External Influences Mean Rapid Change For Cattle Feeding

By: Katrina Huffstuttler

After decades of slow change, the North American cattle and beef industries are undergoing rapid transition.

Dr. Pete Anderson, director of research for Midwest PMS LLC, said farming and food production are no longer local industries serving local markets, but are part of a global marketplace with scaled opportunities and risks and increased volatility. Individual cattle producers are subject to external influences to a greater degree than ever before and the collective responses to these forces will shape the industry and determine its future.
Anderson presented a state-of-the-industry overview at the Feeding Quality Forum in Grand Island, Neb., and Amarillo, Texas, in August. The events, which attracted more than 200 cattle feeders and members of allied industry, was sponsored by Feed•Lot Magazine, Certified Angus Beef LLC, Roto-mix, Micronutrients and Zoetis.

“Farming and food production in total are no longer local industries,” Anderson said. “They no longer serve local markets. Now, they are part of the global marketplace, paired with scaled opportunities, scaled risk and increased volatility. The upside is bigger, the downside is bigger, and the risk is greater than it’s ever been.”

“As individual cattle producers, most of us are subject to external influences to a greater degree than ever before,” he said. “Our collective responses will shape the industry and determine its future. In other words, there’s stuff you can’t control that’s influencing how this works.”

There are fewer cattle, and they are different and more valuable compared to previous decades. They’re bigger, better and fatter.

Additionally, outside financial influences are having a bigger effect on our business than ever before.
“That’s one of those things that we can’t really control,” Anderson said.

There’s good news, too, though. As world population increases, so will affluence and meat consumption. “Beef demand will grow in countries we don’t even think about now,” Anderson said. “We have to ask the question: Which countries will supply that beef?”

He said India is the second-biggest beef exporter in the world, and what they sell we wouldn’t call beef.
“It’s water buffalo,” Anderson said. “What do you suppose the countries that are importing that are going to think when they finally get a taste of the good stuff? They’re paying premiums for water buffalo, because it’s better than chicken, but it’s not as good as the stuff we could be sending them or some other country could be sending them.”

With fewer numbers in the nation’s cow herd, Anderson said it becomes increasingly important to focus on quality.

“Suppose we could only make 1 million cars. If the auto industry was limited for some reason, what would they do? Would they make small, cheap vehicles or big, premium, expensive cars? They’d be making Escalades, King Ranch pickups and Corvettes. They’d make the biggest, highest-margin premium vehicles they could,” he said. “We’ve got to do the same thing. We aren’t going back to 40 million cows, so we’ve got to maximize revenue from the ones we have. We’ve got to make the equivalent of Escalades and let somebody else sell Honda Civics.”

He said in the bigger picture, the beef industry needs freedom to operate, technology and knowledge. “There are two groups that can lessen our freedom to operate,” Anderson said. “One is government, and the other is consumers.”

The government has put more regulations into effect in the last eight years than in any 50-year period.
“Our freedom to operate is being limited,” he said. “It’s just a part of it. It’s the cost of doing business. We’ve got to factor that into our pricing.”

Consumers pay premiums for what they want, Anderson said. Just consider the price difference in the latest iPhone versus the most basic phone, or Starbucks versus a cup of coffee from the convenience store. Additionally, they get behind social media platforms and rally for causes that they believe in.
“Consumers will have a greater influence on what we do and how to do it. The customer is always right. Also remember, the customer is not always informed,” Anderson said. “They’re not always scientifically literate. They’re not always interested in the truth. They’re not always concerned about our well-being.” He said technology can be both risk and benefit for producers and consumers.

“If we use it, consumers might not accept it. They might tell us they’re not going to consume a product, or they’re going to pay less for it if we make it a certain way,” he said. “That’s a risk. The other risk is if you don’t use it, you might not be cost-competitive.”
As consumers tell cattle feeders what they want, Anderson said, they’re also going to hold them to a higher standard. He predicts tighter specifications for beef and said while that may mean bigger premiums, it will definitely mean bigger discounts when the specs aren’t met.

“It’s going to be about more than reputation and experience,” Anderson said. “It won’t be enough to say, ‘I fed those cattle last year and they were great’ or ‘I know that guy and he takes good care of them.’ That won’t work for the consumers we’re talking about. We don’t get to write the specs, but we will have to adhere to them. Market access could be at stake. Some beef will have no value or very little value, if they don’t meet somebody’s specifications. Only those that can meet the specs get to stay.”

He says the external influences are like seismic shifts — great big things that are happening over a span of decades. The key is staying ahead of the curve.

“What you do have to do is accurately predict the influence of those external forces and adapt by creating and implementing the right strategies,” Anderson said. “That will determine who succeeds and who doesn’t.

To view Anderson’s and other presentations from the event, visit feedingqualityforum.com.