2012 Convention Coverage by Ellen H. Brisendine, Kristin Hawkins and Katrina Huffstutler.
Senior management at CattleFax, Elanco Animal Health, JBS Inc., and Rabo AgriFinance seem to agree that prosperity for the U.S. beef industry lies in the growing incomes of the growing populations of the developing countries of the world.
Texas and Southwestern Cattle Raisers Association (TSCRA) members and guests listened to Kevin Good, CattleFax; Rob Auckerman, Elanco Animal Health; Bill Rupp, JBS Inc.; and John Ryan, Rabo AgriFinance, at the Opening General Session of the 2012 TSCRA Convention Weekend, March 31, in Fort Worth, discuss what transformations the beef industry might undergo between 2012 and 2027. This Opening General Session was sponsored by Hargrove Ranch Insurance.
Tom Brand, executive director of the National Association of Farm Broadcasters, moderated the panel, introducing the speakers as leaders and thinkers. He acknowledged that it seemed odd to consider 2027 — a year that seems random to the casual observer. However, Brand pointed out that in 2027, TSCRA will be 150 years old. At a century and a half, what will TSCRA members face as beef producers and what should they start thinking about now to prosper later?
Analysis of trends toward 2027
Kevin Good, CattleFax senior market analyst and manager of corporate accounts, says charts of the cattle population from the 1920s to the 1980s clearly show the traditional 10-year cattle cycle. In the 1980s, the cycle began to plateau and trend downward. "Despite 30 percent fewer cattle today than mid-'70s," Good says, "beef production has increased 10 percent. Productivity per cow increased 40 percent in last 35 years."
Good attributes this increased beef production per cow to increased carcass weights from improved beef cattle genetics, feed management and pharmaceutical products that support better health and efficient growth.
"A lot of things helped push production to higher levels and, frankly, they are needed if we are to continue to produce protein to feed us domestically and feed the ever-growing world population."
In 2011, the national cow herd reached its smallest population since the 1950s, helped along in part by the exceptional drought in Texas, Oklahoma and the Southwest. Good says feeder cattle imports from Canada and Mexico helped fill excess capacity in feedyards and at the packers. "Calf values are at a record high. There is economic incentive to expand the cow herd. We just need help from Mother Nature," he says.
Beef slaughter data from early 2012 shows cow slaughter to be "running below a year ago and below the 5-year average," he says. "We think as we go through this year that beef cow slaughter will continue to decline. The same is happening with heifer slaughter numbers. In the Northern Plains, producers are starting to keep back females. In the Southern Plains, at the first of 2012, producers were still fighting drought.
"We're in the process of turning that cow herd around, starting to expand as we go forward. But in the short term, as we take more heifers and cows out of the slaughter mix, we present a challenge to feedlots because more cattle are out of the system."
Good's analysis indicates the U.S. cow herd will increase in size, but probably not to the numbers of a decade ago. Changes in land use, an aging population of beef producers and increased environmental regulation will impact beef herd size. "In a couple of years to come, we need moisture, but we will see the beef cow herd bigger than is today."
The beef industry is facing higher credit needs, Good says. "Since 2009, credit need has increased about 60 percent. A tremendous amount more capital is needed to participate in business today than in the past."
Good concluded his comments by pointing out that global population over the next decade is predicted to increase by 700 million. "The U.S. is 4 percent of the world's population [and per capita beef consumption continues around 56.5 pounds]. Where are our customers?" he asks. The economies of developed countries are flat, but growing incomes in Brazil, India, Russia and China show promise for beef producers.
Key questions from the lender's perspective
John Ryan, president and CEO of Rabo AgriFinance, says his company has a bullish outlook. "U.S. beef is some of best in the world, and also the cheapest. The weak U.S. dollar, combined with increased demand for beef protein, augurs well for the export market."
According to Ryan, the U.S. financial crisis of 2008 sparked restructuring and deleveraging. "There's no question that regulators set a tall order for financial institutions to strengthen their financial base to work through the next downturn," he says.
As the U.S. was coming out of the financial crisis, "Europe was suffering its financial crisis with Greece, Ireland, Portugal, and so on. If one country fails, there are severe negative implications on the neighboring countries.
