CALF_News_October_November_2019

32 CALF News • October | November 2019 • www.calfnews.net Some practical thoughts Getting down to thoughts that U.S. cattlemen ponder every day, supply and demand is still the gold standard for price discovery in any market, imperfect as it sometimes becomes (think about our trade war with China). When asked about cow numbers being considered in “expansion phase” by many economists, Peel explains that this is not the simple black-and-white num- bers game that puts figures on a page. Expansion itself has leveled off in the past couple of years. Some factors affect- ing our cow inventory are very regional and long term. They are often brought about by outside influences. For example the corn market shot to $8 per bushel a few years ago, causing a shift of cow numbers out of the Midwest as farmers dispersed their herds and tore out grass in favor of row crops. He further says much of the expansion since 2014 is simple recovery from the severe drought in Oklahoma and Texas, where two million head of cows were lost in the 2011-2013 disaster. These events shed new light on cattle numbers and what they might mean. Smart marketing Stocker operations vary as greatly as cow-calf producers in operational skills marketing abilities. Peel has observed smaller units of several hundred grass yearlings to a few producers who may run up to 20,000 head. He explains that many stocker folks sell their yearlings when their forage base is used up. Additional financial and managerial problems cause some produc- ers to call the truckers. On the flip side, large operations may be more likely to employ market risk management, such as video auction (direct contract forward) or futures and options contracts. Above all, heavier cattle are more exposed to risk due to time factors. Producers’ cost of production (COP) has been committed wholly by then, putting limits on managerial options. This is one area in which yearling or stock operators have a boots-on-the- ground edge over cow folks or feedlots. This group of cattle may be manipu- lated in weight gain, giving marketing flexibility unavailable to other sectors of the industry. Feedstuffs, markets and facility use can all be handled more efficiently in backgrounding lots. Cattle may be targeted to specifics not avail- able in other settings. Peel said that cow-calf and yearling producers are less likely to use risk man- agement tools than feedlots, who may even have trouble getting financed unless they are covered on the Board of Trade. USDA’s Livestock Risk Protec- tion (LRP) programs are available but seldom used by beef cattle producers. They are more likely to sign up for disas- ter payments when necessary rather than use other government programs. A Rock in the pond The fire that damaged the Hol- comb, Kan., Tyson plant Aug. 4., is a sore subject for cattle producers. Peel describes the plant closing as a shock to the market with a huge initial reaction. The futures market, in particular, over- reacted. He compares it to throwing a big rock in a pond. After the subsequent splash, ripples spread through the water, then eventually subside. It is important to remember that markets themselves play a role in getting things back into balance after events like the Tyson fire. Although there is a lot we do not know yet, this is no time to panic as the market rebalances. Peel says that although harvest capacity was already tight, some cattle will no doubt be absorbed by other plants.We must understand the compli- cations this will cause with issues such as labor agreements. Market relief will not be instantaneous, and cattle are a perish- able product. Branded beef as a marketing tool Peel explains that the complexity of our industry has resulted in a very slow move- ment to differentiated markets (branded product) as compared to pork and chicken. Much of the pork and chicken in our country is owned by a parent company from birth through meat case, simplifying marketing strategy. Most beef is still sold in the meat case under USDA generic labels rather than under a brand name. However, he believes there is a tremendous opportu- nity to add value to beef from the meat case clear down to the producer level. Although there are still many chal- lenges to overcome, several breed associations have had an impact down to the cow-calf level, with Certified Angus Beef® being the leader in that regard. Brands such as Cargill’s Sterling Silver® and others do not reach back to the cow man, but are able to create added value at the intermediate level, such as feedlots or even backgrounding operations. Peel predicts additional use of differenti- ated product as time passes, developing slowly. How big can these cattle get? An issue that’s top of mind for many – and is multifaceted in nature – is, “How big can they make these cattle?” Peel seems stumped at the question, admitting it’s an interesting topic that defies an explanation. Biological limits are yet unknown. Genetics, betaagonists, implants and ionophores are pushing the potential of weights even higher. As an economist, Peel is interested instead in the product we are offering the consumer. He reminds us that any given carcass is broken into hundreds of products. Retailers are capable of taking hundreds and turning them into thou- sands. Issues with product size is limited to specific cuts of meat, but retailers seem to be handling this problem for now at the meat counter. One thing is certain, any cut of meat may be ground and will make a conveniently prepared product. “As a beef industry, we are part of an enormously complex system,” Peel con- cludes. We need to understand our role in it and how to respond to markets. “My hat is off to cattle producers. They do a great job figuring it out and producing beef efficiently. It is a great testament to producer individuals that we always have fresh meat available.”  DARRELL PEEL, Ph.D. Continued from page 30