The Changing Beef Industry

1. AT 0614 Fall 2004 The Changing Beef Industry

2. Consumer Beef Industry Production/ Marketing Chain

4. Livestock Marketing Information Center Data Source: USDA/NASS

5. Why had beef been losing favor with consumers? • Value per price • Convenience • 75% of working people have not decided what’s for dinner by 4 p.m. • over 50% of teenagers are responsible for their own meals • Product inconsistency 1 in 3 beef meals eaten away from home is unsatisfactory • Diet/health issues

7. A couple of facts to remember about beef consumption • Over 50% of beef is consumed as ground beef. • Approximately 50% of beef is consumed away from home.

8. Consumer Beef Industry Production/ Marketing Chain Retailer

9. Who Is The Retailer? • Grocery/supermarket chains • Fresh, cured, frozen, cooked • Restaurants • Bubba’s BAR B Q to Ruth’s Chris Steakhouse • Fast food outlets • McDonalds, Wendys, Hardees, etc. • Convenience stores • Burritos, hotdogs, Slim Jims, etc.

10. The Retailer’s Concern • Move lots of product • Keep the price relatively stable • Product consistency • Keep the profit margin competitive with other products

11. Consumer Beef Industry Production/ Marketing Chain Retailer Packer

12. The Concentrated Packing IndustryThe Big 5 process >85% of all cattle • Tyson (Previously IBP) • Excel (owned by Cargill) • Swift (Previously ConAgra) • National Beef Packing • Smithfield Foods

13. Beef Packers 1000 Head/day capacity

14. Consumer Beef Industry Production/ Marketing Chain Retailer Packer Feedlot

15. Feedyards 16,000 Hd. One time capacity

16. The Cattle Feeder • The custom cattle feeding industry • Someone else owns the cattle • Feedlot sells feed, pen space, and management • Most of the cattle sold at the same price

17. High Plains Commercial Feedlot

18. The Cattle Feeder • The custom cattle feeding industry • Someone else owns the cattle • Feedlot sells feed, pen space, and management • Most of the cattle sold at the same price • Farmer feeder • Using cattle feeding to market grain crop and farm labor

20. Consumer Beef Industry Production/ Marketing Chain Retailer Packer Feedlot Backgrounder/ Stocker

21. Cattle Backgrounder or Stocker Operator • Transition from bawling calf to feedlot ready cattle • Health preparation • Market forages and low cost feeds • Repackage cattle -small groups to load lots

23. Consumer Beef Industry Production/ Marketing Chain Retailer Packer Feedlot Backgrounder/ Stocker Cow/calf

24. Cow/calf Operations • Produce the raw product with which the rest of the industry must work • At the bottom of the dollar pipeline • Only segment that does not work with a margin

25. Where are the beef cows?State Rank 1. Texas 5.483 mil. hd. 2. Missouri 2.125 mil. hd. 3. Oklahoma 1.970 mil. hd. 4. Nebraska 1.848 mil. hd. 5. S. Dakota 1.711 mil. hd.

26. Where does Virginia rank? 18 th. 810,000 cows and ahead of : Arizona Georgia Idaho Illinois Nevada New Mexico Oregon Utah

27. Commercial Beef Production Total Cattle Inventory Livestock Marketing Information Center

28. How do we produce the same tonnage of beef with fewer cows? • Larger framed cattle • Improved reproductive and health efficiency • More Holsteins being finished instead of veal

29. $$$ Consumer Beef Industry Production/ Marketing Chain Retailer Packer Feedlot Backgrounder/ Stocker Cow/calf

30. Current Beef Industry Structure • Each production phase is a separate profit center • Retards innovation and new product development • Hinders information transfer • Does a poor job or relaying consumer signals back through the production chain • Has led to beef’s loss of market share

31. What if the different sectors decided to work together? • Win back some consumers dollars • Start sharing some information up and down the chain to improve efficiency • Find out what the next sector needs and get paid for producing it.

32. “Alliances” • Another word for partners • Provides for sharing of information • Provides for profit sharing

33. Forces Driving Alliance Formation • Branded products • “50% of beef will be branded by 2005”

34. Forces Driving Alliance Formation • Branded products • Improved consistency at retail level

35. Forces Driving Alliance Formation • Branded products • Improved consistency at retail level • Need for information transfer • Source verification • Value based marketing

38. Which steers are worth more to the industry? • Which pen • subsidizes the price of the other?

39. Forces Driving Alliance Formation • Branded products • Improved consistency at retail level • Need for information transfer • Source verification • Value based marketing • Matching supply and demand • Seedstock marketing • Reduced price volatility

40. Components of Many Alliances • Retained ownership by feeder cattle producer • Value based marketing on some carcass grid • Sharing of risk and profit • Transfer of health, feedlot, and carcass data back to the cow/calf operator

41. Hypothetical Beef Product Consumer Low Choicefrom from 700-800 lb carcasses Ribeyes 12 to 15 sq. in., <.25 outside fat From cattle under 18 months Feed vitamin E for shelf life Feed vitamin D for tenderness No intramuscular injections Fed high grain ration > days Unbranded hides Retailer Packer Feedlot Backgrounder/ Stocker Cow/calf

42. Hypothetical Beef Product Consumer Low Choicefrom from 700-800 lb carcasses Ribeyes 12 to 15 sq. in., <.25 outside fat From cattle under 18 months Feed vitamin E for shelf life Feed vitamin D for tenderness No intramuscular injections Fed high grain ration > days Unbranded hides Retailer Packer Feedlot Backgrounder/ Stocker All the partners will have to work together and communicate to share to rewards for producing a product the customer demands Cow/calf

43. The romantic image of the independent cowboy continues to cost the industry market share and dollars