"The positive side is China, India and the emerging economies. They are slowing in growth, but still have a significant 6 to 8 percent growth in economies." USDA projects 11 to 12 percent of U.S. beef production to be in the export market, Ryan says.
He predicts that the "scarcity of fed cattle … will begin to slow and we will see record beef prices through remainder of 2012." Given this positive perspective, he laid out the key questions for a beef producer from a lender's perspective. First, what are your marketing plans and hedging strategies? "What are you going to do to hedge your cattle? How strongly leveraged are you now, or are you deleveraged? Do you have the working capital to handle things in volatile times?" He asks feedyard clients to provide their cattle procurement plans and occupancy levels. As a lender, he wants to discuss hedging strategies with feedyard clients, on cattle they own and on client-owned cattle.
Ryan says alignment with a financial institution that understands the ranching business is key to long-term success. "Align with a financial institution that knows and understands your business. Then it's not a ‘we vs. they' relationship. Work with a financial institution that understands the industry and its cycles and is prepared to be with you and support you in good times and bad."
And know your partners, Ryan says. Understand their risks and make sure those risks are properly addressed for long-term financial success going into the next 15 years.
The increasing importance of technology
Rob Auckerman, president of U.S. operations at Elanco Animal Health, says his company is "passionate about the importance of the use of science and technology in feeding the world."
According to the United Nations Food and Agriculture Organization (FAO), he says, "By 2050, we will need to double food production, and the FAO predicts that 70 percent of that increase will have to come from technology. We're not going to be farming that much more land or running that many more cattle. We have to increase efficiency."
The World Health Organization defines technology as products, practices and genetics. "When technology is used as we have in the U.S.," Auckerman says, "that leads to efficiency. Efficiency drives affordability and availability to address the hunger situation in the world."
Ten years ago, Auckerman says, Elanco leaders began to view the company as a food business and not simply an animal health business. In the last 5 years, they have expended considerable effort communicating with the entire food chain about use of technology in food production.
They started with retailers who were under the impression their consumers didn't want food products influenced by technology. Elanco wanted to educate food retailers to avoid issues such as a retailer "not allowing the use of this technology or that technology in their supply chain, saying, ‘We're going to label and prevent anyone that supplies us from using that technology or management practice.'"
To dispel the myth that consumers did not support food technology, Elanco undertook research encompassing 10 years of data and spending decisions from 28 studies involving 100,000 consumers in 26 countries.
The results show that 95 percent of food buyers make decisions to purchase meat or dairy products based on taste, nutrition and cost. "Another very important, but smaller, segment is called lifestyle buyers. They are concerned about where food raised and how. Organic buyers fall into this group."
It is important to supply product to as many types of buyers as possible, but "if we totally cater to [the lifestyle buyers] segment, we're not going to be able to feed the world. Address that segment," Auckerman says, "but don't flip an entire supply chain when the vast majority of buyers are concerned about nutrition, taste and cost."
Auckerman says, "The fringe is sincere and adamant, but too often we allow them to drive the agenda and the discussion. They are well-meaning, well-organized, well-funded and very patient. If they get one state law, one regulation changed at a time, they are very satisfied. We have to do a better job of telling our story."
To do a better job of telling our story, Auckerman suggests enlisting advocates to further carry the message to additional audiences. Elanco has found an advocate on this issue in the World Wildlife Fund, which is supportive of "conserving resources and the impact that technology has on that conservation."
Telling our story with passion and conviction is important, Auckerman says. "The mistake we make is we argue everything on the science. That's an important part of the equation, but we're not going to win."
Convey the social, economic and environmental impacts of improved food technology in beef production. "We are in the business of feeding the world. Let's not lose sight of that. Hunger is the No. 1 health problem in the world. The lack of food kills more people on annual basis than war, AIDS, tuberculosis and malaria combined worldwide — 9 million people a year. We lose the population of a New York City every year from malnutrition and hunger. A billion people are hungry," he explains.
In the U.S., "we spend 10 to 11 percent of income on food. In India it's 50 percent. When food costs here creep up to 14 percent, the U.S. consumer gets concerned." The job of food producers is to point out that modern farming practices help them with food costs.
