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June 2011 Archive for Out to Pasture

RSS By: Steve Cornett, Beef Today

Read the latest blog from Steve Cornett.

Get Better or Get Out

Jun 27, 2011

Competition is a frustrating thing. Still, there is a difference between war and business deals. In both, you have two sides. But only in one is “all fair,” and that’s because when you’re at war anything that hurts the adversary helps you. But in business, as often as not, the opposite is true.

As a buyer in a deal, I want my seller to make a profit so he’ll keep producing. As a seller, I want the buyer’s profit to allow him to pay fair prices.

Obvious, but largely missing from some of the rhetoric about industry structure and GIPSA’s proposed rule.  Packers and cattle feeders, like cattle feeders and ranchers, are adversaries only once in the lifetime of a steer. At sale time, the one wants all the steer he can get for the money and the other wants all the money he can get for the steer.

That is an adversarial position. It does not, however, make the different actors in the beef business “adversaries.” On the contrary. Everybody has an interest in a more efficient, more profitable cattle business.

When I’m bidding on your feeder calves, I base the price I’ll pay on these variables: the price I can expect (or, more often, hope) to get and how much it costs me to turn your feeder calf into a fed steer. The higher the former and lower the latter, the more I’ll pay you. If corn goes up, your price goes down.

That means you, as the calf producer, have a vested interest in my success. You want me to get more and you want me to have to spend less. Because the more jam I get, the thicker you can spread your bread.

We all understand that, don’t we?

So why do so many of us not understand the same is true of fed cattle and packers? Granted, we need a fair market. We need to know that packers are playing by the rules. But absent of strong evidence—missing from all the studies on the matter—that they aren’t playing fair, we are spitting on our own faces to treat them as an enemy; to just presume that anything that hurts them helps us,

We do want things to be above-board. And, in that we’ve allowed four packers to pretty well control the cattle business, we should be willing to consider asking them to play a little like other players with outsized input in a market.

The question is how much do we want to hamper them? How much cost can we afford to add to their expenses? How much should we limit their management flexibility in hopes of getting a “fairer” market?

That strikes me as a Solomonesque challenge. Fairness is a very slick pig.

Fairness aside, one thing is for sure. Those who are putting their faith in this GIPSA rule to stop structural trends in the cattle industry are due for disappointment. Whether the rule is adopted or not.

At the supporters’ press conference last week, Mabel Dobbs, a part-time rancher from Weisner, ID, and chair of the Western Organization of Resource Councils, spoke for a large constituency when she said, “I came into this fight for fair prices as a banker and rancher’s wife running a thousand head of cattle. Today, I am in this fight as a grandmother, still wanting fair prices so my twin granddaughters can hopefully continue to ranch. That dream was ripped out from under us when unfair practices by the meat packers created volatility in the market and contributed to the loss of our ranches. We came back, on a smaller scale and with the help of an off-ranch income. Twenty plus years later, there is still no fair cattle market in which to participate. “

Without knowing how she believes “volatility in the market” drove her out of a ranch, and not wanting to cast any disparagement her direction, let me suggest that what we’re seeing is not just the “big getting bigger.” It’s the better getting bigger. The rest of us are getting smaller or getting out.

Wal-Mart and Costco and the other big players are squeezing the Tysons and Cargills and forcing them to, in turn, squeeze us. Our margins go down, our inflation-adjusted prices go down and the best and luckiest among us get bigger so they can continue to make a living wage. In the good old days, you could support a family on a hundred head cow herd. Don’t try it now.

There are many reasons behind all that, not the least of which is technology that allows single corporations to manage outfits as big as a Wal-Mart. Once they get that big—which they do by delivering value to customers—they have the power to force all sorts of pressures. Those pressures show up in the store as cheap Wranglers, Chinese-made American flags and cheap beef.

You can see from packers’ profit margins that they aren’t the problem here. Every time somebody at R-Calf wants to talk about this, they talk about farm to retail spreads. But when you break it down, most of the increase in those spreads have come at the retail level. That should give you a good idea of where the market leverage lies.

