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My office
is at the intersection of Highways 96 & 23 in Western Kansas. Cattle trucks
are a common sight, and they make up a large portion of the traffic that
rolls past my window. What you see however, isn't necessarily what is actually
taking place. For example, if 18 cattle trucks go through town in a convoy,
I get local calls wanting to know if the price of beef is up or down, who's
going out of business or going into business. It really doesn't mean anything
out of the usual; it's just how it looks to an observer. An article on pg. 28, titled, "IBP Offers Real Time Price Grid to Cattle Feeders" describes IBP's new price grid it's offering to all producers. Regardless of how it looks to some people, it does seem to be a move that could be good for the industry. Let's hope so. Jim Gill, marketing director for Texas Cattle Feeders Association, says, "IBP is trying to improve their product for their branded beef program. If they do pay a little premium for that, that's good." Many cattle feeders agree that superior cattle, for years, have supported the poor cattle going through the system. Many cattle feeders think the new program will have far-reaching results, some unanticipated. Almost everyone thinks there will be surprises. Buyers say there are going to be a lot of cattlemen who think they are producing good cattle and are about to find out otherwise. 
Gill said that while he has reservations, he would have to view IBP's move as a step in the right direction.Another article in this issue discusses a topic that may not be exactly what it seems. This month's Market Notes on page 40 shows steer prices vs. farmer's share of retail price going back to 1970. (See chart 2.) The percentage is the amount producers receive from the retail meat case, and how it has been on the decline since the mid 70's. This chart reflects retail vs wholesale beef prices. This is the difference between the packers boxed beef price and the meat case. This spread has increased by about 2.7 times from the mid 70's to 1999. This difference is due in part to value added to the product and the increase in price at the retail level, as well as additional profit. For example, when a meat company starts with boxed beef and ends up with individual servings that are required by the restaurant or steakhouse trade, this is added value. The more any product is handled, packaged or transported, the more cost will be added plus profit, but it all comes under the label as added value. Again, what you see is not all that is going on. This comparison is not in defense of the packer, but it definitely shows that packers aren't taking all the profit. The beef producer, backgrounder, and feeder need to realize some of this profit. The real challenge is how to do this, but if you don't own it, you don't control it, you don't control the selling price or the profit to be made. The grain industry has been divided up so that the grain companies, millers, bakers, and retailers are making most of the profit of the grain sale. Hopefully, the beef industry can avoid this strangle hold by developing and utilizing methods that allow them to share in the profit upstream from the feedlot. Not everyone wants to join an alliance or adopt new methods of marketing, but it is absolutely necessary for the producer, backgrounder, and feedlot to share in more of the total profit picture. Otherwise, it will be like the grain industry: "Low or no profit at the bottom of the production pyramid." |
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All information is copywrited by Feed Lot magazine and cannot be printed or re-printed
without the publishers express consent. Please contact
Feed Lot Magazine for reprint and copy authorization.
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