#89 - Derrell Peel, Today's Market: Scary Good...or Panic Slowly?

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Hello there, and thanks for joining me for episode 89 of Practically Ranching.
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I'm Matt Perrier and we are here thanks to Dalebanks Angus, your home for practical profitable genetics since 1904.
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This week's podcast is a doozy, in my humble opinion.
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For starters, it's one of, if not the longest one that I've ever recorded.
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And honestly, I think I probably could have talked to our guest for another hour and a half, but I didn't.
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For another, we checked off almost every divisive topic in the beef industry.
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Pun sort of intended as that was likely the only lightning rod that I didn't grab hold of in this episode, Dr.
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Darrell Peele is a professor of ag economics and extension livestock marketing specialist for Oklahoma State University and Stillwater.
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For over 30 years, Darrell has focused on production economics in all segments of the beef industry across several different countries, and it shows he knows his stuff and he applies it in a very practical manner, for producers like us.
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You know, I like to list some of the high points of each of these episodes during this preamble.
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But I've gotta be honest, I'm not sure I can even remember...
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certainly don't have time to list everything we talked about this time.
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Supply and demand market fundamentals, imports and exports, alternative marketing arrangements, captive supply, commodity and value-based pricing.
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Packer concentration, ground beef.
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Trade.
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Price discovery, mandatory country of origin, labeling, economic efficiencies, free markets and their signals.
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The choice select spread...
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if if it affects the beef market.
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I think we probably talked about it.
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And after I was done recording, Dr.
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Peel dropped a quote that I think captures just why a market discussion takes so much time and has so many facets and complexities to it.
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You know, we were, we were visiting about how challenging and passionate these market discussions often get, especially when the market is not going the way that beef producers want it to go.
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And Dr.
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Peel used a quote that I think might be attributed or should be attributed to HL Mencken.
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Um, but Dr said, for every complex problem, there is an answer that is clear, simple, and wrong.
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And it's not just marketing dis discussions.
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It, it spills into politics, into, I would even say genetic selection, maybe even our interactions and relationships with our friends and family.
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We gravitate toward this direct, concise, obvious answer that can be shared over a cold beer or a hot cup of coffee, or a social media meme.
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But often there's a whole lot more to the story than what we first see.
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You know, in today's market climate, it's pretty hard for at least us cow calf producers to criticize the market dynamics.
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Dr.
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Peel calls today's market scary.
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Good.
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He said another counterpart of his advises, his producers to panic slowly.
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But regardless if we like the situation, these markets find value.
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They may move up, they may move down, but hopefully after listening to this discussion, we'll be a little better equipped to make the appropriate decisions for our business, for our families when these markets do go whichever way they do go.
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So enjoy this discussion that I'm going to title today's Beef Market, scary, good, or Panic Slowly with Dr.
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Darrell Peel.
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Have you ever had more fun delivering your message to especially cow calf producers than you have the last few years?
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Well, yeah, that's for sure.
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I mean, the, you know, we're obviously in a completely unprecedented situation and, and yeah, it's a lot of fun for cow calf people.
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Um, it, it's also challenging though, in many ways because there's so many moving parts here.
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Um, and, and we're coupling, uh, you know, record high prices and very strong returns for cow calf people with an awful lot of volatility in this market.
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And increasingly, that's almost as big a challenge right now as figuring out how to take advantage of these incredible markets that we have.
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Yeah, the volatility piece.
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I listened to you on the Angus conversation that you did back a few months ago, and, and I think you all talked about while the, Raw dollars and cents volatility is pretty wild, the percentage of the total is maybe not that much different or maybe even less than what we've seen in some of these swings.
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Yeah, part of it is just natural volatility in the market.
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So you look at week to week changes in prices and, and um, and I have looked at that and, and in percentage terms it hasn't changed all that much.
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But obviously, you know, 5% of today's price levels is a much bigger price range in that volatility than what we've seen historically.
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So that's part of it.
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But around that, um, you know, we've just got a lot more external influences that are coming in to affect the markets.
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Most of that's pretty brief.
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Um, you know, it's, it's a headline driven world right now, and part of it is because beef is kind of a, you know, a subject of focus, uh, politically and and so on.
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And, and that's injecting additional volatility in this, in this market.
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So, um, just gives us lots more things we have to keep an eye on.
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I remember growing up in the eighties and the nineties and, and if you ever heard a story on beef, It was not going to be favorable in the press, in, in, uh, of course we didn't have social media, but, you know, even entertainment industry, nobody ever talked about farmers and ranchers.
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It wasn't that cool to be a cowboy in the eighties, nineties and early two thousands.
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Fast forward to today, and that has all changed.
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You can call it the Taylor Sheridan Effect.
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You can call it, you know, whatever the case may be.
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But from a health standpoint, from a culture standpoint, um, as a chef friend of mine, Tyler Florence said, beef is back and it's bigger than ever.
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right.
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Um, yeah, for all of those reasons, you know, obviously we're in a protein, driven market right now, generally speaking, uh, for a lot of reasons.
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We've got the GLP one, uh, effect in, in consumers But you know, regardless of those broader trends, even from a health standpoint or whatever, beef is, is just incredibly popular.
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and some of this has really been there, I think since the pandemic.
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People in the pandemic were locked up.
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They learned how to cook.
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They, you know, figured out some things.
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And, and some of that stuff I think is still hanging around with us.
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I think there's some lingering effects yet on beef demand that are, that are very positive.
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And couple that with the fact that the beef industry has done some really positive things over the last, uh, dozen to 15 years in terms of the quality and consistency of our product.
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And I, when you marry those two things up, I think that's the, uh, explanation for the incredibly strong demand we have.
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Uh, that's very persistent in this market, even at record high price levels.
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Yeah, it's, it's just hard for me to even imagine.
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I've, From your standpoint, from an economist standpoint, are we still in a demand driven market?
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I think demand is a big part of it.
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I mean, obviously the supply fundamentals, set up the idea of potentially higher prices.
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We've got, you know, multi-decade lows and cattle inventories.
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We've gotten a lot smaller than we ever intended to because of, uh, drought issues and other things now that are, you know, we're still trying to figure out for sure if we got a bottom in terms of herd liquidation.
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Yeah.
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Um, and certainly we aren't, you know, we aren't, uh, making a lot of moves very rapidly to, to show any growth.
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But all of that said, you know, tight supplies by itself doesn't guarantee high prices.
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You gotta have demand to go with it.
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and maybe even more so when you start squeezing supply, um, you're gonna be rationing that supply.
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And if, you know, if there's not enough demand to, to really support that rationing, which leads to higher prices, you won't get those higher prices.
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And, and I think we clearly have, incredible demand and, uh, and that's, that's at least as much, if not more so of the secret here to, um, you know, the demand fundamentals, uh, along with the supply fundamentals.
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Yeah, it's, it's both.
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I I think it's obviously both.
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It always is that supply demand curve has been around forever and, and you know, on the beef side of things, really, on all of ag commodity side of things.
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I think as producers, we went for so long seeing demand stagnant or the beef industry through the seventies, eighties, nineties, it going down year after year after year, that the only way we could affect that price was off supply.
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And so I still harken back to those conversations that, um, it was all about supply.
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If we had a lot of calf numbers, we were gonna have low prices, period, end of story.
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And today I look at, at the pent up demand and just how much these folks are willing to pay for good beef at the retail counter.
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And yes, we don't want to overshoot the runway, but we have got to figure out, in my opinion, some way to make sure that we satisfy that demand so they don't go somewhere else and buy their beef or buy their protein or something else.
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And that's, that's a challenge when you look at the biological makeup of the cow and, and the environment and the range conditions and drought and everything else.
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Yeah, it really is.
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I mean, you know, again, the, the, uh, the supply side, um, you know, mother Nature got us here again for the second cyclical low in a row.
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Mm-hmm.
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bottomed in 2014 in the last cycle, and that was lower than we intended to be at that time because of drought.
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Uh, but we put together a very, impressive, and it turns out historically rapid expansion following that, to the peak in 2019.
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Then we started a slow liquidation.
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I described it at that time that it was gonna be more of a plateau than a liquidation.
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Hmm.
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That was before drought kicked in
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Yeah.
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really in 2020, but certainly 2021 through 2025 at least, or up the first half of 25, drought kept pushing us lower and lower again.
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It's what we had to do, not what we wanted to do.
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And so we find ourselves, uh, low again.
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And, and I think you're absolutely right.
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I mean, uh, consumers, uh, the demand is there.
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Consumers are willing to pay it, but at the same time, at, at the end of the day, there is less beef out there and some people are gonna eat less beef,'cause you can't eat it if you don't produce it.
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So we are, you know, some consumers are making adjustments and, uh, and it's not for lack of demand, it's just because there isn't enough supply.
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And if we, uh, if we don't take care to manage that supply, as best we can, and, you know, and, and of course beef gets complicated because it's not one thing.
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We talk about beef, we talk about beef demand, but of course beef is thousands of different products and every
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Mm-hmm.
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of'em is a separate market.
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and within that whole complex, I would say probably the ground beef market is the most critical one for us to make sure we take care of that's such a big part of our consumption.
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Uh, and it's, you know, beef, you know, ground beef is always kind of the go-to product for consumers, particularly in terms of, uh, eating at home.
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ground beef is, is the, is our value product, relatively speaking, and it's the go-to product.
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And, and that's where we actually got the tightest supplies right now because we've seen the biggest decreases Cal Slaughter the last three years.
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so we've tightened that supply up even more so than we have in general, across the board for the rest of the carcass.
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So that is a lightning rod issue because if we really flesh that out and look at where, during a time of expansion where people are encouraged because of prices to either retain cows or buy cow, open cows back and breed them instead of sending them into the, supply chain.
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Where do we get that lean trim to go along with all this white fat that we're making from these 1800 pound live weight teers?
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Um, where do we get that beef?
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I, i, I, know some different options.
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And what are the political consequences, both in the production side of the industry and as we hear more and more even from the White House now about, USA beef that was born, raised, fed, processed within the 50 states?
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Yeah, so it does bring in, uh, obviously brings in part of the trade picture when we talk about that.
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So, you know, obviously, as you well know, we produce fatty trimmings from our fed steers and heifers.
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It takes multiple pounds of lean beef for every pound of that fatty trimmings.
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If you do some simple math and there's a million formulations to make ground beef, and we use all of
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Yeah.
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Uh, in various ways.
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But, you know, in terms of kind of standard make, if you will, if you take 50% lean trimmings, and you want an 85% lean ground beef product, you need seven pounds of 90% lean to mix with it.
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And you'll get eight pounds of something that's 85% lean.
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Yep.
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So seven to one ratio of nineties to to fifties.
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And, and, uh, you know, and we use our, our code.
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and bull beef to as a, as a big part of that.
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That's our, that's our primary source, for that lean.
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But we don't produce anywhere near that.
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In fact, part of that's a result of our own efficiency.
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We don't, we get so many more pounds of beef in total in this industry from the number of cows we have, that we, we don't come anywhere close to producing that.
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So we've imported beef to supplement those supplies for a long time.
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and, and I should say before I get, too far into the trade stuff, you know, we can also grind up other parts of the carcass.
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So we use some round and we have been using the last two years we've used, round to grind.
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But you know, that's coming from fed carcasses.
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So we've already paid to feed those cattle.
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And you know, the lowest value use of it is to grind it back down to hamburger value.
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So as long as there's a better market out there, you wanna market that stuff to a higher valued market.
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And so, uh, we've always imported, uh, and I say always for as long as anybody can remember, we've supplemented domestic supplies with some imported beef.
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And that to the surprise of some producers, it adds value to your fed cattle because it allows us to utilize our fatty trimmings for ground
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Yep.
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If we didn't have that, we would do two things that were not good for the industry we would take those fatty trimmings would be rendered out in a tallow or a, an oil market at much lower values.
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So the ability to utilize those fatty trimmings adds value to your fed cattle.
