What is in this article?:
- Expanding family beef business an uphill battle
- Beef demand and the need for food
- What drives the beef business? The demand for beef is the answer. That seems like a simple answer, but the answer is very complex. As long as consumers prefer or at least desire to eat beef, supply and demand will regulate price. Those entities closest to the consumer, which are those who harvest, process, package and serve the beef, will purchase beef at the current competitive price.
Should we think about data or just ponder? That is the question. With the holiday season quickly slowing us down, now is a good time to ponder and maybe let the data rest for a bit.
Most of the time, managerial decisions are driven and validated by data. The idea is that data should lead. However, how many times has the question been asked: When will the cow herd expand?
Data drives the models. However, one thing about models is that, as new data comes in, the model simply repredicts. If the projections based on various assumptions do not hold true, then the assumptions can be changed and new projections created. This process really has no end and actually creates a lot of news and information that, in turn, drives managerial decisions.
What drives the beef business? The demand for beef is the answer. That seems like a simple answer, but the answer is very complex. As long as consumers prefer or at least desire to eat beef, supply and demand will regulate price. Those entities closest to the consumer, which are those who harvest, process, package and serve the beef, will purchase beef at the current competitive price.
All marketable products will be extracted from the purchased inputs and the cost of doing business will be added. Ultimately, a final product will be offered at a price driven by demand. If the accepted price is greater than the costs, the food side of the beef business will do fine. If the price dips below cost, then the purchased inputs also must decline or those who harvest, process, package and serve the beef cannot function.
The same can be said about the feed yard business. Feeding cattle is the only thing feed yards do. Granted, feed yards do a lot of things while they are in the feeding business and can offer a lot of services to producers. However, the bottom line is that, without cattle, feed yards are not feed yards.
Feed yards must balance the cost of feeding cattle with the ability to price the product. The value of the product follows supply and demand, so feed yards estimate product value while adding the cost of feed and services to the desired price. In turn, this generates a break-even price. Those involved in the beef business are very familiar with break-even prices. Most feed yards are fairly comfortable operating using the price of the product plus the costs of feed and services.
Just like those that are involved further up the food chain, if the saleable product value decreases or the cost of feed and services increases, feed yards must adjust. The adjustments usually come from the main source of value in a feed yard, which is the value of the beef produced. The owner of the beef will receive fewer dollars, which will shrink the owner’s pocketbook.