Packers’ margins have not appreciated significantly on a percentage basis—despite the fact that they are doing much more about beef marketing and beef safety than they did 20 years ago. They were under a 10% markup 20 years ago and they still usually are.

They didn’t take the market over by design. They simply did a better job than their adversaries in a tough business. They didn’t get bigger buying cattle cheaper than their competition—the market is the market, and certainly was when the consolidation occurred. They processed cheaper and/or marketed better. Their competitors just couldn’t do the job as well.

This is not a beef problem. It’s happening to everything from chicken eggs to clothes to televisions and, believe it or not, oil producers.  Higher prices are not a cure-all for consolidation. Higher prices just let the better producers pay more to get bigger.

Consider this graph as a rebuttal to the argument that low prices have driven the much-cited disappearance of X-thousand farmers and ranchers from the business over the last X number of decades:

Stevechart1 

Why, if it’s low cattle prices driving consolidation, are the values of the primary production asset going up? Because people are going broke? If that was the case, as it was briefly during the 1980s, farmland values would be going down.

Sorry, Mabel. But the reason cattle producers are disappearing has much less to do with packers than with the way the economy is changing the business climate.

You’re not going to stop those mega-trends by picking on one little participant like meat processors. What you might do is add to their costs of doing business and thus force them to try to either force Wal-Mart to pay more or force feeders to sell cheaper. You already know who’s going to win that tug-off.

The beef industry has lost nearly 20 lbs. of per capita consumption since about the time of Ms. Dodd’s problem. That’s not volatility, it’s a steady decline

stevechart2

At the same time increased efficiency has allowed us to produce more—more—beef with fewer and fewer cattle and fewer and fewer producers.

Stevechart3

So, go head if you must and adopt your GIPSA rule. Take out all Ms. Dobbs’ frustrations on the packers. The packers will adjust, just like GIPSA says they will. They will continue to thrive.

Just don’t expect it to have any positive impact on consolidation at the production level. The better will continue getting better and bigger.

The bad news here is that the government isn’t going to save you. You’re going to have to recognize the real problem and adjust your operation to it. Change the saying at your place to this: “Get better or get out.”

Put E. coli Risk in Perspective

Jun 13, 2011

eat like a manWithout having read this book "Eat like a Man"  let me suggest it looks like one we need to read. For a couple of reasons: I like the cover - it shows real meat with all that sizzle.

Second, it reminds us of beef’s appeal and why we need to endeavor to keep things like the latest E. coli scare in perspective. People like beef. Normal people, anyhow. They eat it if they can. The only way you can keep them from doing that is charge too much or scare them.

We’re going to have to do the former if we’re ever going to rebuild our herds. But the latter is optional.

I must exercise caution here. I don’t want to appear to be one of those guys who likes fecal bacteria. I don’t. I’m actually against it. But all things in moderation, you know.

As I’ve argued before, beef can’t be too safe, but it can be too expensive. As you know, the Europeans—with all their food safety rules and regulations—had a nasty bout of E. coli recently.  It appears the final vector was bean sprouts, but there is no lack of folks willing to blame cows.

They might be right of course. Cow manure is nasty stuff you don’t want on your bean sprouts. But that is actually true of about every kind of poop I can think of.

But again, perspective. My perspective is, basically, we need to do all we can reasonably do to maximize the safety of beef. But I include the word “reasonably.” Not everybody uses that word.

The idea of poop in the meat is such an attention grabber.

So catchy that the Village Voice was able to paraphrase the American Meat Institute’s caution about new regulations thus: AMI “wants us to eat (fecal material) and die."

Of course that’s wrong. AMI wants us to eat fecal material and survive. Which we have done, by the way, almost every day of our lives. You can’t keep fecal material out of naturally-grown foods. Look in the back of a wheat truck sometimes.

But that doesn’t make it sound good, and E. coli has some awful press. It is to food borne illness what AIDS is to general illness -- an ink magnet. Evidence: When the CDC last week presented the results of its annual foodborne illness surveys, what I saw was that there were more cases, hospitalizations and deaths from campylobacter and salmonella than from E. coli.