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The other part of it is, again, if you do the, the average calculations right at 50% of our total beef consumption in this country is in the form of ground beef.
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That's both at home use as well as obviously fast food.
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And so, if we don't produce that.
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And to your earlier point, if we don't service that market, that's where we stand to lose customers and lose demand.
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You know, across the board when we talk about beef demand and beef competing with other proteins, it's not primarily in steak markets where we compete with chicken and pork.
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steakhouse, you know, they probably have one chicken item on there'cause there's somebody in a party of six that don't want beef, but that's the only reason they have a chicken product on their menu.
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Uh, you know, steak doesn't have much competition.
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But when you drive through those places with a little window and somebody hands you something in a sack, that's where we compete tremendously with the chicken industry in particular to a little pork.
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more of a supplement now.
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'cause you put bacon on everything and that enhances all of it.
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So, you know, but, uh, but, uh, but the, you know, that gr that ground beef market is really the place where I, it's a, it is such a fundamental part of our total beef consumption and we really, really have to take care of that market.
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Then sets up to your earlier point, that because of the political focus now and so on, there's been a lot of attention on imported beef and, you know, some of that's purely political.
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Um, Argentina is not an issue in our market.
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I'll just say that right now.
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Uh, they, they've been about two and a half percent of our total imports in recent years.
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they have an expanded quota now, so they may go up to three and a half or possibly 4% of our total imports.
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And to the extent that they increase, it'll probably just displace some beef that's coming from somewhere else.
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Because in fact, the market is determining how much beef we import according to those ground beef market
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Yep.
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And so, uh, so it's a question of what source we're gonna get it from, but, but it's not gonna change the total much, if any, in that kind of a sense.
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So the term compromise has kind of gotten a bad rap, I think in the last decade or so.
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I happen to actually like it.
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So I'm gonna propose a market focused compromise to you.
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Kind of as a rhetorical question.
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With all this talk and, and I'm gonna split the beef industry, the producers into two camps, those who favor mandatory country of origin labeling and those who are opposed to it or favor free trade and let the market and exports and imports and needs and usage and everything else sorted out.
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Is there a compromise somewhere in there where for whole muscle cuts, steaks, the high valued stuff, whether it be at retail or food service, because that's where COOL, I think forgot about where most of our imported beef came, goes through.
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Is there a solution here that does both and raises the tide for all boats And that is that we do import probably more, significantly more maybe lean trim for that 85, 15 or whatever grind it may be.
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And also adopt the culture of a bred raised, fed, processed in the USA for nearly all of our whole muscle cuts.
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And do you see that path going forward and everybody being happy?
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Um, I think we have it voluntary labeling,
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Yeah.
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you know, if it has value, uh, label it.
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Take advantage of that opportunity to market that product voluntarily.
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Mandating stuff from the top down in a one size fits all thing is gonna add cost to the industry and ultimately will not increase things.
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And, and that's, I mean, the research we have that we've been doing for 20 something years shows that.
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Yep.
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And, and that's where I think this is such a nuanced issue in the beef industry.
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And if you have 20 minutes in a conversation at the local cafe or coffee shop, you can't get to what is really driving this.
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I mean, nearly any of us would say, yeah, increased supply, especially outside of our us.
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Controlled animal welfare and health and everything else is, is gonna be bad for the industry.
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But when you look at it from a standpoint of...
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do we want this person turning away from beef and going to something else and possibly staying there when we need them to buy, when we've got a bigger supply here in six or eight years, or whenever the case may be on the next cycle, um, wouldn't we have been better off patching that like the market was telling us to do with some imported lean, trim grind to keep'em buying hamburger.
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you know?
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Absolutely.
00:20:36.063 --> 00:20:40.208
I mean, again, this, we've talked about the importance of the ground beef market and so on.
00:20:40.627 --> 00:20:46.778
Um, we simply cannot support that part of our industry in the US without imported beef.
00:20:46.792 --> 00:20:47.002
Hmm.
00:20:47.438 --> 00:20:56.728
I mean, if you had to grind up enough of the rest of the carcass, to try to support that, you wouldn't have any of the higher valued product left to, uh, to market as ground beef.
00:20:57.330 --> 00:21:05.161
And we've always done it, you know, we've got record high prices now with substantially increased imports the last couple of years because of the market we're in.
00:21:05.520 --> 00:21:06.215
Uh, and it's not.
00:21:06.976 --> 00:21:09.016
You know, we have what we have, right?
00:21:09.016 --> 00:21:11.715
Those imports are not undercutting our record market.
00:21:11.715 --> 00:21:12.885
In fact, they're supporting it.
00:21:13.151 --> 00:21:18.820
So, um, you know, we, we basically just don't need to fear trade, trade.
00:21:19.780 --> 00:21:24.070
International trade is no different than buying and selling stuff on Main Street.
00:21:24.760 --> 00:21:29.651
Trades happen in a market economy because both parties benefit from the trade.
00:21:29.770 --> 00:21:33.820
If it's, if it's allowed to happen naturally in a market setting.
00:21:34.421 --> 00:21:35.681
Markets find value.
00:21:36.431 --> 00:21:39.431
that's true for both beef exports and beef imports.
00:21:39.911 --> 00:21:42.550
And the industry's better off when we let trade work.
00:21:42.851 --> 00:21:48.010
Now you can tell, obviously I'm a very strong market economist, but, uh, I believe in markets.
00:21:48.010 --> 00:21:52.901
Markets do a lot of things really well, and very, very few cases that I'm aware of.
00:21:53.111 --> 00:21:55.871
When we mess with'em, do we make things better off on net?
00:21:55.871 --> 00:21:55.931
Yeah.
00:21:56.346 --> 00:21:56.576
Yeah.
00:21:56.665 --> 00:22:06.746
And, and that's the irony of the discussions that we've had in the industry for the last, I guess now 30 years, probably longer than that, but since the notion of mandatory country of origin labeling.
00:22:07.256 --> 00:22:21.383
Some of the most, I would say red-blooded American capitalists that I know are often opposed to the notion of imported beef or cattle, feeder cattle, whatever the case may be.
00:22:21.923 --> 00:22:33.292
And, uh, if, if you really look at it, if you take all the politics and you take all the passion and you take all the emotion out of it and look at it from an economist viewpoint.
00:22:33.682 --> 00:22:49.133
Um, yeah, it, it fuels what it is we do every day and pro and and maintains infrastructure in terms of feed yards and processing facilities and a retail base and, and all of that quote unquote supply chain that we talk about.
00:22:49.913 --> 00:22:58.012
That's how we get through these ups and downs of, of changing inventories and cow inventories and things like that domestically.
00:22:58.883 --> 00:23:00.833
Yeah, it's, that's exactly right.
00:23:00.833 --> 00:23:12.712
And, and for the most part, even though we've, you know, we, we talk around the edges here, um, and we've tried a couple things here and there, but for the most part, that trade picture, both beef imports and exports, is market driven.
00:23:13.522 --> 00:23:15.292
And it is, it does work.
00:23:15.292 --> 00:23:21.628
It's naturally, responsive to the market and it does exactly what you would expect it to do.
00:23:21.689 --> 00:23:26.669
And so in the current environment, we're exporting a little less'cause our supplies are tight, prices are high.
00:23:27.719 --> 00:23:51.868
and, and we're keeping a, you know, a higher proportion of our production home to service our primary domestic market, which is the, by far, the biggest part of the market and, and will be, uh, at the same time, you know, market demands are stimulating, increased imports, particularly to supplement that supply of non fed or lean processing beef that we need for the ground beef market.
00:23:51.898 --> 00:23:52.558
And, um.
00:23:54.088 --> 00:23:58.648
again, the market's working exactly like it's supposed to, and it, and it helps us when we let it work.
00:23:58.648 --> 00:24:01.719
So, you know, that's, that's where I come out on it.
00:24:01.824 --> 00:24:08.423
Yeah, this is probably not an original thought or, or um, analogy, but it just came to me.
00:24:09.983 --> 00:24:11.814
We run a cow calf outfit here.
00:24:12.114 --> 00:24:17.963
We raise our own hay and forage and even feed for the bulls that we develop.
00:24:18.999 --> 00:24:21.578
Most years we raise about the right amount.
00:24:22.838 --> 00:24:38.679
But in those years that we either increase our carrying or increase our inventory of cattle, or more likely decrease the amount of feed we put up in a summer or a fall, I reach out and I buy some hay.
00:24:39.219 --> 00:24:52.328
Hopefully not very much, but I, I go buy some hay on the, on the open market, but that allows me to maintain the cow herd and our customer base and, and revenue and everything else.
00:24:52.328 --> 00:24:54.999
And so it's a worthwhile quote unquote trade.
00:24:55.538 --> 00:25:01.479
Um, in times of low supplies, I go out there and buy a little extra hay and I go on and do my business.
00:25:01.479 --> 00:25:04.148
And, and that's what I think our beef industry has learned to do.
00:25:04.148 --> 00:25:05.528
Why not let it work?
00:25:06.503 --> 00:25:09.173
Yeah, I, you know, again, that's the nature of markets.
00:25:09.653 --> 00:25:21.114
Uh, there's so much variation, especially in agricultural markets because all of these things ultimately are tied to, you know, environments and outdoors and, and weather and the beef industry
00:25:21.249 --> 00:25:21.519
Right.
00:25:21.594 --> 00:25:28.314
so than a lot of other markets because still outdoors and certainly among livestock markets.
00:25:28.673 --> 00:25:36.753
And so we're subject to so much variability, not only in local areas or regions, but in total.
00:25:37.114 --> 00:25:43.923
And we just absolutely need that, that, uh, give and take that shock absorber nature that comes from.
00:25:45.588 --> 00:25:52.338
allowing us to make adjustments, uh, in any direction that we need to relative to that kind of variability.
00:25:52.423 --> 00:25:52.644
Yep.
00:25:53.989 --> 00:25:57.739
So we've, we've covered one fairly hot button issue amongst producers.
00:25:57.798 --> 00:26:05.028
Um, let's dive right into another one that, that I have seen, well, we've been watching it since the beginning of the beef industry.
00:26:05.479 --> 00:26:12.739
Consolidation, another word that has a stigma about it, that that big is always bad.
00:26:12.858 --> 00:26:20.598
And especially today, it's not just in the beef industry, it seems like everybody just loves to hate big whatever business, government you name it.
00:26:21.078 --> 00:26:23.058
Uh, the latter one I would support as well.
00:26:23.058 --> 00:26:36.949
But anyways, um, from a consolidation standpoint, in all segments, let's go through processing, feeding, even stocker operators and the grass side of things on the cow calf.
00:26:37.459 --> 00:26:43.519
Where do you see the most consolidation occurring according to the data, if you have it?
00:26:44.118 --> 00:26:46.669
In all of those different segments today?
00:26:46.909 --> 00:26:55.098
Not necessarily we'll talk histor historical perspective later, but, uh, right now, where do you see the most consolidation occurring in the cattle industry?
00:26:56.493 --> 00:27:07.534
Um, you know, in terms of short term trends in consolidation, I mean, we, we've got some long term trends that have been going on forever in terms of people talk about the number of farms and so on.
00:27:07.534 --> 00:27:11.493
Well, that's been going down since the colonists started on the east coast.
00:27:11.493 --> 00:27:11.794
Right?
00:27:11.854 --> 00:27:20.134
You know, where, uh, uh, we've not everybody's in agriculture anymore, and now we're down to, you know, one or 2% in terms of primary production.
00:27:20.564 --> 00:27:25.483
And so that's been going on for a long time in agriculture and in a lot of other industries.
00:27:25.534 --> 00:27:36.634
Frankly, um, in terms of, you know, in, in, in terms of more short term perspective, I don't know that I see, uh, a lot of consolidation.
00:27:36.663 --> 00:27:47.824
There's a lot of talk right now about obviously age of producers and the fact that, uh, you know, there's probably someran more trans, maybe more transition going
00:27:47.903 --> 00:27:48.324
Mm-hmm.
