, feeder cattle and fed cattle
prices will trend significantly lower during the next 10-15
years, compared to prices received in 2005-2007. Specifically,
Helming estimates average annual fed cattle prices will be in
the range of $72-$88/cwt. over the next 8 to 12 years.
“The simple and fundamental reason is that overall consumer
demand destruction, which began in 2005, will very likely
continue over the next 8-12 years,” says Helming.
Consumer beef demand had increased for only five years before
the most recent demand erosion began. Before that, consumer beef
demand had declined for the previous 20 consecutive years.
Between fewer days on feed, fewer cattle on feed, and fewer
cattle in the herd, feedlot and packer concentration would have
to accelerate.
Realistically, Helming estimates there is 40% excess cattle
feeding capacity today. Over the next 10-15 years he believes
the excess could grow 15-25% to a total of 55-65% excess
compared to today’s capacity.
Likewise, Helming estimates there is already 20-30% excess
capacity in the U.S. beef packing sector and will increase
significantly in the next 10-15 years.
Producer opportunities would change
None of what Helming believes is likely to occur, driven by the
global and domestic financial meltdown, suggests there is no
future for beef production.
For one thing, pounds would still drive the profit equation.
With more time on forage, cow-calf producers and stocker
operators could add more total weight to cattle before selling
them than the market allows them to do currently. Along the way,
Helming points out the cheaper cost of gain due to more days and
pounds gleaned from forage would make beef more price
competitive with pork and poultry.
For another, such a market transition would likely create more
market segmentation, offering more market targets—a wider range
of value—for producers to choose among.
“The practice and thinking in the U.S. beef industry today, and
for a good many years, that 100 percent of our available annual
calf crop should go through the feedlot as full-fed cattle is
going to be recognized as being economically flawed over the
next 10-15 years,” Helming says. “The one-size-fits-all business
model we now have is going to be recognized as not making sound
economic sense in the years ahead.”
However the future pans out, it’s no secret that the
traditionally lower-value, higher-volume part of the beef
carcass—the Chuck and Round—have propped up carcass values as
the nation’s economy has struggled. Until the last 18 months, it
was higher-priced, lower-volume middle meats—the Loin and
Rib—that primarily determined carcass value.
Based on Cattle-Fax data, middle meat primal values declined
8-10% from March of 2008 to April of this year, while the value
of the Chuck and Round increased 11-17%.
“The net result moving forward is the Hamburger Society—Part
Two,” says Helming. “This will represent a major and fundamental
change and opportunity for the U.S. beef cattle industry. It
will also be positive overall for the U.S. beef cattle industry
moving forward on a longer-term basis.”
Table 1
Summary of Estimated Percentage Breakdown of the Available U.S.
Calf Crop Within 10-15 Years by Category, compared to 1965 and
Today
Category % in 1965 % Today % 10-15 years from now
Grass-fed steers
And heifers 11% 0% 10%
Half-fed steers
And heifers 0% 0% 25%
Full-fed steers
And heifers 89% 100% 65% |
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