The Changing Beef Industry

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The Changing Beef Industry
AT 0614 Fall 2004
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Consumer
Beef Industry Production/ Marketing Chain
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Livestock Marketing Information Center Data
Source USDA/NASS
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Why had beef been losing favor with consumers?

• Value per price
• Convenience
• 75 of working people have not decided whats for
  dinner by 4 p.m.
• over 50 of teenagers are responsible for their
  own meals
• Product inconsistency
• 1 in 3 beef meals eaten away from home is
  unsatisfactory
• Diet/health issues

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A couple of facts to remember about beef
consumption

• Over 50 of beef is consumed as ground beef.
• Approximately 50 of beef is consumed away from
  home.

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Consumer
Beef Industry Production/ Marketing Chain
Retailer
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Who Is The Retailer?

• Grocery/supermarket chains
• Fresh, cured, frozen, cooked
• Restaurants
• Bubbas BAR B Q to Ruths Chris Steakhouse
• Fast food outlets
• McDonalds, Wendys, Hardees, etc.
• Convenience stores
• Burritos, hotdogs, Slim Jims, etc.

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The Retailers Concern

• Move lots of product
• Keep the price relatively stable
• Product consistency
• Keep the profit margin competitive with other
  products

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Consumer
Beef Industry Production/ Marketing Chain
Retailer
Packer
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The Concentrated Packing IndustryThe Big 5
process gt85 of all cattle

• Tyson (Previously IBP)
• Excel (owned by Cargill)
• Swift (Previously ConAgra)
• National Beef Packing
• Smithfield Foods

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Beef Packers 1000 Head/day capacity
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Consumer
Beef Industry Production/ Marketing Chain
Retailer
Packer
Feedlot
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Feedyards 16,000 Hd. One time capacity
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The Cattle Feeder

• The custom cattle feeding industry
• Someone else owns the cattle
• Feedlot sells feed, pen space, and management
• Most of the cattle sold at the same price

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High Plains Commercial Feedlot
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The Cattle Feeder

• The custom cattle feeding industry
• Someone else owns the cattle
• Feedlot sells feed, pen space, and management
• Most of the cattle sold at the same price
• Farmer feeder
• Using cattle feeding to market grain crop and
  farm labor

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Consumer
Beef Industry Production/ Marketing Chain
Retailer
Packer
Feedlot
Backgrounder/ Stocker
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Cattle Backgrounder or Stocker Operator

• Transition from bawling calf to feedlot ready
  cattle
• Health preparation
• Market forages and low cost feeds
• Repackage cattle -small groups to load lots

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Consumer
Beef Industry Production/ Marketing Chain
Retailer
Packer
Feedlot
Backgrounder/ Stocker
Cow/calf
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Cow/calf Operations

• Produce the raw product with which the rest of
  the industry must work
• At the bottom of the dollar pipeline
• Only segment that does not work with a margin

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Where are the beef cows?State Rank

• 1. Texas 5.483 mil. hd.
• 2. Missouri 2.125 mil. hd.
• 3. Oklahoma 1.970 mil. hd.
• 4. Nebraska 1.848 mil. hd.
• 5. S. Dakota 1.711 mil. hd.

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Where does Virginia rank?

• 18 th. 810,000 cows and ahead of
• Arizona
• Georgia
• Idaho
• Illinois
• Nevada
• New Mexico
• Oregon
• Utah

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Commercial Beef Production
Total Cattle Inventory
Livestock Marketing Information Center
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How do we produce the same tonnage of beef with
fewer cows?

• Larger framed cattle
• Improved reproductive and health efficiency
• More Holsteins being finished instead of veal

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Consumer
Beef Industry Production/ Marketing Chain
Retailer
Packer
Feedlot
Backgrounder/ Stocker
Cow/calf
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Current Beef Industry Structure

• Each production phase is a separate profit center
• Retards innovation and new product development
• Hinders information transfer
• Does a poor job or relaying consumer signals back
  through the production chain
• Has led to beefs loss of market share

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What if the different sectors decided to work
together?

• Win back some consumers dollars
• Start sharing some information up and down the
  chain to improve efficiency
• Find out what the next sector needs and get paid
  for producing it.

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Alliances

• Another word for partners
• Provides for sharing of information
• Provides for profit sharing

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Forces Driving Alliance Formation

• Branded products
• 50 of beef will be branded by 2005

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Forces Driving Alliance Formation

• Branded products
• Improved consistency at retail level

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Forces Driving Alliance Formation

• Branded products
• Improved consistency at retail level
• Need for information transfer
• Source verification
• Value based marketing

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Which steers are worth more to the industry?

• Which pen
• subsidizes the price of the other?

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Forces Driving Alliance Formation

• Branded products
• Improved consistency at retail level
• Need for information transfer
• Source verification
• Value based marketing
• Matching supply and demand
• Seedstock marketing
• Reduced price volatility

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Components of Many Alliances

• Retained ownership by feeder cattle producer
• Value based marketing on some carcass grid
• Sharing of risk and profit
• Transfer of health, feedlot, and carcass data
  back to the cow/calf operator

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Consumer
Hypothetical Beef Product
Low Choice from from 700-800 lb carcasses Ribeyes
12 to 15 sq. in., lt.25 outside fat From cattle
under 18 months Feed vitamin E for shelf
life Feed vitamin D for tenderness No
intramuscular injections Fed high grain ration gt
days Unbranded hides
Retailer
Packer
Feedlot
Backgrounder/ Stocker
Cow/calf
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Consumer
Hypothetical Beef Product
Low Choice from from 700-800 lb carcasses Ribeyes
12 to 15 sq. in., lt.25 outside fat From cattle
under 18 months Feed vitamin E for shelf
life Feed vitamin D for tenderness No
intramuscular injections Fed high grain ration gt
days Unbranded hides
Retailer
Packer
Feedlot
Backgrounder/ Stocker
All the partners will have to work together and
communicate to share to rewards for producing a
product the customer demands
Cow/calf
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The romantic image of the independent cowboy
continues to cost the industry market share and
dollars