00:27:48.663 --> 00:27:49.864
in light of the market.
00:27:49.864 --> 00:27:51.334
And this is not a new thing either.
00:27:51.364 --> 00:27:56.104
I went back and looked in the last cyclical low in the last high prices we had.
00:27:56.554 --> 00:28:00.874
Um, we talked about the age of the producer and the, and the transition issues.
00:28:01.009 --> 00:28:01.219
Right.
00:28:01.443 --> 00:28:02.794
It's really a rolling thing.
00:28:02.794 --> 00:28:06.513
It's not a, it's not a one and done kind of a concept.
00:28:06.513 --> 00:28:07.834
It's a rolling concept.
00:28:07.834 --> 00:28:10.804
So it, it's there, it's been there, it's continuing.
00:28:10.804 --> 00:28:13.804
Maybe it's a little bit accelerated because of the market now.
00:28:14.134 --> 00:28:19.773
Um, and that, that there's a little more of that transition going on at the producer level.
00:28:20.733 --> 00:28:22.923
but in terms of what does that result in then?
00:28:22.953 --> 00:28:23.584
I'm not sure we
00:28:23.719 --> 00:28:24.138
Mm-hmm.
00:28:24.153 --> 00:28:31.173
I mean, um, you know, I get the question a lot about the a the impact of, of producer transition on markets.
00:28:31.173 --> 00:28:35.979
And honestly, it, in my mind, it's not, uh, not first and foremost a market issue.
00:28:36.888 --> 00:28:48.469
Because when an, when an older producer decides to transition out of the industry, you know, the vast majority of cases, the, the grass is still there.
00:28:48.528 --> 00:28:50.479
A lot of times the cows are still there.
00:28:50.898 --> 00:28:55.038
So it, you know, the only thing that's really changing maybe is the name on the mailbox.
00:28:55.098 --> 00:28:59.128
And so, it's, it's more of a people issue within the industry.
00:28:59.128 --> 00:29:00.628
It's a very important people issue.
00:29:00.628 --> 00:29:10.409
It's, you know, the demographics are changing and the composition of that, but it's probably not changing the overall resource base all that much and, and changing agriculture all that much.
00:29:10.618 --> 00:29:14.368
Now I know there's some that leaves and doesn't, you know, it goes out and so on.
00:29:14.848 --> 00:29:20.009
That's another question and really on a slightly different topic in terms of, of losing resources.
00:29:20.009 --> 00:29:24.885
But, there's a little bit of that going on as far as the higher levels of the industry.
00:29:24.976 --> 00:29:25.516
Um.
00:29:26.566 --> 00:29:35.236
I don't know that, that there's a, a rapid trend of any kind in terms of, you know, either stocker operations or cattle feeding operations.
00:29:35.236 --> 00:29:39.796
Obviously we've got some challenges of infrastructure, even at the cattle feeding industry.
00:29:39.796 --> 00:29:40.006
We've
00:29:40.236 --> 00:29:40.586
Right.
00:29:40.605 --> 00:29:42.135
example of that recently.
00:29:42.566 --> 00:29:48.506
And, and obviously at the packing industry, we are very consolidated, but we have been for 35 years
00:29:48.546 --> 00:29:48.965
Mm-hmm.
00:29:49.046 --> 00:29:52.855
it hasn't changed a great deal over that time period.
00:29:53.226 --> 00:30:07.395
And in fact, we just closed the plant and so on, we're, we're arguably a little bit less right now., I don't know that there's a, there's any real rapid trends going on at this moment that are different than what we've generally been in for a long time.
00:30:08.580 --> 00:30:25.530
So in that processing segment, as we've seen a few of these smaller regional boutique beef plants come online, do you see a trend that we actually reduce the consolidation in the feeding or in the processing industry?
00:30:25.921 --> 00:30:36.151
Or is are we in about the right economic balance where there can be room for both of those segments or the both of those types of processors?
00:30:36.361 --> 00:30:38.340
And we're probably gonna stay about where we are today.
00:30:39.810 --> 00:30:48.391
Well, I think, if you want to talk about consolidation in the packing industry, the first thing you need to do is back up and ask why do we have the structure we
00:30:48.441 --> 00:30:48.861
Mm-hmm.
00:30:49.260 --> 00:30:55.141
And, and I think a lot of people start with a presumption that the reason they're big is because they wanna mess with markets.
00:30:55.165 --> 00:30:55.455
Yeah.
00:30:55.621 --> 00:30:57.361
And that's absolutely not true.
00:30:57.750 --> 00:30:58.111
Okay.
00:30:58.111 --> 00:31:06.421
If you look across our economy, we have lots and lots of big companies and big consolidation in, in a lot of industries.
00:31:06.901 --> 00:31:13.980
And the driver of that is, is an economic, it's a, it's a, it's economies of size the driver of that.
00:31:14.010 --> 00:31:21.980
It's more efficient, uh, from a cost, standpoint and, and to some extent even from a marketing standpoint, in many cases.
00:31:21.980 --> 00:31:27.381
And so economics is the primary driver for why we have the industry structure we have.
00:31:27.990 --> 00:31:35.490
So if you start with that, then that changes the discussion because most of the concerns about consolidation start with a presumption that it's
00:31:35.820 --> 00:31:36.171
Right.
00:31:36.510 --> 00:31:39.730
and that they got there for, you know, bad reasons.
00:31:39.790 --> 00:31:45.701
And, and, and all of the research we have, and we've been, you know, we've been looking at packers for a hundred years.
00:31:45.701 --> 00:31:47.681
More formally in the last 50 years.
00:31:47.681 --> 00:31:53.590
There's been study after study, after study, uh, because it is a perennial concern and for good reason.
00:31:53.980 --> 00:31:54.461
Okay?
00:31:54.461 --> 00:31:59.500
It's you have that level of concentration, there's a concern that it could be misused.
00:32:00.115 --> 00:32:09.026
But in point of fact, study after study has shown that the net effect of the industry structure that we have is a benefit to producers and consumers.
00:32:09.986 --> 00:32:10.135
I,
00:32:10.435 --> 00:32:11.605
and that's still the case?
00:32:12.385 --> 00:32:12.566
yeah.
00:32:12.566 --> 00:32:17.635
I had a, uh, fellow producer one time make an observation.
00:32:17.756 --> 00:32:33.226
Um, he said, every time I hear folks lambasting the, corporate feed yard, or the packing plant or whomever for consolidating, for getting bigger, I ask them, have you ever bought any of your neighbor's operations?
00:32:33.556 --> 00:32:48.395
And he said the conversation usually stops pretty stinking quickly because consolidation makes opportunities for the good ones to get better and the inefficient ones to probably find something else to do.
00:32:48.486 --> 00:32:53.736
And, uh, as hard of a, of a fact as that is, it happens in all of our segments.
00:32:54.002 --> 00:32:55.262
Yeah, it really does.
00:32:55.262 --> 00:33:01.833
And again, if you go back to that premise of, you know, why we have what we have, it's driven by economic reasons.
00:33:02.479 --> 00:33:03.949
But it's a perennial target.
00:33:04.159 --> 00:33:04.368
Yep.
00:33:04.548 --> 00:33:14.249
It's, you know, there's such a big target, and particularly in this industry, just because of the cultural differences, between buyers and sellers, I guess, uh, is the way to say it.
00:33:14.338 --> 00:33:17.009
It's just, it's, it's a, it's almost a
00:33:17.114 --> 00:33:17.534
Mm-hmm.
00:33:17.638 --> 00:33:21.148
I don't think the industry would know what to do if we didn't have packers to hate on.
00:33:21.989 --> 00:33:27.239
so, you know, just, I, I, I think we'd be at a loss in some ways.
00:33:27.239 --> 00:33:28.439
It's such a cultural thing.
00:33:30.703 --> 00:33:33.403
and, and maybe it has some value for that, I don't know.
00:33:33.403 --> 00:33:34.659
But, uh, but
00:33:34.709 --> 00:33:35.848
find something, Dr.
00:33:35.999 --> 00:33:37.199
Peel, we'd find something.
00:33:37.213 --> 00:33:38.023
Think we would.
00:33:38.023 --> 00:33:39.163
I think we probably would.
00:33:39.163 --> 00:33:41.144
And that's just a natural tendency, I think.
00:33:41.743 --> 00:33:44.173
Um, and so I do wanna go back to something else though.
00:33:44.173 --> 00:33:55.753
You said, you know, the smaller, and we've seen some smaller or relatively smaller, certainly, um, you know, interest and so on, uh, come out of this, you know, and, and, and there's a place for some of those smaller
00:33:56.163 --> 00:33:56.364
Mm-hmm.
00:33:56.534 --> 00:33:57.673
Um, but they are higher
00:33:58.074 --> 00:33:58.364
Yeah.
00:33:58.604 --> 00:34:00.763
it's almost inevitable, okay?
00:34:00.763 --> 00:34:03.074
Those smaller entities are gonna be higher cost.
00:34:03.403 --> 00:34:16.844
But in certain cases where, um, you know, they've got the kind of market, if they've defined a market well, where there's demand that they can meet specifically and, and so on and so forth, there's no reason why those can't work.
00:34:16.844 --> 00:34:20.414
But they're gonna face an economic challenge, uh, inevitably.
00:34:20.679 --> 00:34:32.648
I don't think there's any, I, I don't think if we let things operate economically that there's any reason why we're going to fundamentally change the basic structure that we have today.
00:34:33.429 --> 00:34:34.659
We got there for a reason.
00:34:34.659 --> 00:34:46.898
In fact, you know, the, the big move in consolidation that happened in the 1980s, that that led to the basic concentration we have in the packing industry now was largely done with mergers and acquisitions.
00:34:46.989 --> 00:34:55.539
It was a lot of smaller firms that wound up getting put together under bigger entities, uh, because they were more efficient to do that.
00:34:56.378 --> 00:35:01.298
And, uh, and so, you know, again, that's why we got there and that's why we're still there.
00:35:01.378 --> 00:35:10.978
And, and it's particularly true in the beef industry simply because-- I made this point earlier, but I'll go back and emphasize it again.-- We don't produce one product in this
00:35:11.233 --> 00:35:11.653
Mm-hmm.
00:35:11.849 --> 00:35:14.878
produce thousands and thousands of different products.
00:35:16.094 --> 00:35:19.123
And, and if you wanna think, that's an easy marketing job.
00:35:19.393 --> 00:35:28.273
Um, I, I've talked to a number of these producers that have tried to do the small scale direct marketing kinds of things, and, uh, it doesn't take very long to do that.
00:35:28.273 --> 00:35:31.813
To find out that's a big chore because there's a lot of pieces to that animal.
00:35:31.813 --> 00:35:38.114
And finding a home for all of them that that's economically viable is not an easy task.
00:35:38.744 --> 00:35:48.284
And so the bigger scale operations have much more flexibility to market products literally all over the world in order to maximize the value.
00:35:48.423 --> 00:35:48.643
Yep.
00:35:48.643 --> 00:36:03.434
and I'll go back and emphasize a point I made earlier, markets find value and, uh, and it, and in the case of the beef industry, that's a big challenge because, uh, you know, un unlike most manufacturing processes, this is a disassembly process.
00:36:03.793 --> 00:36:10.934
We're taking a complex input that animal, and we're taking it apart into thousands of products and trying to market all the pieces.
00:36:11.414 --> 00:36:18.224
That's a much bigger marketing chore than taking a bunch of stuff and putting it together and building a car and selling one car.
00:36:19.304 --> 00:36:28.664
it just, uh, you know, uh, that's the way most industry works, uh, is assembly and this is a disassembly process and much more complicated because of that.
00:36:29.083 --> 00:36:30.673
Yeah, yeah, no doubt about it.
00:36:30.733 --> 00:36:40.153
Uh, when we talk about having to sell the off all and things like that, you've gotta have trucks or ships full of them to be able to efficiently
00:36:40.373 --> 00:36:40.643
Yeah.
