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.
Beef demand and the need for food
As we discuss the world of beef, it does not take long to understand that those who own the cattle are at the lower end of the price model. Beef demand is generated out of the need for human food. That demand, plus all the costs of getting the beef to the consumer, must come from the value generated by the cattle.
Although there are those who speculate by buying and selling cattle, the real base of the beef industry is the cow-calf producer. We ask why the cow-calf business has been declining even though market signals would indicate producers should be expanding.
Fortunately or unfortunately, those involved in the cow-calf business can estimate product value but, in most cases, cannot impact the value originating from consumer demand. Unlike those who feed, harvest, process, package and serve the beef, cow-calf producers must focus on costs. Even when supply and demand is pushing up the value, increased revenue means very little to cow-calf producers if managerial plans do not control costs.
The double challenge is that most cow-calf producers do not operate under the same business plan as those who feed, harvest, process, package and serve the beef. Many cow-calf business plans are vague. This leaves producers open to decisions that are heavily influenced by comingling opinions from other sectors of the beef business that are operating under a different business model. With that in mind, is it really any wonder that it is difficult to get young producers established within the beef business?
The cow-calf business is a demanding, labor-intensive business built on family labor and long hours. With very little control of income, the risk is high, so controlling costs is paramount. When costs are high, producers seldom desire to increase costs by hiring more labor. This creates a very difficult scenario. By expanding, labor must be increased, so costs go up. By staying constant, costs still go up, but not by as much.
Unfortunately, as a producer’s age increases, he or she unrealistically holds down perceived costs. When cow-calf producers finally evaluate the operation, the family base has left and the hired labor will make more than the owner.
With that in mind, one of two plans is implemented. The first thought is to try to expand, but the older age of the producer makes expansion difficult, so the second option self-generates, which means dispersing the herd and enjoying the money.
May you find all your ear tags.
Your comments are always welcome at http://www.BeefTalk.com.
For more information, contact Ringwall at 1041 State Ave., Dickinson, ND 58601, or go to http://www.CHAPS2000.com on the Internet.
(Ringwall is a North Dakota State University Extension Service livestock specialist and the Dickinson Research Extension Center director.)