Fed Cattle and Beef Markets: Developments and Diverse Opinions

1
Fed Cattle and Beef Markets Developments and
Diverse Opinions
Ted Schroeder Professor Ag Econ Kansas State
University tcs_at_ksu.edu ERS Seminar September
17, 2002 Washington DC
2
U.S. Retail Beef Demand Index,1980-2001 (1980100)
100
100
94
95
88
86
90
83
85
79
76
80
75
70
69
Index Value
70
66
65
63
65
60
59
57
57
60
56
55
53
53
52
55
50
50
45
40
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
Year
Source USDA K-State
3
Consumers Want Beef Products

• 1. Tender
• 2. Flavorful
• 3. Consistently High Quality
• 4. Convenient to Prepare
• 5. Healthy Nutritious
• 6. Safe
• Competitively Priced
• U.S. production and marketing system failed to
  provide these basic requirements

4
Markets at each stage coordinated chain, but
system worked poorly
- highly varied product - little price-quality
distinction - no incentives to improve
5
Cattle Feeder Survey
Surveyed cattle feeders in March-April
2002 Survey Group Surveys Completed Iowa
Quality Beef Supply Network 970
152 Kansas Livestock Assn. Feeders 131
50 Nebraska Cattlemen Feeders 250
66 Texas Cattle Feeders Assn. 148
48 Total 1,499 316 .
6
Cattle Feeder Survey
Survey Respondents by 2001 Fed Cattle Marketings and Location Survey Respondents by 2001 Fed Cattle Marketings and Location Survey Respondents by 2001 Fed Cattle Marketings and Location Survey Respondents by 2001 Fed Cattle Marketings and Location Survey Respondents by 2001 Fed Cattle Marketings and Location Survey Respondents by 2001 Fed Cattle Marketings and Location Survey Respondents by 2001 Fed Cattle Marketings and Location
Head of Fed Cattle Marketed in 2001 Head of Fed Cattle Marketed in 2001 Head of Fed Cattle Marketed in 2001 Head of Fed Cattle Marketed in 2001 Head of Fed Cattle Marketed in 2001
State Respondents lt5,000 5,000 to 19,999 20000 to 49,999 50,000 to 99,999 100,000 up
Iowa 141 96 3 1 0 0
Kansas 48 2 23 25 27 23
Nebraska 80 39 39 11 9 3
Texas 47 6 21 30 28 15

All Respondents 316 53.8 17.8 11.5 10.5 6.4
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Pricing Methods and Declining Fed Cattle Cash
Trade
8
Consolidated Beef Producers
9
Source Schroeder et al. 2002 Feedlot Survey
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Beef Packer Motives for Market Agreements with Producers Beef Packer Motives for Market Agreements with Producers Beef Packer Motives for Market Agreements with Producers
Importance to Packer 1999 Expect 2004
Secure higher quality cattle 4.0 4.2
Secure more consistent quality cattle 4.0 4.2