00:36:40.824 --> 00:36:41.153
those.
00:36:41.213 --> 00:36:42.083
Yeah, no doubt.
00:36:42.324 --> 00:36:42.623
you know,
00:36:42.623 --> 00:36:45.684
As opposed to paying somebody to haul'em off as waste.
00:36:46.373 --> 00:36:47.543
Yeah, that's right.
00:36:47.643 --> 00:36:50.224
And particularly for these smaller packers, that's a huge
00:36:50.554 --> 00:36:51.003
Oh yeah.
00:36:51.123 --> 00:37:00.103
because in many cases, whereas, that drop credit offals on, uh, can be a value if you can get to the market.
00:37:00.284 --> 00:37:01.244
It's a cost.
00:37:01.244 --> 00:37:01.963
If you can't,
00:37:02.083 --> 00:37:02.233
Yep.
00:37:02.324 --> 00:37:04.693
there's no, it's not a, it's never zero.
00:37:04.724 --> 00:37:05.023
Right.
00:37:05.264 --> 00:37:07.034
It's either a plus or a minus.
00:37:07.063 --> 00:37:11.293
And in most cases, in the small, uh, case, it's, it's gonna be a minus.
00:37:11.293 --> 00:37:14.293
It's gonna be an additional cost that you have to deal with.
00:37:14.534 --> 00:37:35.447
Do you have data that would, and I know this is proprietary information, um, on their part, but do you have data that would estimate what it costs for, I'm just gonna say the big four packer, to process an animal, per head, what it costs them to get that turned into the products that they're gonna sell.
00:37:36.677 --> 00:37:49.577
You know, when we go, when we take a butcher beef somewhere, it's gonna be 800, 900, a thousand, maybe more than that dollars just to process that before we have the first pound of beef.
00:37:50.018 --> 00:37:52.597
What's it cost when you're doing it in a big four plant?
00:37:53.978 --> 00:38:04.358
Um, you know, roughly speaking, and of course I don't have exactly detailed information because it is proprietary, but, but we've, you know, there were studies years ago.
00:38:04.358 --> 00:38:08.557
Some of them are a little bit old now, but the relative things scale up and all that.
00:38:09.077 --> 00:38:14.027
It's gonna be about 30% of the values you just talked about.
00:38:14.177 --> 00:38:26.853
Yeah, and that's what I, I had heard 275 to 300 bucks a head kinda used, which is basically what the drop credit that they can receive is quite often.
00:38:26.853 --> 00:38:27.184
Right.
00:38:27.423 --> 00:38:27.664
Yeah.
00:38:27.664 --> 00:38:29.313
Historically, at least, um,
00:38:29.494 --> 00:38:29.673
Yeah.
00:38:29.673 --> 00:38:30.483
It may be different today.
00:38:30.514 --> 00:38:31.563
sure it's quite that good right
00:38:31.608 --> 00:38:31.849
Yeah.
00:38:31.938 --> 00:38:32.329
Yeah.
00:38:32.434 --> 00:38:33.574
values are almost,
00:38:34.943 --> 00:38:35.233
Zero.
00:38:35.403 --> 00:38:40.864
they're almost so bad that in, in some cases, they're almost having to pay to get rid of the hides.
00:38:42.244 --> 00:38:44.373
and, um, but that's a, that's a.
00:38:44.882 --> 00:38:47.222
Fluctuating market value and so on.
00:38:47.702 --> 00:38:59.597
Um, but yeah, it's gonna be, you know, it's gonna be a third, at on average, roughly, roughly speaking it, it probably costs the big guys about a third of, of what any small processor is is
00:38:59.603 --> 00:38:59.822
Yep.
00:38:59.838 --> 00:39:00.318
cost.
00:39:00.367 --> 00:39:13.717
And again, they also have the ability to find value for not only those byproduct things that, that are a cost, but, but just finding value for all those pieces.
00:39:13.958 --> 00:39:23.438
And I was gonna say that, you know, packers produce several thousand, uh, different products, you know, out of fabrication.
00:39:24.217 --> 00:39:37.208
And not only that, there is then if you go to the further processing and some of the distributor processor types and so on, those get further amplified by a factor of.
00:39:38.152 --> 00:39:41.782
I don't know, 10 or 20 terms of the number of products.
00:39:41.782 --> 00:39:52.552
And so the, the number of products this beef industry produces, nobody honestly knows for sure, but it's, it's, it's probably in excess of 50,000 different products.
00:39:52.563 --> 00:39:52.782
Wow.
00:39:53.842 --> 00:39:56.032
And so it's, it's an enormous challenge.
00:39:56.063 --> 00:40:06.802
And, and one of the things I was gonna say, when you think about packers over time and people, uh, there's some really dangerous, simple ways to try to look at packer margins that are not very useful.
00:40:07.103 --> 00:40:10.463
But one of the things you have to consider is that's changed so much over time.
00:40:10.463 --> 00:40:13.193
What they do, it's more efficient.
00:40:13.193 --> 00:40:19.193
We've incorporated more and more things back to the primary level of, of processing, right?
00:40:19.193 --> 00:40:25.193
So obviously if you go back to the early sixties, packers killed cattle and, and they marketed swinging, carcasses out the back
00:40:25.487 --> 00:40:25.838
Right.
00:40:26.483 --> 00:40:29.693
and all the, all the further processing was done somewhere else.
00:40:29.722 --> 00:40:33.713
Then they then box beef was a major revolution in the late sixties.
00:40:34.342 --> 00:40:39.503
Uh, IBP developed and, and really, uh, commercialized box beef technology.
00:40:39.952 --> 00:40:42.893
And that changed the world dramatically for a couple reasons.
00:40:42.893 --> 00:40:46.193
One is boxes stack and ship a lot more efficiently than swinging
00:40:46.387 --> 00:40:46.807
Mm-hmm.
00:40:47.452 --> 00:40:59.663
Uh, but more importantly that even at that level, you're already taking out some fat and some bone and so on, and you're doing that early in the process when you can A, have a better chance to market those products as byproducts.
00:41:00.023 --> 00:41:05.603
And b, you're not having to ship all that additional weight somewhere else for somebody else to trim it off.
00:41:05.873 --> 00:41:08.152
And if they do it on a small scale, they're gonna throw it away.
00:41:08.813 --> 00:41:11.693
And so, um, and then you just keep going.
00:41:11.693 --> 00:41:16.853
And so in, in the last 15 or 20 years, uh, you've got more and more products.
00:41:16.853 --> 00:41:19.702
You know, things are not primals, they're sub primals.
00:41:19.702 --> 00:41:23.693
Now they're, they're going out in boxes in retail ready packages.
00:41:23.693 --> 00:41:29.813
And, and so, you know, at the grocery store level, there's very few places now where you can find a butcher in the back room.
00:41:30.998 --> 00:41:43.507
and, uh, and, and, and you can lament that and, and there's certainly some trade offs to that, but at the same time, that's part of the overall industry efficiency is doing that stuff sooner in the process.
00:41:43.538 --> 00:41:51.338
And, uh, and, and all of that, uh, all that additional fabrication, uh, is taking place earlier in the process.
00:41:52.088 --> 00:41:58.208
And so, the, the bar has changed on what we're talking about when we talk about packers and what all they do.
00:41:58.597 --> 00:42:03.128
It's a continually bigger set of, of things that they do and services that they
00:42:03.608 --> 00:42:08.588
yeah, that's, that's a really, really good point and one that I haven't heard brought up very often.
00:42:08.588 --> 00:42:26.563
But basically we shifted the service of breaking down a carcass into saleable cuts from the retail segment to the processing segment when we went from swinging beef to quarters to boxes, and now to case ready in a lot of cases.
00:42:27.224 --> 00:42:28.153
So.
00:42:28.813 --> 00:42:41.594
The processor has now either recouped a little bit more for what it is that they, uh, are providing in terms of service, or they lose a little bit more when the retailer would've been losing that.
00:42:41.594 --> 00:42:42.914
Um, 30 years ago.
00:42:44.143 --> 00:42:45.614
We talked consolidation.
00:42:45.614 --> 00:42:47.054
That brought us to that point.
00:42:47.233 --> 00:42:54.373
There is a hint of consolidation between segments, those being the retail and the processing segment.
00:42:54.463 --> 00:43:11.083
Um, sizable retailer, the largest retailer, has significantly invested in processing facilities, uh, frurther processing up around Kansas City area and what 50% ownership in, in one of these new startup plants in Nebraska.
00:43:11.923 --> 00:43:16.514
What does that spell for the industry going forth?
00:43:16.603 --> 00:43:25.063
Um, I mean, we might as well say it when Walmart is invested in the supply chain of the beef industry from an economist's stand.
00:43:26.528 --> 00:43:31.599
I would say it's, it's kind of the same thing that you, that we sort of talked about before.
00:43:31.599 --> 00:43:46.353
I mean, anytime you have, uh, that level of concentration, you're gonna keep an eye on it because, even though I made very strong statements, and they're very true about the net value of concentrated industries, they do come with a risk that,
00:43:46.387 --> 00:43:46.737
Right,
00:43:46.742 --> 00:43:48.782
they're big enough to, to mess with things.
00:43:49.833 --> 00:43:57.512
it turns out that their ability to do that and their motivation to do it is much more limited than everybody thinks it
00:43:57.557 --> 00:43:57.907
right.
00:43:58.293 --> 00:44:10.592
But, uh, uh, but you know, as a general rule, I mean, you know, economists would say, yeah, we need to keep an eye on these things and we need to periodically study them and, and make sure that things have not changed.
00:44:11.072 --> 00:44:13.952
Uh, and I think that would be true in this case as well.
00:44:13.983 --> 00:44:19.413
Again, I think the motivation for Walmart to do this is not to control the beef industry.
00:44:19.907 --> 00:44:31.568
It's to be able to, control a supply chain or to, to, to have a, a supply chain that allows them to, to market, products more, more efficiently and for higher value.
00:44:31.668 --> 00:44:34.847
You know, they started, they actually put in a processing facility in
00:44:35.088 --> 00:44:35.538
Georgia.
00:44:35.568 --> 00:44:37.097
Mm-hmm.
00:44:37.103 --> 00:44:37.193
Mm-hmm.
00:44:37.217 --> 00:44:38.447
was kind of their first one.
00:44:39.467 --> 00:44:48.947
Again, beef is lots of different products and you know, you might remember, I have to go back and look at what year it was, 2011.
00:44:48.947 --> 00:44:57.677
Somewhere along in there, there was a fairly big ripple effect in the market and big news for a few days that Walmart was gonna start marketing choice
00:44:57.972 --> 00:44:58.393
Mm-hmm.
00:44:59.898 --> 00:45:00.318
Right.
00:45:00.407 --> 00:45:09.467
And, um, and, and if you look at what really happened there, and, and I don't get this from them, this is just observing it from the outside, um.
00:45:09.902 --> 00:45:15.902
You know, prior to that and, and, and in general in the industry, prior to that we had lots of retail beef marketing.
00:45:15.902 --> 00:45:17.643
That was what we called no roll.
00:45:17.797 --> 00:45:18.217
Mm-hmm.
00:45:19.262 --> 00:45:19.682
Right?
00:45:20.132 --> 00:45:32.822
Uh, and then we, you know, eventually we started grading a lot of it, but we didn't, we didn't market it necessarily under grading, if particularly if it was Select Because that was no role and, and so on.
00:45:33.242 --> 00:45:46.293
But what's evolved is, is that, um, and, and when people talk about the choice select spread and all of that, you know, the real break in this market is not choice and select, it's between low choice and upper two thirds
00:45:46.398 --> 00:45:46.748
right.
00:45:47.583 --> 00:45:53.552
Almost all of your premium beef programs are focused on upper to upper half or upper two thirds choice.