"As the ag industry, we need to talk more about stewardship. You guys are absolutely the best stewards of resources out there. Compared to 1977, 35 years ago, each pound of beef produced requires 14 percent less water, 34 percent less land, generates 20 percent less manure, leaves 18 percent less carbon footprint. Help people, through the food chain to the consumers, connect the dots of how efficiency, technology and science have allowed us to do this."
Could alignments make 2027 production more efficient?
Bill Rupp, president of JBS Inc. beef division, acknowledged growing global demand and growing world incomes, excess feeder and packing capacity due to the smaller beef herd, and centered his discussion on the need to shift from battling over the pieces of the beef-price pie to considering aligning with one another.
"The impetus for our industry to align is greater than it's ever been. The old behavior that says we had a fixed pie" of profitability, and who got the biggest piece and who got the crumbs, depended on the cattle cycle and time of year.
"We have to create new behaviors as an industry and there has to be an incentive for all of us. How do we create alignment, and award us all, and not ask anybody to give up what they've got?
"So many things are changing now in our industry. For us to look at it as it always been and assume we'll move forward in the present state, and get the satisfaction we need financially and emotionally, I don't think it's going to get us there. We are in an industry that could easily become a luxury offering if we don't look at what we're doing, and figure out the right things to do going forward, and position ourselves for the future."
Rupp says to change the paradigm, "Grow the bottom line and realize the consumer is our customer. Bring the retailer and foodservice operator into this room [or any meeting of beef cattle producers such as the TSCRA convention]. Have them sitting here with us, feeling they are part of this industry.
"I don't advocate ownership all the way through as part of alignment," Rupp says, "but when I look at the chicken industry, I see an industry that has figured out what the consumer wants and has put together a product profile that's going to meet those consumer needs."
Rupp points to the "broad offering of poultry products relative to beef products," and is concerned that beef may come to be considered a luxury item. "What prevents that from happening is a broad offering of products, the ability to take that cut of meat and find ways to introduce that to the consumer and make a nickel, dime or penny on that cut and distribute the income we need from beef."
Asking a higher price for the beef product is not a long-term viable solution. "We have to find ways to make our products affordable for the consumer." Since U.S. consumers are accustomed to paying a low percentage of income for food, Rupp predicts consumers will learn to not eat beef, if they perceive the prices to be exorbitant.
He asks, "Why can't we have alignment that goes from farm to feedlot to processor to retailer to consumer, working together to build a profitable alignment?" He envisions a benefit to ranchers via access to new markets and new consumers and new products that consumers haven't had in the past.
Agricultural Research (AR-12)
WHEREAS, research is critical to the success of the cattle industry; and
WHEREAS, strong state and federal programs and initiatives of integrated multidisciplinary research are required for the future success of the cattle industry; and
WHEREAS, food safety, cattle health and well-being and the effects of cattle production on the environment are important to cattle raisers and consumers;
THEREFORE, BE IT RESOLVED that TSCRA review and evaluate state and federal research programs and initiatives to determine their impact on the cattle industry; and
THEREFORE, BE IT FURTHER RESOLVED that TSCRA support the development, integration, and funding of state and federal research programs and initiatives that would benefit the cattle industry.
new 3/28/01, renewed 10/2/09, revised 4/1/12
Thank you to these sponsors for making the 2012 TSCRA Convention Weekend such a success.
Boehringer Ingelheim Vetmedica Inc.
Hargrove Ranch Insurance
Merck Animal Health
TSCRA Political Action Committee
C.H. Guenther & Son Inc.
Capital Farm Credit
DuPont Crop Protection
Fort Worth Stock Show & Rodeo
Gold Standard Labs
Lone Star Ag Credit
Luther King Capital Management
Micro Beef Technologies
Texas Livestock Marketing Association /
National Finance Credit Corporation
Pfizer Animal Health
The Plexus Groupe
Stay-Tuff Fence Manufacturing
TCU Ranch Management Alumni
Zesch and Pickett Insurance
Blue Cross and Blue Shield of Texas
Cattlemen's Fort Worth Steak House
Charlie Geren/Railhead Smokehouse
Del Frisco's Double Eagle Steakhouse
Maverick Fine Western Wear
Omni Fort Worth Hotel
The Spice and Tea Exchange
TSCRA Insurance Services