By Chris McClure, Contributing Editor
At some time previously, I wrote about the need for a faster feedback mechanism for the cattle industry. The market provides the necessary information, but it is often obscured by a lag between the various disparate segments and subsequent changes in behavior.
A scoring system could potentially better match product that is currently in the pipeline with consumer demand for products that have widely varying price points. The tools that might enable such a system are beginning to percolate through the supply chain, but have not yet made it to a level of acceptance that would enable their effective utilization.
When we set out on a journey, we must begin by envisioning, or at least designating, the destination. We need to know where we are going or we will never reach it. If we consider the consumer as the destination, we can then classify them into multiple “buckets” based on their ability to purchase high-value protein. If we merely look at “desire,” we deceive ourselves into thinking all consumers can afford a Prime ribeye steak, but the reality is something different entirely. If we aim only for the high-end product, we will end up grinding a large part of it into hamburger because much of the supply will be without demand to maintain an acceptable price for the supplier – us. Supply and demand still drive price received.
The packer currently has an advantageous, but difficult seat in that he is able to sort cattle that he procures into the various consumer “buckets.” Even though the value of high-end buckets is most desirable, he has a much larger need to fill the mid-dollar and low-dollar buckets. Part of that can be done with trimmings, but at some point, it must be filled simply with volume. Thus, we see the grid adjust on a regular basis in a way that will pull cattle from the feedyard that may not have reached their peak finish based on their genetic potential, but merely provide volume of beef, or it may cause the feeder to hold those cattle just a little longer. The packers, at least to some extent, manage their supply by adjusting their grids.
Feedyards, on the other hand, are stuck with what they can purchase, or can entice into their yards from an ever-changing customer (feeder) base. They don’t have the luxury of sorting their product economically, but instead must respond to the constantly fluctuating offer from the packers. The value of their product is a moving target. The fluctuation affects efficiency.
That target filters back to the commercial cow-calf sector through the feeder cattle market. Over time, that feedback has caused a significant adjustment in the quality of cattle being produced by those ranches; the result is a strong supply of Choice and better beef reaching the consumer. Now we must ask: If it is that much better to have a Choice product than a Select product, why is the spread between the two often very narrow? It is a function of the need by the packer to fill the mid and lower price-point consumer buckets.
The signal that has been sent to the seedstock producer has focused on quality, which has become obvious in reports of a dramatic shift upward in the percentage of Choice or better carcasses at the packer, but at what cost? One cost is the seasonal sacrifice of premium product into the bucket of the low-dollar consumer, which causes a narrowing of the Choice/Select spread and a general malaise in the price paid for finished cattle. The price received doesn’t reflect the overall improvement of product going to the packer. Instead, it tells us we are producing larger quantities of it, and quality no longer commands the same premium price due to its abundance.
The next obvious focus for the cow-calf sector is feeding efficiency. After all, we have built a factory and we now must stay in tune with the tiny losses of “energy” through the system. It is the “puppet dance” to the pulling strings of the packing industry that is responding to consumer needs. Efficiency is important, but we need to remain aware that it isn’t the only goal.
Perhaps we should devise mechanisms to differentiate our product to accommodate multiple consumer tastes and price points. We must figure out how to “sort” our product into appropriate buckets before it goes to the “chop shop” and gets “parted out” to meet demand.
If we better knew expected performance of a particular group of cattle entering the supply chain, would that not be one way to begin the process? There will always be demand for high-end sports cars and also for large SUVs, but the number of those that will be purchased pales compared to the compact, medium and full-sized family cars that are needed.
Currently, it seems we are focused on building a better Lamborghini but, we also need a way to efficiently and profitably produce more family cars that meet the budget of the average consumer.
Knowing the expected performance characteristics of an animal will help us to begin that process. If those traits were then converted into a “score” that followed those animals through the chain, it would make it easier to market them at the most opportune time – for both efficiency and outcome. We currently do this based on visual observation and past experience. Such things are invaluable, but more information is needed to tighten the process. A score, tied to actual performance, with the information conveyed back through the supply chain might provide useful insight to everyone along the way.