00:45:54.902 --> 00:46:03.032
basically what Walmart did, uh, this is my version of what I think they do, they sort of said, you know, that low choice market's just kind of low hanging fruit.
00:46:03.932 --> 00:46:04.773
it's sitting there.
00:46:04.833 --> 00:46:08.193
We can, we can move up from select to low choice.
00:46:08.583 --> 00:46:14.853
It arguably is not necessarily a big step in quality, but it's a big step in marketing
00:46:15.168 --> 00:46:15.588
Mm-hmm.
00:46:15.632 --> 00:46:17.762
now we can market it as choice beef
00:46:17.827 --> 00:46:18.047
Yep.
00:46:18.273 --> 00:46:19.202
and it is choice beef.
00:46:19.202 --> 00:46:20.793
That's the way the grading system works.
00:46:21.342 --> 00:46:30.702
And the beef industry probably benefited from that because we found a, a place to utilize that low choice product in a way that was better than what it had been been used before.
00:46:31.652 --> 00:46:41.463
My point is that those kinds of opportunities, uh, for marketing, those are all the things ultimately that add value to the industry that, uh, that we all benefit from.
00:46:42.137 --> 00:46:51.527
Well, I'm old enough to remember, and I thought maybe this was where you were going in the late nineties, right before I think as I like to say, the turn of the century.
00:46:51.858 --> 00:46:56.572
Um, Walmart came out with their house branded beef.
00:46:56.623 --> 00:47:04.349
I think it was a partnership with IBP at the time, and it was a atmosphere sphere packaging.
00:47:04.349 --> 00:47:06.563
They'd injected something in their, there you go.
00:47:06.563 --> 00:47:18.036
Modified at MAP and it was absolutely trash beef that they were trying to upgrade and sell as good enough by tenderizing it and by whatever else.
00:47:18.335 --> 00:47:20.255
And they put a lot of money into.
00:47:21.380 --> 00:47:27.590
It absolutely fell on its face and they learned a valuable lesson.
00:47:27.920 --> 00:47:38.331
And the ability of Walmart, who was supposedly everyday low prices, they were just trying to cut every cost out and sell it cheaper than anybody else.
00:47:38.630 --> 00:47:43.041
They learned a valuable lesson that beef is not the place that you compromise on quality.
00:47:43.460 --> 00:47:57.710
And when they came back and first said, we're gonna be selling choice and not select, instead of selecting probably no roll, like they were in that, in that, uh, branded program and now in some segments trying to sell Prime,
00:47:58.760 --> 00:47:59.001
Yeah.
00:47:59.420 --> 00:48:06.771
they have in a microcosmic way, they have told the story of what beef can do.
00:48:07.130 --> 00:48:14.300
And what quality beef can do, and that is drive sales in every other aisle and around the perimeter of their store and everything else.
00:48:14.300 --> 00:48:16.701
I mean, I've, I've used it before on this podcast.
00:48:17.090 --> 00:48:18.771
We're almost a loss leader.
00:48:18.831 --> 00:48:30.951
I think the way I understand that notion in Walmart's eyes, we've, we want to be what gets people in the door for them, or they want us to be what gets folks in the door.
00:48:30.951 --> 00:48:37.791
So they'll go and buy the higher dollar bottle of wine and olives and mushrooms and everything else that they can make a bigger margin on.
00:48:37.791 --> 00:48:40.431
And what a great place to be as an industry.
00:48:40.940 --> 00:48:43.791
Uh, they don't care if they make a bunch of money off their beef.
00:48:43.851 --> 00:48:46.971
They'd like to, but uh, they just wanna get people in the door,
00:48:47.076 --> 00:48:47.856
much per unit.
00:48:47.931 --> 00:48:48.201
right.
00:48:48.215 --> 00:48:49.596
have to make as much per unit.
00:48:49.655 --> 00:49:00.945
Uh, for one thing, it's a, it's a, it's a high valued product to begin with, it, and it's a high, it's a high valued, uh, chunk of the store, if you will, in terms of total dollar sales.
00:49:01.606 --> 00:49:11.356
But to your point, and, and there's been some stuff, I don't have exact statistics, but on how many dollars, um, beef adds to every cart
00:49:11.760 --> 00:49:12.001
Mm-hmm.
00:49:12.646 --> 00:49:16.965
from, from the consumers that come to the store to buy the beef, to your point.
00:49:16.965 --> 00:49:18.735
And so, yeah, that's exactly right.
00:49:18.815 --> 00:49:21.905
And again, it, it's, we we're coming full circle to some extent.
00:49:21.905 --> 00:49:29.106
'cause we said earlier that the, the, the, the other half of that story is what the beef industry has done to raise the quality of
00:49:29.201 --> 00:49:29.550
Right.
00:49:29.945 --> 00:49:36.275
with, you know, routinely producing 85, 80 6% choice and better beef now, you know.
00:49:37.090 --> 00:49:41.231
It was not that long ago that it was 55 or 60%.
00:49:41.811 --> 00:49:49.590
So we've, we've, you know, the product's there and, we are creating a lot more value and it, and it, it's pretty easy to market that stuff.
00:49:49.601 --> 00:49:56.677
But things like places like Walmart and honestly, Walmart started some of that stuff in the Southeast.
00:49:56.677 --> 00:50:05.557
I think partly because, and I'll, I, I shouldn't probably use names, and I don't have a lot of detail, but just in general, you know, that's a stronghold of Publix
00:50:05.807 --> 00:50:06.228
Mm-hmm.
00:50:06.458 --> 00:50:10.027
and I don't know if you're familiar with them, but they're a pretty unique grocery chain.
00:50:10.740 --> 00:50:18.541
and I think in order to compete better with them, I think that's part of the reason Walmart started some of this higher valued beef marketing stuff in the southeast.
00:50:18.871 --> 00:50:20.070
That's my observation.
00:50:20.101 --> 00:50:24.780
I can't, I can't definitively say that's for sure, but that's what it looks to me like.
00:50:25.201 --> 00:50:33.001
And so, you know, again, everybody, uh, as you said, raising the tide for everybody here to some extent, uh, through that process.
00:50:33.001 --> 00:50:48.240
And now you've got Walmart doing these other ventures and I think it's because they've figured out that to the extent that they can develop supply chains and supply chain relationships that help them ensure that quality of beef, uh, they're better off and we're all better off.
00:50:48.931 --> 00:50:50.431
Yeah, no, no doubt about it.
00:50:50.731 --> 00:50:55.981
You mentioned choice Select spread in in, uh, the conversation there last week.
00:50:56.195 --> 00:51:00.001
I think it was that it inverted as it occasionally does.
00:51:00.541 --> 00:51:05.880
at what point do we say, you know, what, or at what point will the packer say We talked about no roll.
00:51:06.030 --> 00:51:07.840
When does select become no roll?
00:51:07.860 --> 00:51:10.050
Because it's not worth any longer.
00:51:10.561 --> 00:51:14.880
Paying that USDA greater to stamp it on there when there isn't much of a market for it.
00:51:14.880 --> 00:51:25.851
And at that time, do we then turn to a CAB choice or mid choice, upper two thirds choice, choice spread in our industry lingo?
00:51:26.389 --> 00:51:28.010
You know, that's an interesting question.
00:51:28.010 --> 00:51:35.719
I mean, obviously there's a, there's a sort of an administrative discussion there about how you would go about making those changes in the grading system.
00:51:35.974 --> 00:51:38.059
And, and I don't know how that would come about.
00:51:38.059 --> 00:51:39.199
I think it would be a fairly,
00:51:39.574 --> 00:51:39.965
Yeah.
00:51:40.250 --> 00:51:41.420
lengthy process
00:51:41.434 --> 00:51:43.235
Especially when government's involved.
00:51:44.000 --> 00:51:47.030
put a new, put a new split in the market.
00:51:47.119 --> 00:51:51.710
Uh, I think within the industry, everybody sort of understands the things we're talking about here.
00:51:52.139 --> 00:52:00.559
And I mean, get data now on ungraded beef, ungraded now actually doesn't mean what it always did.
00:52:00.559 --> 00:52:02.480
There was a time when ungraded was no roll.
00:52:02.675 --> 00:52:02.795
Right.
00:52:03.110 --> 00:52:06.440
And it, and it was, you could assume a quality associated with that.
00:52:07.340 --> 00:52:22.300
to the extent that you've got more programs of high quality or, you know, quality programs that are not based off of, or are not marketed based off of, official grades or USDA grades, they're, they're not bothering to grade it.
00:52:22.420 --> 00:52:24.730
But that doesn't mean it's a lower quality product.
00:52:24.730 --> 00:52:26.800
It just means they've got a different marketing scheme.
00:52:26.860 --> 00:52:26.980
I
00:52:26.980 --> 00:52:27.159
Yep.
00:52:27.579 --> 00:52:33.639
we use commodity grades as a default when we can't do better, if you wanna think of it that way.
00:52:33.639 --> 00:52:36.940
And I don't mean that to, to make it sound like the grades are not valuable.
00:52:36.940 --> 00:52:38.019
They're very valuable.
00:52:38.199 --> 00:52:53.139
But in commodity ag, most commodity ag products started with some sort of commodity grading system to provide a, a benchmark, if you will, uh, in the absence of more product differentiation and more product branding.
00:52:53.739 --> 00:52:56.860
Um, you know, obviously the chicken industry, it's all branded,
00:52:56.875 --> 00:52:57.295
Mm-hmm.
00:52:57.445 --> 00:52:57.735
Yeah.
00:52:58.420 --> 00:52:59.980
Um, you know, most.
00:53:00.045 --> 00:53:00.795
Eggs.
00:53:00.914 --> 00:53:10.695
Now, there's a few that are still sold as the, you know, USDA graded, but a lot of those are branded, uh, mo A lot of the pork now is branded.
00:53:10.994 --> 00:53:14.295
In fact, probably the majority of it is in many cases.
00:53:14.744 --> 00:53:18.315
Again, beef is harder because it's a much more complicated animal.
00:53:18.315 --> 00:53:20.324
We produce a much bigger set of products.
00:53:21.195 --> 00:53:34.724
And so it's, it's a, it's a bigger challenge, but we are seeing that that segment has grown, that, that that ungraded or that, uh, or sometimes it's graded and, and the, the USDA grade is incorporated into some sort of proprietary
00:53:34.945 --> 00:53:35.295
Right.
00:53:35.355 --> 00:53:36.675
will, or program grade.
00:53:36.925 --> 00:53:41.184
But the point is, you know, ultimately that's a developmental issue.
00:53:41.994 --> 00:53:43.074
You can make the argument.
00:53:43.074 --> 00:53:51.610
That's kind of the goal of a commodity grading program is to eventually become not necessary, and sort of work its way out of,, out of necessity.
00:53:52.315 --> 00:54:00.445
And with all that product differentiation we see today, grass fed, non-hormone treated, no antibiotics, never ever a GAP 4...
00:54:00.445 --> 00:54:01.045
You name it.
00:54:01.045 --> 00:54:13.311
All these different programs, quote unquote, that quite often were started from a at least perceived consumer demand and then passed back through to encourage producers to fit for that.
00:54:14.936 --> 00:54:17.786
Do you, I think I'm interpreting your comments, right?
00:54:17.786 --> 00:54:30.266
Do you see us moving away from at least using that USDA grading system in marketing those to the consumer and possibly doing away with it completely?
00:54:30.686 --> 00:54:34.420
And if so, what's the timeline for that in your crystal ball?
00:54:34.460 --> 00:54:34.590
your spective?
00:54:35.815 --> 00:54:42.746
Well, I, I think that's a, that's a path that you could argue in and, and some commodities have followed that.
00:54:43.436 --> 00:54:46.346
But realistically, I don't think it's gonna happen anytime
00:54:46.581 --> 00:54:46.871
Okay.
00:54:46.976 --> 00:54:47.996
think we'll continue.
00:54:48.146 --> 00:54:55.016
I think it's a good thing that we continue to see around the edges of that these, these, uh, value added programs.
