The railroad strike has been the big news for the past few weeks. It may be hard for some to understand, but railroads were a major contributor to the success of this nation and industry. The first week of December 1922 was the first edition of the Western Livestock Journal. This issue marks our 101st birthday, and this is the first issue of the new volume. By the way, the railroad loaned Nelson Crow (Grandpa) the money to start the first Farm and Ranch Market Journal for the new Los Angeles Union Stockyards. So, I must thank the Union Pacific Railroad and Arthur G. Leonard for the seed of my publishing heritage and, ultimately, the Western Livestock Journal.
The publication spent 100 years under the Crow family, and three generations have embraced the livestock industry and its people. If you were at an important meeting, it was more than likely that a Crow was in the background taking notes and bringing you the industry news. And you know as well as I do that there was always something to report.
The cattle industry is in a state of flux. Drought conditions have forced producers to reduce cow herds in a large area of the West. Cattle prices are rising on reduced supplies. Beef demand has been great the past few years, and it’s because we’re producing better beef that consumers want, and they want the good stuff: Prime. Have you looked at the spread between Prime and Choice on the beef cutout? Last week, Prime was at $336.69 while Choice was at $255.05; that’s an $81.64 spread. Typically, we talk about the Choice/Select spread, which is at $27. How much more are your calves going to be worth if they have the potential to produce Prime beef on a consistent basis?
It looks to me as though going forward, producers of fine cattle should be getting closer to the consumer. Some already have. Many outfits are supplementing their incomes by selling their own processed beef. I have folks ask me all the time about buying a side of beef. I usually say you should go to Costco and buy the cuts you like. That way you don’t have 100 pounds of hamburger in your freezer.
We’re going to see more direct marketing of beef and other meats. The mail order business has proven we can sell beef anywhere. There are more and more Christmas catalogs featuring beef at extraordinary prices.
The beef cutout has remained in a trading range between $2.50 and $2.70 for Choice, so beef prices have been stable. Fewer cattle coming down the pipe will influence retail margins first and packer margins later. We have proved that folks will pay handsomely for a good piece of beef, but there is a limit to what they will pay.
Packer margins have been pared down. Last week, John Nalivka at Sterling Marketing Inc. told me that packer margins were a negative $26 per head, which might mark the end of their profits or perhaps be a bright star in the history of the meatpacking industry. A year ago, they were making $1,000 per head. How’s that for a turnaround? Now we’ll see who is going to get the profits; it’ll probably be the feeders and then the cow-calf guys.
Packers have kept slaughter levels high most of this fall. The rib market is carrying the beef cutout because of the holidays. Other primals are not moving as well. Packers will be forced to reduce beef production soon to raise the cutout, especially if they are starting to lose money. Some of the market analysts have suggested that there will be 900,000 fewer fed cattle for the year. Now we’re hitting the winter months, which seasonally mark the low spot in the beef market, and folks generally turn to cooking roasts.
All we can really say is the beef and cattle cycles are still at work. Mother Nature always has a hand in our cattle inventory and has for over 100 years. The best thing the cattle industry has done is realize that quality sells. We started doing the research around 1990, and the breed associations started measuring cattle much earlier. But today, we produce over 85% Choice beef and 9% Prime.
Major drought always liquidates the lower end of the cow herd, and when they are replaced, they are generally better-producing cattle. It’s not a great way to have genetic improvement, but it works. Let’s look forward to the next 100 years with WLJ, which will change in an ever-changing industry. And don’t forget to pray for rain. — PETE CROW
