Source: Glynn T. Tonsor, Associate Professor, Department of Agricultural Economics, Kansas State University
In multiple circles the cattle industry has a renewed sense of optimism with possible beef cow herd expansion being thoroughly discussed again. Underlying this optimism is a growing view that many cow-calf operators are nearing a situation of being not only able to physically add breeding stock but also that operators have forward-looking profit expectations that warrant expansion. All this being said, it is important to pause and discuss why some cow-calf producers may not initiate herd rebuilding or expansion.
Ultimately, each individual producer weighs opportunities for adjusting their operation against the expected economic returns associated with pursuing each opportunity. These opportunities are operation-specific as the practical feasibility of expanding varies. Similarly, producers are mixed in their level of optimism regarding future economic returns of their cow-calf enterprise. A point that often gets missed in these discussions is that not only does “expected profit per cow” have a role in producer decisions but importantly so do variability of profits over time and uncertainty on what profits in the future may be.
As the world “gets more complicated” from the vantage point of cattle producers, points regarding profit variability and uncertainty arguably have a large role in investment decisions. If one considers most producers as being adverse to risk and uncertainty, for a given level of expected profit economists anticipate fewer investments to be made in settings viewed as more variable.
Given this backdrop it is useful to highlight that last week The Center for Food Integrity posted a tweet to Twitter that directly applies to this discussion: “Science tells us if we can do something. Society tells us if we should do it.” This quote starts by highlighting the fact that technical feasibility is determined by the state of scientific understanding. This feasibility changes over time as new technologies are explored and outcomes of research and development investments are realized. The quote ends by calling attention to the equally critical role of societal acceptance. There is a length list of meat industry examples one can use to drive this point home but perhaps the clearest illustration is offered by meat irradiation. Irradiation was shown several years ago to be highly effective from a bench science perspective at improving meat food safety yet the public as whole has been very resistant to industry implementation of irradiation. Recognition of sound science being necessary but not sufficient for new technologies and production practices to be implemented is critical.
Ultimately the entire meat supply chain adjusts over time reflective of changes in the state of technical feasibility along with acceptance of potential practices by consumers, within industry customers, and international trade partners. These ongoing adjustments are important to understand regardless of where in the supply chain a given operation exist. Operations who are less comfortable with this environment are likely not the entities who will be making capital investments or expanding their businesses. Conversely, those who are at least relatively speaking more comfortable with this important feasibility-acceptance distinction will increasingly comprise the operations and hence mindset of the meat industry going forward.
Cattle prices last week generally declined from prior week levels. The 5-area fed cattle price for the week was down slightly at $122.91 while Nebraska yearlings traded lower at $168.01. Corn prices were down substantially for the week trading at $5.46 in Omaha.