00:54:55.445 --> 00:55:02.826
I don't wanna call'em niche programs, although in most cases they are realistically, I mean, they're small, uh, but they have value.
00:55:02.826 --> 00:55:16.445
And, and you know, and that kind of relates back to the earlier comments about small processors, if that's all done right as a, you know, coordinated, well planned and executed that can work well.
00:55:16.775 --> 00:55:20.135
But are we gonna work our way out to away from commodity grading beef?
00:55:20.856 --> 00:55:23.465
I don't, certainly not, uh, anytime soon.
00:55:23.610 --> 00:55:23.900
Okay.
00:55:24.065 --> 00:55:25.416
gonna be a lengthy process.
00:55:25.686 --> 00:55:37.050
And I think what's good here is, and what you would hope would happen is that we continue to provide incentives for people to sort of chip away around the edges finding ways to do those value added programs.
00:55:37.530 --> 00:55:40.411
One of the problems with the beef industry or one of the challenges?
00:55:40.411 --> 00:55:42.630
Not a problem, it's just, it is what it is.
00:55:42.630 --> 00:55:48.451
But one of the challenges is that, uh, the way I look at it, you know, cattle are very different
00:55:49.016 --> 00:55:49.175
Mm-hmm.
00:55:49.291 --> 00:55:50.940
raise'em in lots of different environments.
00:55:50.940 --> 00:56:01.530
So we have this wide range of, hate to say qualities'cause it's not so much qualities just variation in the kinds of cattle and the way they work and the environments they have to work in.
00:56:01.710 --> 00:56:05.101
So we got all this variation out there that's quite, quite specific.
00:56:05.101 --> 00:56:08.130
You can think of that in some sense as, as a type of differentiation.
00:56:09.481 --> 00:56:16.471
Then we get to basically the cattle feeding and the packing sector where things are much more complicated or much more concentrated.
00:56:16.561 --> 00:56:27.481
And they're concentrated, as we said, because of the, the economies of size and the efficiencies of treating them as much as possible, like commodities at that point.
00:56:28.501 --> 00:56:28.800
Right.
00:56:28.800 --> 00:56:31.710
So we, we sort of take something that's very differentiated.
00:56:32.581 --> 00:56:38.460
kind of make it like a commodity so we can maximize the cost efficiencies of handling it in large scale systems.
00:56:38.641 --> 00:56:45.181
And then once you pull the hide off of that animal, you turn it back into this vast array of differentiated products.
00:56:45.871 --> 00:56:49.860
And so the industry's trying to do lots of things.
00:56:50.610 --> 00:56:54.900
trying to be different products, and then commodities and then different products.
00:56:54.900 --> 00:57:01.201
And, know, and again, that's, that's not a a, that's, that's not a bad thing or a good thing.
00:57:01.201 --> 00:57:02.010
It just is what it
00:57:02.235 --> 00:57:02.525
yeah,
00:57:03.181 --> 00:57:06.090
And I think it will continue to be one of the challenges of the industry.
00:57:06.090 --> 00:57:15.240
So, um, you know, it's, it one model would be more like the chicken model would be to integrate all of that differentiation from top to bottom.
00:57:16.351 --> 00:57:18.420
I don't think that's gonna happen in the beef industry.
00:57:18.476 --> 00:57:18.766
yeah.
00:57:18.931 --> 00:57:19.166
We hope not.
00:57:19.231 --> 00:57:21.990
think there's too much value in.
00:57:22.396 --> 00:57:22.965
Basically
00:57:23.061 --> 00:57:23.351
Yeah.
00:57:23.476 --> 00:57:27.496
we have right now, we're gonna work around the edges of it a bit at both ends.
00:57:27.976 --> 00:57:31.905
We've got some specialization at the pro, the primary production level.
00:57:32.115 --> 00:57:36.376
We've got some specialization in the product marketing level in the middle.
00:57:36.376 --> 00:57:45.795
It's gonna be pretty hard to beat those large scale cost efficient operations that, that, uh, that save the industry a lot of money, uh, going up and going down from those levels.
00:57:45.931 --> 00:57:48.945
And probably add a lot of value too, uh, as we look.
00:57:48.945 --> 00:57:49.246
lot of,
00:57:49.320 --> 00:57:49.530
And
00:57:49.576 --> 00:57:51.556
a lot of value and they save a lot of cost,
00:57:51.811 --> 00:57:53.971
it's every one of those margin operators.
00:57:53.971 --> 00:57:58.320
It's the stocker operator that commingles calves into more like groups.
00:57:58.320 --> 00:58:13.891
It's the feed yard who does the same, it's the packer who takes this menagerie of, of, grades and of sizes and everything else, and, and sorts them into boxes that hopefully when they hit that retail or food service backroom, they look the same.
00:58:13.891 --> 00:58:16.320
And, and those are services that I don't think we realize.
00:58:16.320 --> 00:58:33.061
We just think that those next margin operators, quite often, and I'm speaking as a cow calf producer, we think those margin operators that buy our calves, our cattle, uh, are, are just quote unquote growing them or just putting on more pounds, more marbling, more whatever else.
00:58:33.061 --> 00:58:42.451
But that differentiation, that sorting and putting things together may be a bigger value to us, and it trickles down eventually to us than we realize.
00:58:42.795 --> 00:58:43.695
Yeah, absolutely.
00:58:44.018 --> 00:58:45.038
That's exactly right.
00:58:45.038 --> 00:58:55.875
And you know, even at the, at that and packing level, we think about that and it, and, and we we're sort of described it as still being kind of commodity like, and, and
00:58:55.985 --> 00:58:56.204
Sure.
00:58:56.324 --> 00:58:59.744
you know, again, to take advantage of the large scale and the cost efficiencies.
00:59:00.105 --> 00:59:03.704
And yet you look at how much we've changed fed cattle pricing.
00:59:04.829 --> 00:59:11.639
I mean, one of the things that's a source of of controversy in some sense are, you know, alternative marketing arrangements we call'em now.
00:59:11.655 --> 00:59:11.864
Sure.
00:59:11.880 --> 00:59:16.170
interesting the way terminology's changed over time in the 1990s.
00:59:16.170 --> 00:59:23.010
There was, because we had seen, as you noted earlier, beef demand eroded through the seventies and the eighties.
00:59:23.309 --> 00:59:25.019
And we realized we had a problem.
00:59:25.079 --> 00:59:29.760
We were losing demand'cause we were not getting the job done from a value standpoint.
00:59:30.150 --> 00:59:33.119
So we, so we promoted value-based marketing
00:59:33.375 --> 00:59:33.594
Yep.
00:59:33.599 --> 00:59:40.889
to send better signals back to the primary producers, the cow calf producers to, to, uh, to improve quality of
00:59:41.125 --> 00:59:41.545
Mm-hmm.
00:59:41.760 --> 00:59:44.219
And so, so value-based marketing.
00:59:44.219 --> 00:59:50.250
Well then as soon as we started doing that, it led to changes in how fed cattle were priced,
00:59:50.474 --> 00:59:50.695
Yep.
00:59:51.030 --> 00:59:51.300
right?
00:59:51.300 --> 00:59:54.000
Because prior to that, you know,
00:59:54.125 --> 00:59:55.144
One size fits all.
00:59:55.170 --> 00:59:57.000
any motivation to lead that charge.
00:59:57.090 --> 00:59:57.150
If
00:59:57.414 --> 00:59:58.184
They didn't want to.
00:59:58.920 --> 00:59:59.369
they still
00:59:59.614 --> 00:59:59.905
Yeah.
01:00:00.135 --> 01:00:00.425
Yeah.
01:00:01.019 --> 01:00:08.969
I mean, if you're a big packer, you gotta kill'em all anyway, you know, the easiest way to do that is just to get the average right and buy'em all on the
01:00:09.284 --> 01:00:09.505
Yep.
01:00:10.079 --> 01:00:17.099
But what that doesn't do is, you know, that that doesn't reward the guys that are doing a better job of producing cattle and producing higher quality cattle.
01:00:17.369 --> 01:00:21.719
And it, and it over rewards the guys with, sorry cattle because they still get the average.
01:00:22.409 --> 01:00:26.789
And so that's what changed in coming out of the nineties with value-based marketing.
01:00:27.090 --> 01:00:35.670
Then we developed grids and formulas and other things that, that did improve those value signals significantly in this industry.
01:00:36.119 --> 01:00:43.110
But then all of a sudden we got worried about captive supplies and, uh, it, it's the same thing.
01:00:43.574 --> 01:00:43.784
Yeah.
01:00:43.835 --> 01:00:48.929
and, and, and, and then eventually we quit using the term captive supplies.
01:00:48.929 --> 01:00:53.250
Now we call'em alternative marketing arrangements, and they're generally viewed as a bad thing when in fact.
01:00:53.594 --> 01:01:08.894
They've probably explained a lot of the reason why we're so much better off today in terms of the quality improvement we've made in this industry, and the fact that we're enjoying tremendous consumer demand by providing them a much better product that they want, uh, consistently.
01:01:08.925 --> 01:01:12.704
And, uh, it's, it's a, it's a big reason why we are where we are today.
01:01:13.005 --> 01:01:19.155
I completely agree, and I've talked ad nauseum on this podcast, but somebody that is just tuning in.
01:01:19.875 --> 01:01:28.784
We quit rewarding folks for being a low cost producer and buying the profit in by getting undervalued cattle.
01:01:29.489 --> 01:01:34.050
Bought at a less value and then marketing them as average at the fed cattle level.
01:01:34.619 --> 01:01:40.170
because they went along with the pen next to'em that was gonna grade way better, yield way better, et cetera, et cetera, et cetera.
01:01:40.170 --> 01:01:45.989
We in incentivized the producer to do the right thing all the way from conception to consumption.
01:01:45.989 --> 01:01:47.159
And, and I, I agree.
01:01:47.219 --> 01:01:48.929
That's, that's why we are where we are.
01:01:49.125 --> 01:01:50.235
doing that much better.
01:01:50.235 --> 01:01:51.315
We still got a ways to go.
01:01:51.449 --> 01:01:51.719
Sure.
01:01:51.795 --> 01:01:52.335
challenge.
01:01:52.679 --> 01:02:02.219
You know, and, and, uh, and the fact of the matter is, uh, I've said this for years and years, a as long as anybody can make money with, sorry cattle, sorry cattle will never go away.
01:02:02.489 --> 01:02:02.699
Yep.
01:02:02.940 --> 01:02:03.360
That's right.
01:02:03.539 --> 01:02:07.800
and, and historically in this industry, more money's been made with sorry cattle than was ever made with good
01:02:07.905 --> 01:02:08.324
Mm-hmm.
01:02:08.639 --> 01:02:09.599
But we're getting better.
01:02:09.599 --> 01:02:19.380
We're moving towards the right way of rewarding those good cattle appropriately and encouraging production of those and hopefully discouraging production of the sorry cattle.
01:02:19.380 --> 01:02:21.750
And then, and they might go away eventually.
01:02:21.840 --> 01:02:23.969
Um, you know, there's lots of challenges.
01:02:23.969 --> 01:02:26.670
It's a big industry and we operate in lots of different environments.
01:02:26.875 --> 01:02:27.215
No doubt.
01:02:27.480 --> 01:02:31.860
uh, but we've, we've made a lot of progress in the last, uh, 30 or 40 years.
01:02:32.159 --> 01:02:32.940
I would agree.
01:02:33.030 --> 01:02:51.030
So every economist that I have on here for the last three years or whatever, I've, I've been, and you've walked right into this discussion, I was gonna give you a pass, but, uh, since you brought up value-based marketing, alternative marketing arrangements, captive supply, whatever, whatever, your political leanings, uh.
01:02:51.480 --> 01:02:55.769
Tend to, to, to term how we sell fed cattle today.