Assure food safety 3.0 3.7
Reduce operating costs/plant utilization 2.9 3.5
Improve long run price risk management 2.8 3.1
Improve weekly supply/price management 2.2 2.9
Reduce cattle search costs 2.3 2.4
Able to purchase cattle for lower price 1.8 1.8
Scale of 1 to 5, 1not important to 5very
important. Source Lawrence, Hayenga, and
Schroeder
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Figure 11. Reduced Trading in the Cash Market
would be Harmful to
the Beef Industry
45.0
42.0
Average 6.8
40.0
35.0
30.0
25.0
Percentage of Respondents
20.0
15.0
15.0
12.7
10.4
10.0
6.8
4.6
3.9
2.9
5.0
1.6
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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Source Schroeder et al. 2002 Feedlot Survey
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Figure 7. Formula Base Prices Should be Tied to
Boxed Beef or Retail
Markets
35.0
31.8
Average 7.2
30.0
25.0
20.5
20.0
17.2
16.6
Percentage of Respondents
15.0
8.4
10.0
5.0
1.6
1.6
1.3
1.0
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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Figure 8. Negotiated Base Prices in Grids are
Preferred to Formula
Prices
35.0
Average 6.3
29.2
30.0
23.7
25.0
20.0
Percentage of Respondents
14.6
15.0
11.4
10.0
7.1
4.9
4.5
5.0
2.6
1.9
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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Figure 12. Packers Should Not be Permitted to
Contract or Form
Marketing Agreements with Feeders and Cattle
Owners
20.0
18.1
18.1
Average 4.8
18.0
16.1
16.0
14.0
12.3
12.0
Percentage of Respondents
10.0
8.1
8.1
7.4
8.0
6.8
5.2
6.0
4.0
2.0
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
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Figure 3. Cash Market Bids by Packers are Lower
When Packers
Have Cattle Contracted
60.0
Average 7.7
53.5
50.0
40.0
Percentage of Respondents
30.0
19.0
20.0
8.7
10.0
5.2
4.8
3.9
2.3
1.6
1.0
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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Packer Concentration Issues and Packer Feeding
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Beef Packer and Retail Grocer Concentration 2000
concentration levels Top 4 Beef Packers Top 5
Retail Grocers (steer heifer slaughter) 82
Market Share 38 Market Share Tyson
(IBP) Kroger ConAgra Wal-Mart Cargill
(Excel) Albertsons Farmland National
Beef Safeway Royal Ahold Sources
GIPSA-USDA and Progressive Grocer, 68th Annual
Report of the Grocery Industry
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Source USDA
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Figure 4. The Largest Packers Should be Broken
Into Several Smaller
Companies
35.0
Average 4.9
30.3
30.0
25.0
20.0
Percentage of Respondents
14.5
14.2
15.0
8.7
8.7
10.0
7.7
7.1
5.2
3.5
5.0
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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Figure 6. The Largest Retailer Grocers Should be
Broken Into Several
Smaller Companies
35.0
Average 5.0
30.6
30.0
25.0
20.0
Percentage of Respondents
15.0
13.2
13.2
10.0
8.1
8.1
6.8
6.8
6.8
6.5
5.0
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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Figure 5. More Producer-Owned Packers Would
Benefit the Beef
Industry
30.0
Average 6.2
23.5
25.0
22.6
20.0
15.8
Percentage of Respondents
15.0
11.9
10.0
8.4
6.1
4.8
3.9
5.0
2.9
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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Figure 9. Packers Should Not be Permitted to Own
or Feed Cattle
60.0
Average 6.6
47.7
50.0
40.0
Percentage of Respondents
30.0
20.0
14.5
11.0
8.1
10.0
5.2
4.8
3.5
2.9
2.3
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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Source Schroeder et al. 2002 Feedlot Survey
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Figure 10a. Packers Should Not be Permitted to
Own or Feed Cattle
Iowa Feedlot Respondents
70.0
Average 7.7
60.3
60.0
50.0
40.0
Percentage of Respondents
30.0
20.0
8.8
8.1
8.1
10.0
5.9
3.7
2.9
1.5
0.7
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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Figure 10b. Packers Should Not be Permitted to
Own or Feed Cattle
Kansas Feedlot Respondents
35.0
Average 5.4
31.3
30.0
25.0
25.0
22.9
20.0
Percentage of Respondents
15.0
8.3
8.3
10.0
5.0
2.1
2.1
0.0
0.0
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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Mandatory Price Reporting
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Figure 14. Mandatory Price Reporting is
Benefitting the Beef Industry
25.0
Average 4.3
22.3
21.7
20.0
15.0
Percentage of Respondents
10.7
9.1
8.7
10.0
8.4
7.1
6.5
5.5
5.0
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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Figure 15. Mandatory Price Reporting is Not as
Beneficial as
Expected
45.0
Average 7.3
38.3
40.0
35.0
30.0
25.0
Percentage of Respondents
20.5
20.0
16.6
13.6
15.0
10.0
3.6
3.2
5.0
1.6
1.3
1.3
0.0
1
2
3
4
5
6
7
8
9
Response (1strongly disagree to 9strongly agree)
Source Schroeder et al. 2002 Feedlot Survey
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1. Fresh Branded Case-Ready Products
Vertical alliances abound some 60 or more in
U.S. USDA has 50 beef certification programs
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2. Meal Packages
Single dish quick fix meal consumer expenditures
expanded 83 in 2001 to 141 million AC
Nielsen 472 beef products introduced in
2001 Compared to 70 in 1997 - NCBA
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3. Food Service
Food service continues to grow Diversity of
product needs Quality control in volume are
critical Contracts
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What do they require?
Product integrity High level of accountability
of input supplier Product safety assurances
mega responsibility/risk Production practice
assurances (including location?) Traceability Co
nsistent continuous supply Vertical coordination
required motivates alliances, integration
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Critical Questions

• How can the beef producer position operation to
  be part of the new food environment?

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Critical Questions

1. How can the beef producer position operation to
   be part of the new food environment?
2. What form of business ownership, risk sharing,
   valuation, and financial arrangements are most
   likely to be successful in meeting the needs of
   the consumer? In other words, what is the most
   efficient way to provide the products demanded?

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Critical Questions

1. How can the beef producer position operation to
   be part of the new food environment?
2. What form of business ownership, risk sharing,
   valuation, and financial arrangements are most
   likely to be successful in meeting the needs of
   the consumer? In other words, what is the most
   efficient way to provide the products demanded?
3. How will producers manage increased risks
   associated with greater accountability/liability?

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Critical Questions

1. How can the beef producer position operation to
   be part of the new food environment?
2. What form of business ownership, risk sharing,
   valuation, and financial arrangements are most
   likely to be successful in meeting the needs of
   the consumer? In other words, what is the most
   efficient way to provide the products demanded?
3. How will producers manage increased risks
   associated with greater accountability/liability?
4. What role should government play in legislating
   the fed cattle markets?