Listeria and vibrio both caused more deaths than E. coli.

Moreover, E. coli 0157 was the only pathogen on the list that fell within the objectives established as the national goals.

But the lead on the New York Times story the next day? “Federal officials said on Tuesday that a national monitoring system for food-borne illness detected an increasing number of sicknesses last year from a group of rare E. coli bacteria related to the little-known and highly toxic strain that has been ravaging Germany.”

Read on, however, or look at the report yourself, and you find the CDC said it found more of the non-0157 bacteria because of “increased surveillance.” Again, I’m not arguing in favor of feeding people fecal material. Just looking for  perspective.

So let me link you to a few perspectives I found online:  First, from Mark Bittman at the New York Times. Mr. Bittman has become a leading opponent of meat. He regards producers as inhumane. He thinks they are major polluters. He thinks, in general, that we could do without meat, and he has started looking for excuses to scare his readers away from it. That leads him, in this post, to offer this bit of scare mongering: “One hundred thousand E. coli can dance on the head of a pin; it may only take 50 to make you sick enough to die.”

Which, of course, explains the fact that E. coli is a leading cause of death in the U.S. Oh, wait. It’s not. It’s just a leading cause of headlines. Actually, that CDC report found a total of 3 E. coli-related deaths. Too many, agreed, but hardly the worst health threat in the country.

Which is not, again, to suggest I’m somehow in favor of food poisoning. I, in fact, agree with Mr. Bittman’s later suggestion that any form of E. coli should be treated like the worst form of E. coli. It all comes from the same material. If you find one kind—while it might be as harmless as a fly boiled in your soup or a rat pellet baked in your bread—it’s an indication there was fecal contamination.

I vote against fecal contamination. I vote packers find more ways to avoid it and/or clean up any live bacteria it might leave on my meat. Meat can be too expensive. But that much we can afford. I will agree with the American Meat Institute that testing for non-lethal pathogens is an unnecessary expense. But much of marketing expense is “unnecessary.” But it helps you sell the product, so you include the unnecessary expense in your markup.

Back to perspective. For a less frightening take, read Richard Levick’s take in Forbes. He points out that meat producers, processors and marketers have a vested interest in keeping their product safe. They—helped by beef checkoff funds—have poured  millions into beef safety in the last few years. Their efforts are paying off. That’s why the Centers for Disease control surveys find fewer and fewer e. coli problems.

I prefer Josh Ozersky’s take in Time, in which he worried about too much food safety concern ruining his hamburger.

I don’t much share his worry about using generic hamburger meat, mind you. As I consider the odds of dying from eating an E. coli infested hamburger or winning the lottery, I figure I’ve got more important things to worry about.

But I do worry about his point about the reaction to the threat itself: “It's not just the actual burgers they infect, it's the response they provoke, which ruins so many innocent, untainted ones.”

Maybe it’s just me, but I’d about as soon eat a chicken sandwich as a well done burger. And I have no use for a well-done steak. They don’t taste as good as the rare stuff. People who demand their meat well done don’t eat as much of it. Ask the people in the pork industry, who for years warned people to overcook their product.

We need two things here. One is for our processors to keep the manure out of beef so people don’t feel the need to overcook. And we need for people—and reporters—to keep the risk in proper perspective.

More Evidence Beef Protectionists are Wrong, Wrong, Wrong

Jun 02, 2011

So, those of you who think we don’t need to export beef, please refer yourself to Mark Bittman’s latest anti-meat diatribe in the New York Times. You can read it at http://opinionator.blogs.nytimes.com/2011/05/31/meat-why-bother/?hp

Importantly, also read the comments. That, my friends, is the cutting edge of societal progress. That attitude is chic. If it weren’t it, wouldn’t be in the New York Times.

The fact that one of the world’s leading newspapers would feature a food writer with such animus toward meat should tell you all you need to know about the future of U.S. beef demand. The world’s population is increasingly able to afford adequate protein.

There is beef’s future. If we ignore it, if we fail to grasp the meaning of “mature market,” we stand to watch our cattle herd continue to shrink.

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