Industry Issues and the Future of the Beef Industry

1. Industry Issues and the Future of the Beef Industry Derrell S. Peel Breedlove Professor of Agribusiness and Extension Livestock Marketing Specialist

2. Outline • Introduction • Beef Industry Complexity • Change Drivers Affecting the U.S. Beef Industry • Issues in the U.S. Beef Cattle Industry • Thoughts about the Future

3. "The U.S. beef industry is making the most significant changes in industry history"

4. The U.S. Beef Industry is an Immensely Complex Market !

5. Many Factors Make the Beef Industry Complex: • Multiple Production and Marketing Sectors • Diverse Final Markets

6. Beef Production and Marketing System

7. Beef Demand • There is no such thing as a single beef demand • Beef demand is a complex set of multiple markets and many different products

8. Many Factors Make the Beef Industry Complex: • Multiple Production and Marketing Sectors • Diverse Final Markets • Perishable Products • Joint Production/Disassembly

11. Many Factors Make the Beef Industry Complex: • Multiple Production and Marketing Sectors • Diverse Final Markets • Perishable Products • Joint Production/Disassembly • Geographical Dispersion

12. 2015: 89.8 million head +1.4 % Data Source: USDA-NASS Livestock Marketing Information Center

13. BEEF COWS THAT CALVEDJANUARY 1, 2015(1000 Head) U.S. Total: 29693.1 Livestock Marketing Information Center Data Source: USDA-NASS

14. CATTLE ON FEED JANUARY 1, 2015(1000 Head) Other States: 56 U.S. Total: 13093 Livestock Marketing Information Center Data Source: USDA-NASS

15. January 1 Stocker Ratio, 2006-2015 53.8% 32.1% 56.6% 56.0% 56.5% 69.0% 49.3% 107.9% 84.8% 58.1% 65.4% 130.4% 80.9% 79.6% 71.2% 72.3% 76.4% 113.8% 65.3% 68.6% 69.9% 78.8% U.S. Ave., 74.6 % 47.4%

16. Regional Share of Feeder SuppliesOutside of Feedlots, January 1

17. Many Factors Make the Beef Industry Complex: • Multiple Production and Marketing Sectors • Diverse Final Markets • Perishable Products • Joint Production/Disassembly • Geographical Dispersion • Biological Influence

18. Biological Influence • Long time lags in production add much dynamics to cattle markets • Gestation, suckling, growing phase, feeding phase • Heifer development • 2-3 year delays to increase production • Heifer breeding versus feeding implies a one to one tradeoff in current production versus future productive capacity

19. Many Factors Make the Beef Industry Complex: • Multiple Production and Marketing Sectors • Diverse Final Markets • Perishable Products • Joint Production/Disassembly • Geographical Dispersion • Biological Influence • Variable Production Systems

20. Variable Production Systems • Beef cattle have the ability to economically utilize a wide variety of feed resources and change the intensity of beef production • This unique production/marketing interaction means that market conditions not only signal changes in the level of production but also changes in the appropriate production system to be utilized • Production changes are used to change market timing up to one year

21. Many Factors Make the Beef Industry Complex: • Multiple Production and Marketing Sectors • Diverse Final Markets • Perishable Products • Joint Production/Disassembly • Geographical Dispersion • Biological Influence • Variable Production Systems • Seasonality of Production and Consumption

22. Data Source: USDA-AMS, Compiled & Analysis by LMIC Livestock Marketing Information Center

23. Many Factors Make the Beef Industry Complex: • Multiple Production and Marketing Sectors • Diverse Final Markets • Perishable Products • Joint Production/Disassembly • Geographical Dispersion • Biological Influence • Variable Production Systems • Seasonality of Production and Consumption • Dairy Sector Impacts

24. Many Factors Make the Beef Industry Complex: • Multiple Production and Marketing Sectors • Diverse Final Markets • Perishable Products • Joint Production/Disassembly • Geographical Dispersion • Biological Influence • Variable Production Systems • Seasonality of Production and Consumption • Dairy Sector Impacts

25. Change Drivers Affecting the U.S. Beef Cattle Industry • Value-Added Production/Marketing • Food Safety/Quality Assurance • Globalization

26. Change Drivers Affecting the U.S. Beef Cattle Industry • Value-Added Production/Marketing

27. Commodity Beef Markets • Little Product Enhancement • No Targeting of Production/Marketing • “Find What We Need” • Increased Productivity but is Optimization of Subsectors

28. Data Source: USDA-NASS, Compiled & Analysis by LMIC Livestock Marketing Information Center

29. Commercial Beef Production Beef Cow Inventory Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC and Derrell Peel 2015-2017 Forecast

30. The “New” Beef Industry • Less Commodity Oriented • More Valued-Added Products • Optimization of the Entire System

31. Value-Added Beef Production • Differentiated Products with much Product Augmentation • More Targeted Production/Marketing • Increased Average Quality • Improved Product Mix • More Cost Efficient Production/Marketing

32. Change Drivers Affecting the U.S. Beef Cattle Industry • Value-Added Production/Marketing • Food Safety/Quality Assurance

33. Food Safety/Quality Assurance • Quality assurance is part of value-added production/marketing • Uniform quality • Process/source verification • Food safety will impact production • Changing management systems • BSE • E. coli

34. Change Drivers Affecting the U.S. Beef Cattle Industry • Value-Added Production/Marketing • Food Safety/Quality Assurance • Globalization

35. International Trade Impacts Domestic Demand • Trade impacts quantity and quality of beef products • Trade changes the mix of products in the domestic market

36. Issues in the U.S. Beef Cattle Industry • Structural Changes • Animal ID/Traceability • Political/Legal Polarization

37. Issues in the U.S. Beef Cattle Industry • Structural Changes • Structural change is a source of concern, fear and frustration for many industry participants • Economic forces will continue to influence industry structure and impact how business is conducted

38. Percent Change in Pasture Acreage, 2007-2012 -13.1% -3.0% -5.7% -31.0% -1.6% -15.9% -15.1% -1.1% -4.9% -23.6% +0.2% -21.2% -16.6% -5.6% -14.8% -3.8% -20.0% -22.7% -2.4% +2.6% -2.6% -7.2% -11.5% -18.9% -3.2% -9.6% -4.4% -9.9% +0.30% -1.4% +0.2% -20.8% -23.5% -19.0% -9.7% -1.4% -8.7% U.S. Ave., -3.6 % +5.8%

39. Share of Cattle on FeedTexas and Oklahoma, 12 Month Moving Ave.

40. Share of Cattle on FeedIowa and Nebraska, 12 Month Moving Ave.

41. Share of Cattle on FeedKansas, 12 Month Moving Ave.

43. Issues in the U.S. Beef Cattle Industry • Structural Changes • Animal ID/Traceability

44. Implications of a Traceable Cattle and Beef System • Animal health and food safety • Regulatory system • Market Demands • Food quality and quality assurance • Process verification • Source verification • Management Value • Major producer implications: • Loss of anonymity • Need for market commitment

45. Issues in the U.S. Beef Cattle Industry • Structural Changes • Animal ID/Traceability • Political/Legal Polarization

46. Industry Segmentation • Longstanding mistrust between producers and packers • Some producers are frustrated/scared by the changes occurring in the industry • Factions among producers • Single-issue political/legal agendas

47. The Future of the Beef Industry?

48. THANK YOU!