Learning to live in a two-sixty market." This was the headline and subject of my August 1998 column, a column that suggested the proper mind set for today's producer is that beef production may ultimately have to operate in a market where beef sells in the $2.60s at retail. Now, a year later, This is a subject worth revisiting.
I haven't seen anything since that would cause me to change last year's headline. The beef and live cattle markets continue to struggle to make gains and retail prices have fallen out of the $2.80s per pound into the $2.70s. The top 10 retail chains buy 80 percent of all food products, which puts them in a position to price beef according to their profit goals, not the supply situation.
It is unknown how much retail beef prices have been affected by the on-going pork glut, but it is generally felt it has had a significant suppressive effect. It is my belief that retailers now know pork can compete well with beef and this will have a continuing suppressive effect on retail beef prices.
Believe me, retail prices have a strong influence on live cattle prices. I recently compared the prices of beef at retail (USDA data set) and Choice fed steers (Texas Panhandle) all the way back to 1993, the beginning of the end of the last cattle cycle. The spread between these two prices was surprisingly consistent (see chart), as were the spreads between the prices of fed cattle and those of seven-weight feeder cattle and four-weight calves.
We hear a lot today about value-based marketing and the premiums being earned by fed cattle that are above average in feed efficiency and carcass merit. But let me remind you that the entire process must start with genetics. Your cattle won't earn a nickel in premiums or escape discounts if their breed isn't right, if their sires aren't right and if their mothers aren't right.
What I stated in August 1998 bears repeating: "We could live and thrive in a $2.60 market by learning to really apply what we've already learned about genetics and what we can learn in the near future. Genetics alone can increase your calving percentage, your weaning weights and your marketing merit. And a true genetic focus can affect the makeup of your cowherd and the bulls in your pasture or your semen tank.
"These improvements can be very significant. Every one-point increase in your calving percentage can add $3 to your profit per cow. Each 10-pound increase in weaning weight can add $12 profit per cow. Breed choices that add to your Choice-grade potential can easily add $15 profit per cow."
The reality here is that more of you in the commercial sector need to operate like seedstock producers. Get real serious about genetics. Good bulls mean a lot to the genetics of seedstock herds but the real basis for genetic progress is a good cowherd. If this weren't true, why would a superior cow ever be flushed and why do the really good seedstock herds have a high culling rate?
There is no question that seedstock herds are well stocked with bulls that will improve your herds. Some herds and some breeds are better stocked than others, but you can find the good ones if you look. Good records and the collection of individual progeny data are essential. Every herd has cows that need to be culled, and records and progeny data will show you which cows they are.
My suggestion that we might have to one day operate in a two-sixty market was speculative, of course. But this doesn't mean it can't happen.
To contact Fred Knop, write Drovers or send e-mail to: firstname.lastname@example.org