Feed Lot Magazine Online, Cattleman Offers Insights into the Future of the Industry

Leachman Cattle Company of Billings, Montana, isn't your ordinary beef enterprise, and those at the helm - brothers Lee and Seth and father Jim - aren't your ordinary individuals. You'd search far and wide to find a better geneticist than Lee, a better manager than Seth and a better marketer than Jim.

Lee has also earned a reputation of being a visionary, a risk-taker and an innovator, and he isn't afraid to step out and speak up about the U.S. beef industry. Feedlot magazine asked Lee to provide insight into today's changing beef industry, and he obliged.

Question: The U.S. beef industry is undergoing tremendous change. What are the positive changes?

Answer: It appears the U.S. beef industry is finally shifting from the commodity mentality toward a "branded" mentality. If this shift is successful, it will have far-reaching effects. All sectors along the value chain will be made more accountable for their activities, and this means more quality assurance in processes and in products.

While the packing and feedlot sector will adapt most rapidly, this change will also have a large impact in the cow/calf and seedstock sectors. We need to make decisions that will improve the entire production process - lower costs while increasing end product value and consistency.

Leachman Cattle Company is taking advantage of this shift and has entered the branded product arena with a specialty/niche product. We are also aggressively seeking partners interested in building branded products that are based on genetic improvements combined with process improvements. We believe our future will depend on our ability to design genetics that meet specific branded product goals.

Q: What are the downsides to any change occurring?

A: Some within the beef industry may see us evolving towards the integration found in the poultry and swine industries. Cow/calf producers may worry that they will lose autonomy. Personally, however, I don't think this should be a concern.

The ranchers will still own the land and the cows, and their daily tasks will not change. In fact, these changes may add a higher level of predictability to returns in the cow/calf sector.

Nevertheless, I do see small producers having a more difficult time. They will have to be very in tune with the end product goals, and they will have to adopt Beef Quality Assurance programs to ensure that they are producing an acceptable product.

In the end, the only losers will be those producers who refuse to adapt to the changes. The market will accept fewer and fewer non-conformities. Profitability will depend on doing the right thing and raising a better product.

Q: Where do you see the beef industry 10 years from now?

A: I think branded beef will account for more than 50% of the beef marketed in the United States. Producers from all sectors will be aligned in vertical networks that produce for a specific branded product.

Information flow will be greatly improved between sectors - a requirement if we hope to improve overall production efficiency and end product merit.

Genetic improvement in beef cattle will be greater and more rapid. Unfortunately, the current structure of the industry does not foster continual improvement. While most industries can quantify the annual improvements they make in end product quality and in cost of production, our industry cannot. This must - and will - change.

Concentration at the cow/calf and seedstock level will not occur via ownership. It will occur via alliances. Producers will realize that the branded programs require animals from thousands of producers. No single entity will own all of that land or those cows. The reality will be groups of producers with shared goals and shared strategies. We have been promoting that vision for more than a decade, and now it will become a reality.

Q: Where will the industry be 25 years from now?

A: Twenty-five years is a long time. So much depends on population trends and macro-economic trends.

As U.S. producers, we have to ask questions about our competitiveness with other beef-producing nations. Our main competitive disadvantage is land cost. I don't see that dropping. We can anticipate that land costs in countries like Argentina, Brazil and Australia will rise significantly. If they don't, then the U.S. will be at a major cost disadvantage that will erode our share of the global beef business.

We still see the family unit as the primary production unit in the cow/calf sector. It is efficient and will likely continue to be efficient.

Outside the cow/calf sector, consolidation and perhaps even integration of ownership will probably occur. Any time you have sectors within a production chain that haggle over price and information, there is incentive for vertical integration to increase efficiency. This will either be solved via vertical alliances, or it will be solved via integration.

Twenty-five years from now, beef will be a dramatically better product. Several different products will exist: maximum-flavor products, low-fat products, natural products, etc. Much of the beef will be precooked or at least partially prepared.

Food technology will allow us to provide alternative end-meat products that match the convenience of the hamburger. This will allow beef to satisfy a wider variety of consumer demands. In turn, this should lead to beef maintaining or slightly increasing its share of consumer spending.

World beef consumption will have risen dramatically 25 years from now. Supplying the world with beef will be the U.S., Brazil, Argentina and Australia. I would expect that more than 30% -- perhaps as much as 50% -- of U.S. beef would be exported. The U.S. niche will continue to be for grain-fed beef. The other countries will have less finish feeding than found in the U.S.

Q: How will the current changes and predicted changes affect seedstock producers?

A: Seedstock producers must adopt more sophisticated means of measuring and improving overall efficiency. We still do not measure one-third of the economically important traits. Most seedstock producers do not even select for half of the economically important traits. No one measures tenderness, flavor, retail yield, feed efficiency, reproductive efficiency, etc. Most seedstock producers are not even improving marbling, muscularity or mature cow maintenance costs. We are still in the dark ages relative to our competitors in the swine and poultry industries.

More thorough and aggressive genetic testing will be needed to make the necessary genetic progress. Gene marker technology will have a major impact. This is already happening in the swine industry. Seedstock producers will need to work together, and they will need to adopt common selection goals to ensure large pools of seedstock are devoted to the established selection objectives.

I think the seedstock sector will consolidate based on these needs.

Q: How will the current changes and predicted changes affect the smaller and middle-sized cow/calf owners?

A: The smaller and middle-size cow/calf producers will be better off if they align with a branded beef production system. Due to biological constraints, change for them is slow. They need to be planning ahead.

Alliances may shelter them from market effects, for alliances offer producers substantial premiums. These premiums have the effect of ensuring that the producer's 10-year-average price will match the price at the top of the market. This is a much better option for commercial cow/calf producers than simply taking the market.

Q: How will the current changes and predicted changes affect large cow/calf owners?

A: Large producers face the same scenario.

Leachman Cattle Company is the largest seedstock producer, but we supply less than 1% of the genetics in the U.S. A cow/calf producer with 40,000 cows has 0.1% of the cow/calf market. All in all, large seedstock and cow/calf producers are not large when you think of the overall industry.

Q: How will the changes affect the feeding industry?

A: The feeding industry will adopt quite easily. They will have to keep more records and do a better job measuring animals.

The grid pricing systems have prepared the feeding industry for these changes.

Feedlots will need to become even more conscious of their costs. Low-cost producers will survive while high-cost producers will not. Nevertheless, low-cost producers will have to be low cost and still provide lots of data and lots of service. Nothing new here: Typical competitive American business where you have to do more and more, better and better, to stay in business.

Q: What will happen to those who refuse to change?

A: They will need off-farm business to support their cattle habits. This is not new, but it will be even more true than ever.

Q: Leachman Cattle Company has expanded its business to include Brazil, Argentina, New Zealand, Australia and other countries. Why are you tapping into the international market?

A: As a genetic supplier, we need to have a global strategy. This helps our company grow. It also lets us capitalize on our genetics, strategies and technologies. The seedstock business is the same around the world - only the cattle and the selection goals change.

The seedstock business is more profitable outside the U.S., and the competition around the world is not as formidable as the competition here in the U.S. While we have lots of technology and lots of producers in the U.S., this is less true globally.

You also find better seedstock prices in other countries. In Brazil, for example, a bull sells for five times the value of a similar weight finished animal. Here in the U.S., the multiple is closer to three times, not five times.

Our global strategy helps our U.S. program. We can be more aggressive with sire acquisition and we can perform better genetic analysis. We can also source genetics around the world. We are currently importing genetics from four different continents (six different countries) on five different breeds. Most U.S. seedstock producers fail to consider the off-shore genetic resources.