Editor’s note: The following was written by Debra Skodack for the Federal Reserve Bank of Kansas City Ten Magazine April 4.
Steve Sunderman has faced a lot of challenges in recent years.
As a part of the cattle industry, Sunderman’s business has the effects of a cybersecurity attack, severe weather, labor shortages and a pandemic – all within a complex industry with narrow profit margins and a not-so-nimble commodity.
But as a member of a family business that operates in Madison County, Nebraska, since the 1880s, Sunderman has perspective.
“Being in agriculture has always had its challenges,” Sunderman said. “Seeing what we have gone through in the last couple of years gives you an appreciation of those who had it just as hard or maybe even less dependent on the situation they were in, whether it was drought like the Dust Bowl or previous pandemics or wars. “
The US cattle industry may be at a turning point, according to a December 2021 economic review paper, “Long-Term Pressures and Prospects for the US Cattle Industry,” by Kansas City Fed senior economist Cortney Cowley.
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Cowley’s research concludes that as it comes out of the pandemic, US cattle production faces three key pressures that may affect profitability in the future: vulnerabilities along the supply chain; extreme weather conditions, especially drought; and shifting demand from US consumers.
Sunderman, whose operations include a feedlot with a capacity of 20,000 head of cattle, said he is ready.
“Quite frankly, if you are not resilient, you are not going to be able to stay in this industry,” Sunderman said. “Challenges are just a part of it.”
Whatever challenges producers are facing, the biggest might actually be how the industry itself operates.
“I believe the totality in the US beef industry is the most complex set of markets on the planet,” said Derrell Peel, Extension livestock marketing specialist at Oklahoma State University. “It’s vastly complex just to get animals to the point of slaughter, because we produce them in multiple production sectors … We move them all over the country and all the sorts of environments.
“Then we get them to the point where we harvest those animals … we fabricate them … and then it gets really complicated because we turn those animals into thousands of different products in markets that all interact with each other. When you put all of that together it is just an enormously complex industry. “
Cowley said the cattle industry’s elaborate production structure means a single cow could be sold as many as six times before reaching a consumer, and all along that chain are economic dynamics.
Efforts to become more efficient have resulted in meatpackers producing higher quantities of meat with fewer cattle, while selective breeding and technologies such as artificial insemination are helping produce more beef per cow, Cowley said.
The end result is the pounds of beef produced per head and the total amount of beef produced in the United States.
Because beef production and processing are expensive and capital-intensive, the US meatpacking industry has been consolidating. And in an attempt to match demand to reduce excess capacity, the industry is moving to “just-in-time” inventory management, in which cattle are shipped to packing plants and slaughtered as soon as they mature.
Added to the complexities is the fact that beef is a cumbersome commodity compared to other mass-produced meats.
Cowley said cattle’s longer production cycles mean any shocks or backlogs within the supply chain can take longer to work through and have more lasting effects on prices.
“They can’t turn a dime, so to speak, to adjust supply or its size based on market conditions,” Cowley said.
While reviewing the top US commodities through the initial phase of the pandemic, there was something quite noticeable, Cowley said.
All commodities – except cattle – were rebounding sharply regarding prices that producers could get by the fourth quarter of 2020. Cattle prices remained below pre-pandemic levels until fall 2021.
“That’s what really got us thinking about ‘how is the cattle industry different, and why they are facing so much more pressure than other commodities,'” Cowley said.
The cattle industry has endured a slew of issues over the last two years, with COVID outbreaks shutting down or slowing down work at meatpacking and processing plants, as well as bouts of extreme weather and cyberattacks that stalled one of the largest meatpackers in the country.
Cowley said the disruptions have increased consumer interest in locally sourced beef and may have spurred new ways to improve resilience, information transmission and automation in the industry.
Michael Gunderson, head of agricultural research and strategy at MetLife Investment Management, said plant closures, growing packer margins and concerns around pricing transparency have intensified the pressures to diversify production systems.
“The growing demand for protein exports suggests that these facilities on production expectations are only likely to increase,” Gunderson said.
He said that many producers are finding success in direct-to-consumer marketing.
“Many producers seem to prefer this arrangement for its customer intimacy, even if there isn’t a substantial price premium, finding satisfaction in cutting out the middleman,” Gunderson said.
That ‘s what Lucas Cosgrove of Council Grove, Kansas, has seen. But there are challenges, Cosgrove said.
“Most ranchers already have too much on their plate to razor-thin margins for those challenges,” he said. “Ranching is just too much work to be their ‘temporary’ meat provider in a time of chaos.”
And high demand in buying direct then created its own backlog.
“Quite frankly it proves there are not enough operational small lockers and butchers to fill our food supply to stabilize the immediate demand,” Cosgrove said.
Looking ahead, Gunderson said the cattle industry is examining three key topics: the need for slack and resiliency in the system, the need for greater transparency across the sector, and the need to balance the costs of food safety and the success of small meat. processing.
The pandemic revealed the challenges of having a highly concentrated, highly efficient system that suffers hugely with closing a plant.
“Processors may reconsider the true efficiency of these facilities more broadly than simply cents per pound of meat,” Gunderson said.
Katelyn McCullock, director of the Livestock Marketing Information Center in Denver, said that while the US consumer is the primary focus of this beef industry, China has emerged as a top-three buyer of US beef in 2021.
“In the medium term, the US beef industry will need to shift to a greater focus on consumers outside its borders,” she said.
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