Cattle markets appeared ready to move higher last week with futures showing good gains. Then the World Agricultural Supply and Demand Estimates report came out and pulled the rug out of all markets Thursday. The cash market was hanging on at $120, then the June contract fell $3 to $115.60.
Packers have been cautious about the volume of cattle they’ve been processing the past few weeks, creating a bit of a backup in feedlots, which, in turn, has kept a lid on prices amid expanding cutout values.
I know it’s frustrating for cattlemen to see the beef cutout over $300 while watching live cattle prices go down. Nearly all beef profits are going to the packer right now. We’ve seen margin estimates from $500-700 a head on fed cattle, which on a 100,000 head is a cool $60 million a day.
Okay, packers are gorging themselves at the trough of prosperity. But what I want to know is: Are they going to invest in another packing plant, bring in robotics, since they have labor problems? Are they going to improve throughput since they’re running near full capacity? One little hiccup by the packer and fed cattle don’t get processed. Or, are they going to invest in more plant-based protein products?
We like to use contemporary terms now like “sustainability” and “consumer friendly” in the beef supply chain, which implies that groups of people are working together to provide consumers with a finished product. Right now, we have one bad player in the supply chain—the packer—who consumes all the profits from a high demand product—beef.
When I was in school taking college business classes, we were taught some business ethics. The corporation is responsible to their stockholders, their employees, and to the health of the community. The packing industry has been taking care of their investors with a mediocre dividend of $1.78 per share at Tyson; JBS SA doesn’t pay a dividend. Packers are just starting to pay more attention to their employees. Let’s face it, a kill floor wouldn’t be a pleasant place to work. Then there are the communities they operate in; I don’t see them investing in any community services or infrastructure.
One would think that, rather than being short sighted, these companies would want to pay attention to their supply chain health. Demand is so good for beef that retailers can’t get enough of it. Packers have a hard time providing it because they haven’t taken care of their respective communities of cattle feeders and cow-calf operators. That’s the crux of the adversarial relationship between cattle people and the packers.
Then there is the cattle feeder who generally feeds cattle at breakeven prices. They lose money on cattle ownership but make money with the feedlot. Most cattle feeders like to make money on the cattle because they don’t mark up their own feed. But the price of fed cattle and feed determines the price of feeder cattle and then calves, and a subsequent price spiral ensues. The irony about this business is there are very few moments when all segments of the beef supply chain are profitable at the same time.
What gets me is the average all-fresh beef price in April 2021 was $6.48 lb., a record high. Packers produce around 530 million pounds of beef a week. This puts consumers’ contribution to the beef industry at around $3.34 billion a week, which is $9.81 per capita per week, or $510.25 a year, based on a population of 350 million. I estimate that consumers spend $178.6 billion on beef products and we’re not even counting the drop credit.
The question is: How can producers get more of the consumer beef dollar? How do we get more leverage and fairer prices for our cattle? Several groups representing the cattle industry held a meeting last Monday to discuss these items, without association staff present. We should know more next week.
I wonder if anyone discussed ways to collectively manage the flow of fed cattle going to the packer. Packers have honed their logistical skills; they know how many head they need to process each week and they match it to historical demand.
Programs like CattleTrace or a national animal identification program could be used to control fed cattle inventory and other things. But we’ve been down this road before and getting cattle people to embrace this concept is too much to ask for. If we’re going to get full value for your cattle, we’ll need some better inventory management. Keep praying for spring rains, especially in the West. — PETE CROW