01:02:56.429 --> 01:03:16.724
Most of those arrangements are based off of a base price that is generally a cash price in that region, western Kansas, Texas panhandle, Nebraska, whatever the case may be, cash cattle in that region up and down from there is, is where those values are associated?
01:03:17.264 --> 01:03:22.425
Do we still do, and this discussion gets brought up every time the fed cattle price goes down.
01:03:22.425 --> 01:03:27.164
Now when it is 2 35 or wherever we are this week, no one talks about that.
01:03:27.164 --> 01:03:32.715
We do a terrible job of, of establishing that quote unquote average cash price.
01:03:33.284 --> 01:03:42.554
Do we do, do we have enough cattle in that arena to still continue to use that going forth as the base for value-based marketing?
01:03:43.605 --> 01:03:48.494
Yeah, so what you're talking about is what economists would call price discovery as opposed to price determination.
01:03:48.525 --> 01:03:48.735
Okay.
01:03:48.735 --> 01:03:53.744
Supply and demand determine price levels, but how do we know what that price level is at any point
01:03:53.804 --> 01:03:53.954
Yep.
01:03:54.014 --> 01:03:54.585
in the market?
01:03:54.585 --> 01:03:55.815
And that's price discovery.
01:03:56.235 --> 01:03:56.775
And,
01:03:56.929 --> 01:03:57.150
Yep.
01:03:57.195 --> 01:04:03.335
and, and I, I'll just say this upfront, I mean, that is a, that's a source of continuing, research on the part of economists.
01:04:04.505 --> 01:04:06.905
it comes under the broad heading of thin markets.
01:04:06.905 --> 01:04:09.574
And, and the real question, of course, is how thin is too thin.
01:04:10.150 --> 01:04:12.280
And it's not a simple answer.
01:04:12.311 --> 01:04:22.840
It's not a, there's no magic formula that says you need this percentage of the cattle or any product traded in, in a cash basis to have viable price discovery.
01:04:23.371 --> 01:04:25.231
There's a lot of things that can affect that.
01:04:25.710 --> 01:04:28.291
Um, and, and, and I'll say two things.
01:04:28.291 --> 01:04:36.960
One is that, that I do think that's a very legitimate concern that we must continue to monitor and try to, from our standpoint, research.
01:04:37.485 --> 01:04:40.996
Uh, in terms of making sure that we don't get too thin.
01:04:41.416 --> 01:04:54.135
But the other side of it, uh, is that the research we have in lots of different markets and so on, is that it's probably the, the answer of how thin is too thin is it's probably a lot thinner than a lot of people think it is.
01:04:54.916 --> 01:05:09.076
You don't need a huge percentage of, of anything traded in a market usually to, to real, to really understand the underlying supply and demand factors that determine that price level.
01:05:09.085 --> 01:05:09.376
Yeah,
01:05:09.735 --> 01:05:13.065
Um, you know, it's, I, I've used this analogy before.
01:05:13.365 --> 01:05:19.425
If you go to the farmer's market every week and there's 10 guys selling sweet corn out of the back of a pickup,
01:05:19.815 --> 01:05:20.516
you're gonna back.
01:05:20.536 --> 01:05:25.666
really need to talk to all 10 of them to figure out what the value of sweet corn is, right?
01:05:26.445 --> 01:05:35.476
You talk to one, maybe two, and, and you know what the price of sweet corn is this week, and, and, and from week to week, it's probably not gonna change a whole lot unless something dramatic happens.
01:05:35.911 --> 01:05:40.621
There was a bug infestation or something that really dramatically changed the supply demand conditions.
01:05:40.981 --> 01:05:47.190
Uh, it doesn't take a big percentage of of price discovery there to know what that market is.
01:05:47.521 --> 01:05:49.530
And I think, you know, that's the point here.
01:05:49.771 --> 01:06:08.880
But it is a very, I, I'm much more, as an economist, I would be much more, um, concerned on an ongoing basis about monitoring and researching and continuing to evaluate, price discovery and, and market, uh, uh, thinness, um, as opposed to worried about packer concentration.
01:06:09.240 --> 01:06:09.751
Okay.
01:06:10.141 --> 01:06:17.971
Um, uh, I think, I think the thin market and, and it's simply because of the way we have chosen to market cattle.
01:06:18.150 --> 01:06:20.431
We don't have to have cash prices.
01:06:20.880 --> 01:06:26.070
I mean, there are industries that operate just fine without publicly reported cash prices.
01:06:26.431 --> 01:06:26.791
Okay.
01:06:26.791 --> 01:06:34.530
There's other ways to do it, but if you're gonna do it, as you said, if we're gonna use these alternative marketing arrangements that are based on a.
01:06:34.965 --> 01:06:46.335
Base price of whatever it is, then that base price certainly does need to be an effective, viable, uh, cash price or, or, you know, uh, representation of the underlying market value.
01:06:47.085 --> 01:06:48.045
so without
01:06:48.320 --> 01:06:48.925
Literally changing
01:06:49.096 --> 01:06:52.065
a whole lot of things, uh, and I think there's value in that.
01:06:52.065 --> 01:06:54.945
There's value in having publicly reported prices.
01:06:55.335 --> 01:06:58.186
Um, but they, they're a little bit of a public good.
01:06:58.425 --> 01:07:14.596
Um, you know, a lot of people have an incentive not to participate in providing that, that publicly reported price, because for them, uh, personally, it's more economically efficient to utilize a formula and let somebody else come up with that base price.
01:07:15.436 --> 01:07:16.215
that's the dilemma.
01:07:16.215 --> 01:07:19.485
And that's a very real dilemma that, that economists are concerned about.
01:07:19.485 --> 01:07:24.436
And that's something that we continue to watch very, very closely, uh, and continue to look at.
01:07:24.465 --> 01:07:26.715
And, uh, I don't think we have a problem right now.
01:07:27.106 --> 01:07:31.155
Um, but I do think we have to, we have to monitor that, um.
01:07:32.505 --> 01:07:41.085
Particularly, I mean, I would, I, I don't wanna say particularly, but, but it's even more so when you look at some of the regional, some of the regional, uh, issues.
01:07:41.221 --> 01:07:42.541
Yeah, the Texas panhandle.
01:07:42.585 --> 01:07:46.036
a lot of variation in the way the fed cattle industry works in different regions.
01:07:46.036 --> 01:07:52.876
So, so yeah, I think that's probably a very legitimate, uh, one that, that uh, we continue to, to monitor very closely.
01:07:53.340 --> 01:07:59.070
Yeah, the Texas panhandle always gets the brunt of those, of those blames because It is pretty thin.
01:07:59.748 --> 01:08:05.807
But look at what has happened, and this is, this part is a supply driven thing, I believe.
01:08:06.407 --> 01:08:19.307
Look at what has happened to those yards since we closed the border because of the new world screw worm, and they have so many fewer Mexican cattle that we're generally fed and processed in that Texas panhandle area.
01:08:20.313 --> 01:08:24.722
They were positive Nebraska on a cash price.
01:08:25.052 --> 01:08:25.832
Maybe still are.
01:08:25.832 --> 01:08:39.722
I haven't looked re recently, but that tells me that, that that market still responds to the supply and demand fundamentals, even though there are as few cattle being harvested or or being sold in cash in Texas Panhandle.
01:08:39.768 --> 01:08:40.188
expanding.
01:08:40.488 --> 01:08:40.757
Yeah.
01:08:40.757 --> 01:08:40.768
Yeah.
01:08:41.047 --> 01:08:41.337
Yeah.
01:08:41.387 --> 01:08:48.677
And, and again, that, that sort of illustrates, uh, you know, where we started this is that, uh, you know, markets work very well.
01:08:48.738 --> 01:08:54.978
Sometimes what we wanna monitor is, is, is more of a challenge, but that doesn't mean the market's not
01:08:55.287 --> 01:08:55.578
Yeah,
01:08:55.962 --> 01:09:03.047
It, it sometimes means that we don't necessarily see the things or, or have the information publicly available that we would like to have.
01:09:03.347 --> 01:09:13.698
But again, have some choices here and, and, and if we want to have publicly reported prices, we need to make sure that they are effective and that we have a, a way to get those.
01:09:14.478 --> 01:09:16.967
so, um, but I think it's there.
01:09:16.967 --> 01:09:18.738
It's, you know, as you said, the market's still
01:09:18.927 --> 01:09:19.217
Yeah.
01:09:19.368 --> 01:09:19.757
Um.
01:09:20.853 --> 01:09:22.832
are pretty resilient and they're pretty resourceful.
01:09:23.672 --> 01:09:27.813
it's pretty darn hard to stop market forces, uh, even when you want to.
01:09:28.145 --> 01:09:29.826
They, uh, they'll find a way
01:09:30.400 --> 01:09:40.595
Uh, and, and for the last five years they have in the beef industry anyway, they have found a way up and to the right year after year after year.
01:09:41.286 --> 01:09:48.462
And it's beat anything I've ever seen as far as a bull run in any commodity, but especially in our beef segment.
01:09:49.332 --> 01:09:55.182
If that had been down and to the right, um, your job wouldn't be near as much fun.
01:09:55.182 --> 01:09:57.853
And we would be pointing the finger at everything.
01:09:57.853 --> 01:10:02.922
But as it is, we're nodding in agreement with the market forces and saying, well, it's about damn time.
01:10:03.073 --> 01:10:03.222
Yeah.
01:10:03.610 --> 01:10:04.707
Yeah, yeah.
01:10:04.768 --> 01:10:05.278
That's right.
01:10:05.757 --> 01:10:06.778
That's exactly right.
01:10:06.778 --> 01:10:08.097
And, and well stated.
01:10:08.158 --> 01:10:19.167
The only thing that's an interest as an economist, interesting and, and admittedly sometimes frustrating, is that we can't, you know, I get frustrated when people only want markets to work one direction.
01:10:20.547 --> 01:10:26.547
You know, I don't think that's, I don't think that's really reasonable to, uh, uh, to have that.
01:10:26.547 --> 01:10:41.097
And, and you know, it's a little like when I used to teach our intro to ag econ class, I would tell students that, you know, the nature of markets is that if you do good things and you're efficient and you're doing something that people want from the standpoint of demand, you get rewarded.
01:10:41.908 --> 01:10:52.273
On the other hand, if you're doing something that nobody cares about or you're doing it badly, or whatever, the market's job is to take that away from you and give those resources to somebody who will do it better.
01:10:52.842 --> 01:10:53.052
Yep.
01:10:53.667 --> 01:11:00.778
And, um, that process is always painful and it never is fun and, and nobody likes that part, but that the market works both ways.
01:11:00.778 --> 01:11:03.207
I mean, this thing, this thing cuts both directions.
01:11:03.658 --> 01:11:23.007
Time I hear someone on our row crop side of things talk about needing the government to step in and help with the, the situation that they're in today, I just shake my head and as a free market capitalist, I go, the government is why you are where you are today.
01:11:23.097 --> 01:11:29.488
It's why I switched all of our corn and bean ground to forages a year to five years ago.
01:11:29.488 --> 01:11:37.467
It it, it's not allowing producers to make rational decisions when the government intervenes and messes with the market.
01:11:37.497 --> 01:11:52.273
'cause we have a huge global glut of corn, wheat, and beans and the, the market is trying to tell folks that and say it might be a better idea to run cows or whatever on those, on those marginal acres.
01:11:52.273 --> 01:11:53.172
And, um, yeah.
01:11:53.203 --> 01:11:56.773
So that's, a whole nother podcast, probably.
01:11:56.908 --> 01:11:57.118
podcast.
01:11:57.118 --> 01:11:58.287
It is a whole other podcast.
01:11:58.287 --> 01:12:11.488
And, and this is, but to follow up the statement I just made, uh, you know, I would say in a very broad brush, uh, simplistic way, if you never let anybody go broke, there'll never be any real profitability for anybody in that industry.
01:12:12.515 --> 01:12:22.295
You know, that's kind of what you just said, is that if you, you know, if you institutionalize inefficiency and bad incentives, then it's not gonna work for anybody.
01:12:22.640 --> 01:12:22.880
Yep.
01:12:23.149 --> 01:12:24.319
Well that's,
01:12:24.364 --> 01:12:26.314
and we do have some places where we've done that.
01:12:26.314 --> 01:12:26.704
I think.
01:12:26.704 --> 01:12:26.765
Yeah.
01:12:26.779 --> 01:12:29.210
Yeah, we've seen it within our industry, no doubt about it.
01:12:29.239 --> 01:12:34.819
And you can look across the fence at some other commodities and things that, uh, yeah.
01:12:34.819 --> 01:12:36.409
Would, would still ring true today.
01:12:36.409 --> 01:12:36.800
So.
01:12:38.135 --> 01:12:38.404
Dr.
01:12:38.404 --> 01:12:40.475
Peel, I appreciate you being on here.
01:12:40.534 --> 01:13:00.215
Uh, this might be the first time that I've ever had an economist cornered, and I'm not even gonna ask you to make a prediction, uh, because the last time I heard you make a prediction was in the summer of 24, so almost two years ago at the Livestock Marketing Association Convention in Oklahoma City.
01:13:00.965 --> 01:13:20.375
And I think you were on a panel and I was on a panel, and you, I think, if I remember right, predicted that fed cattle in the next year or so were gonna be the$2, and that was gonna make calves in that three to$4 and that, or yearlings and three to$4 and calves and that five, maybe$6.
01:13:20.885 --> 01:13:26.164
And I've never seen a bunch of sale barn owners and managers shaking their head.
01:13:26.914 --> 01:13:32.715
And so happy, but so disbelieving as what I saw that day.
01:13:32.744 --> 01:13:35.595
And guess what, um, you weren't quite right.
01:13:35.625 --> 01:13:38.354
You, you understated where we ended up.
01:13:38.354 --> 01:13:38.685
Yeah.
01:13:39.104 --> 01:13:49.454
And so that's, that's when you all miss, like that we're tickled pink, but I'm not gonna make you make any more predictions that are another 20% higher.
01:13:49.574 --> 01:14:01.125
that same time as when I came out with that at, at, at the Oklahoma Cattleman's meeting, I said 4, 4, 3, 2, 4,$4, five weight calves,$3 eight weights and$2 steers, fed steers.
01:14:01.545 --> 01:14:04.574
And uh, and that was the summer of 24,
01:14:04.604 --> 01:14:05.534
Yeah, that's when it was.
01:14:05.715 --> 01:14:06.494
it was three even.
01:14:06.494 --> 01:14:07.215
I don't remember.
01:14:07.215 --> 01:14:16.364
But, um, and, and I, me a while to screw up enough courage to say that, uh,'cause I knew it was gonna shake some folks up, but, uh, but it did.
01:14:16.364 --> 01:14:25.284
And, and like you said, uh, but then once we, once we took that out, in terms of, of having achieved that, then, you know, well, what's next?
01:14:25.284 --> 01:14:26.454
And the next one is much
01:14:26.944 --> 01:14:27.234
Yeah.
01:14:27.534 --> 01:14:28.765
that one I could sort of see.
01:14:28.765 --> 01:14:35.845
And we still haven't started the process of the clock ticking on what's gonna put an end to this thing.
01:14:36.534 --> 01:14:48.024
know, until we have definitive evidence that we have significantly started any heifer retention, then we haven't even started the clock on what, uh, what turns the corner on this thing.
01:14:49.045 --> 01:15:01.435
and the highest prices should happen after we start that clock before, we, uh, before we, you know, increase enough production to, to turn the corner on the price side.
01:15:02.005 --> 01:15:08.965
So the, so we're still going higher, but boy, if you did ask me how much higher I am, very, you know, I don't know
01:15:09.145 --> 01:15:09.324
yeah.
01:15:09.475 --> 01:15:11.335
we're in such uncharted waters now.
01:15:12.145 --> 01:15:24.385
I just think that they're still gonna go higher in the, you know, I don't think 26 is the peak, probably because we have not started saving enough heifers yet to the process of tearing up our playhouse.
01:15:24.500 --> 01:15:24.699
Yep.
01:15:25.045 --> 01:15:29.635
And, um, and so, um, you know, pretty set.
01:15:29.725 --> 01:15:32.154
I mean, we gotta save some heifer calves.
01:15:32.814 --> 01:15:35.395
To ever change this thing and, and we haven't.
01:15:35.395 --> 01:15:46.135
So if we start in 26 7 and a heifer, we can breed her in 27, she calves in 28, by the time that calf is weaned and through the feedlots, we're at the end of the decade before we change beef production,
01:15:46.270 --> 01:15:46.539
Yep.
01:15:46.930 --> 01:15:49.270
Which is just wild to even consider.
01:15:49.375 --> 01:15:51.835
see that timeline changing a whole lot at this point.
01:15:51.835 --> 01:15:55.345
But, but what happens in the meantime in terms of just exactly how high we go?
01:15:55.375 --> 01:15:56.215
That I can't tell
01:15:56.289 --> 01:15:56.619
Yeah.
01:15:57.130 --> 01:15:57.640
And, and,
01:15:57.685 --> 01:15:58.164
honest.
01:15:58.170 --> 01:15:58.220
And,
01:15:58.239 --> 01:16:00.819
and while we should, no, maybe I'll back up.
01:16:00.819 --> 01:16:04.989
While I should be licking my chops about that, it scares the tar outta me.
01:16:06.829 --> 01:16:12.229
From our margin operator standpoint, from our consumer standpoint, you, you name it.
01:16:12.800 --> 01:16:15.829
Um, i'm one of these, yeah.
01:16:15.829 --> 01:16:16.609
I'm one of these.
01:16:16.609 --> 01:16:31.939
I, I wish we could stay where everybody has an opportunity month in, month out to make a little money and keep the playhouse, as you said, together and, uh, not have this blow off top that I, we haven't hit yet.
01:16:31.970 --> 01:16:38.534
I don't think, uh, that could really be disastrous actually to the long term sustainability of the industry.
01:16:40.244 --> 01:16:40.534
Yeah.
01:16:40.670 --> 01:16:42.949
You know, um, for several months now.
01:16:42.949 --> 01:16:46.579
And it is increasingly, I've described the market as scary good.
01:16:46.670 --> 01:16:46.850
Yep.
01:16:47.180 --> 01:16:55.250
Um, I have, I, I, I know an analyst, uh, that, that I talked to occasionally in Australia, and the term he's using now, I thought it was kind of funny.
01:16:55.489 --> 01:16:58.640
He says, we're telling our guys to panic slowly.
01:17:01.609 --> 01:17:13.670
Well, I, I knew if I kept you on here long enough, you would write the title for this episode, and I think you or your Australian counterpart may have just done it Panic slowly.
01:17:14.390 --> 01:17:31.220
Um, that, you know, I, uh, I haven't been using that widely in a public setting, but, but I do think it's actually probably pretty, pretty appropriate maybe, uh, to describe this scary good market that we're in because we are enjoying it, at least as cow calf producers.
01:17:31.220 --> 01:17:33.470
As you said, not everybody's enjoying this a lot.
01:17:33.704 --> 01:17:33.784
Yeah.
01:17:34.399 --> 01:17:35.479
uh, we've got lots of margin
01:17:35.595 --> 01:17:36.015
Oh yeah.
01:17:36.140 --> 01:17:36.710
the cow calf
01:17:36.755 --> 01:17:36.975
Yep.
01:17:37.449 --> 01:17:42.130
But at the same time, everybody, understandably, and for very good reason is nervous.
01:17:42.279 --> 01:17:53.649
Um, we're nervous about all the outside forces that can impact us short term as well as just, you know, uh, once you're in uncharted waters, then, uh, you just never know what to expect.
01:17:53.770 --> 01:17:53.930
Yep.
01:17:54.619 --> 01:17:59.750
You know, could we see something completely new and unforeseen develop out of this?
01:17:59.810 --> 01:18:01.670
Who knows, at this point I don't see it.
01:18:01.699 --> 01:18:04.640
I don't, you know, we're watching for it, but, um.
01:18:05.725 --> 01:18:07.609
Uh, it, it, it is scary.
01:18:07.609 --> 01:18:07.970
Good.
01:18:07.970 --> 01:18:10.430
Or maybe you should panic slowly,
01:18:10.564 --> 01:18:10.774
Mm.
01:18:10.819 --> 01:18:11.060
know.
01:18:11.060 --> 01:18:11.149
Mm-hmm..
01:18:11.280 --> 01:18:14.100
So that might be a good place to, uh, to quit on it.
01:18:14.100 --> 01:18:14.791
But, uh, yeah.
01:18:14.791 --> 01:18:15.091
Dr.
01:18:15.091 --> 01:18:20.671
Peel, thank you so much for being here, for all that you're, that you do for the beef industry and all segments.
01:18:20.671 --> 01:18:37.081
Um, it's, it's fun to talk about markets when we're at this level, but honestly, it, it's more informative to talk about'em when we're at the other side of things we just can't look at it very rationally at that point'cause we're scared and we've got a lot of emotion wrapped up in it.
01:18:37.081 --> 01:18:40.860
But, uh, yeah, always good information and we appreciate all that you do to share it.
01:18:41.610 --> 01:18:42.541
Well, thank you so much.
01:18:42.541 --> 01:18:43.110
I appreciate it.
01:18:43.110 --> 01:18:44.581
I enjoy it, obviously.
01:18:44.640 --> 01:18:45.301
And you're right.
01:18:45.301 --> 01:18:51.451
I mean, the times when we could probably do more good to help people is times when it's hard, harder to get'em to listen
01:18:51.541 --> 01:18:51.751
Yeah.
01:18:51.871 --> 01:18:52.320
ways.
01:18:52.680 --> 01:18:55.110
Um, but it's, I'm, I'm getting to enjoy this too.
01:18:55.110 --> 01:18:55.860
For the most part.
01:18:55.860 --> 01:19:04.770
It's kind of fun to be in, uh, in this situation, although it is scary, uh, every time I get up there and say, we're at record prices and we're gonna go even higher, I, I
01:19:05.131 --> 01:19:05.421
Yeah.
01:19:05.610 --> 01:19:06.751
In the back of my throat.
01:19:07.650 --> 01:19:13.560
I've done it enough times now I'm getting a little bit more used to it, but, but at some point in time, that's not gonna be true.
01:19:13.560 --> 01:19:19.110
And, and so I'm trying to, uh, you know, trying my best to, to keep a pulse on when that might happen.
01:19:19.140 --> 01:19:21.780
I don't see it, uh, in the immediate future though, for sure.
01:19:21.916 --> 01:19:22.126
Yeah.
01:19:22.126 --> 01:19:31.246
Well, any cattleman with gray in his hair or her hair, um, as they hear you say that in the back of their mind, go, yeah.
01:19:31.246 --> 01:19:39.166
But we know it's not gonna last forever, and we do have to prepare for that inevitable and make smart decisions and and you know, yeah.
01:19:39.796 --> 01:19:44.386
It's part of cyclical nature of the beef industry that we've seen for centuries, really.
01:19:44.610 --> 01:19:44.791
really.
01:19:45.030 --> 01:19:45.331
Yep.
01:19:45.631 --> 01:19:46.081
You bet.
01:19:46.185 --> 01:19:46.576
All right.
01:19:46.576 --> 01:19:47.536
Well thanks a bunch Dr.
01:19:47.536 --> 01:19:47.775
Peel.
01:19:47.775 --> 01:19:48.855
We appreciate you being here.
01:19:49.001 --> 01:19:50.051
You are very welcome.
01:19:50.449 --> 01:19:56.210
Thanks for tuning in to Practically Ranching, brought to you by Dalebanks Angus, all the best to you and your family.
01:19:56.270 --> 01:19:58.970
May God bless each of you and we'll talk again soon.