Thoughts Concerning the U.S. Beef Industry

By: Francis L. Fluharty, Professor and Head, Department of Animal and Dairy Science, University of Georgia

The beef and pork industries are in a tremendously stressful period with Covid-19 causing temporary shut downs in several meat processing plants due to worker concerns over their health. This is having devastating short-term losses in all segments of the supply chain. I want to address a disturbing trend over the past few weeks where people claim that the current beef marketing system is completely broken, and that we need to go back to more small-scale packers and not import foreign lean beef. I support small-scale packers, and have worked with several. I’ve helped start regional branded beef programs that market to the non-implant, non-antibiotic marketplace, and I have family members who market the beef they raise through direct sales to customers. I’ve spent my career in support of family farms, and I own a small cow herd. What these experiences have given me is a perspective of the complexity of the beef industry, from the processing, distribution, restaurant and retail segments of the industry that most people working only in the cow-calf and feedlot sectors are never afforded the opportunity to see. In 2019, there were 3,236,800 cull cows, 3,271,700 dairy cows, 546,600 stags and bulls, and 26,500,200 fed steers and heifers harvested in the U.S.  (Source: https://www.ers.usda.gov/data-products/livestock-meat-domestic-data/livestock-meat-domestic-data/). That’s a total harvest of 33,555,300 head of cattle, and working 5 days per week for 52 weeks, that’s 645,294 per week or 129,059 per day. The message is that we’re a large industry, and the reality is that we rely on beef exports to boost the return per head of our cattle, and imports to meet the requirements of consumers for ground beef while simultaneously using the fat and fat trim from over 26.5 million fed cattle, respectively.

Consolidation increases as you move from the cow-calf segment to the packing industry. There are 727,906 beef farms and ranches, and these farms are the backbone of many rural economies, as 91% are family-owned or individually-operated. The calves from these operations go into 30,320 feedlots. On January 1, 2019, there were 14.37 million head of cattle on feed, with approximately 85.8% of feedlots having less than 1,000 head of capacity, which calculates to 26,015 primarily farmer-feeders feeding 2.73 million cattle, while the remaining 14.2% of feedlots, approximately 4305 operations, feeding 11.64 million cattle. (http://www.beefusa.org/beefindustrystatistics.aspx). Understand that these numbers are a point in time, and commercial feedlots have an average number of days on feed of approximately 140 to 200 days, depending on the size of the animals entering the feedlot, so these numbers are accurate for the number of feedlots, but represent less than half of the total number of animals fed as described in the previous paragraph as they are the number of animals in feedlots on January 1, 2019.

Due to outbreaks of Covid-19, and the closing of many businesses, the meat and milk that restaurants, cruise lines, airlines, airports, conference centers, and others use are not being purchased or are being purchased, but in significantly lower amounts. However, a lot of meat destined to these outlets was already purchased and in cold storage as boxed beef.  This beef was no longer owned by the packers, but by the distributors and end users. Thus, it was not easily shifted to retail when this pandemic began.

This has put tremendous economic pressure on the purchasers of farm products like cattle, hogs, poultry, and milk. In addition, Cargill, Tyson, JBS, and National are having to close beef processing plants, and Smithfield Foods and Tyson are having to close pork processing plants due to workers becoming infected with Covid-19. While these may be closed for only a couple of weeks to a month, it has greatly disrupted the supply chain. Large-scale shutdowns, even for relatively short periods of time, across the food chain, have caused the markets to decline, rapidly. The processing industry relies on a constant flow of products to distributors who use cold storage of fresh meat and fresh and frozen export meat and byproducts. We’ve never seen this type of industry-wide slowdown, and yes, the consequences have been devastating and heartbreaking.

We need to understand that packers will harvest those cattle that they own, or have contracts on, first. With approximately 80% of finished cattle being sold on contracts by Quality Grade and Yield, feedlots will try to use diets that do not result in excess fat. However, this will be difficult. Most large feedlots try to split ownership one of 3 ways: owned cattle, partnered cattle, and customer cattle, and risk management is put on nearly 100%, with ‘Puts’ used to set a floor. However, the approximately 2.7 million head of cattle that small-scale (<1000 head) feedlots produce will likely see the greatest losses. Many smaller feeders do not use risk management or forward contracts, which puts them in a cash market. Having to hold these cattle that are ready to market will likely result in more heavy-weight discounts and Yield Grade 4 discounts. Currently, the average YG4 discount is $12/cwt and the average heavy-weight discount is $15/cwt. (https://www.ams.usda.gov/mnreports/lm_ct169.txt ). Together, these could result in a $27/cwt discount, which on a 900-pound carcass would be a $243 loss, not including the additional feed, labor, and yardage costs. While this is a terrible loss brought on by this market disruption, is the solution to move to smaller-scale packers and limit imports of red meat as many producers are suggesting? Let’s look at the numbers.

According to the USMEF, ‘in 2019, U.S. beef exports totaled 1.32 million metric tons with a value of $8.1 billion, averaging $309.75 per head of fed cattle. These beef exports accounted for 14.1% of total beef production and 11.4% for muscle cuts).’ (https://www.usmef.org/news-statistics/press-releases/u-s-pork-exports-record-large-in-2019-approaching-7-billion-beef-export-value-again-tops-8-billion-2/). The value of these exports is largely ignored by people who are arguing against a concentrated processing industry. However, this $309.75 was possible largely due to consolidation and the export of highly-marbled cuts and byproduct drop value items.

USDA By-product Drop Value (https://www.ams.usda.gov/mnreports/nw_ls441.txt) includes items such as the hide, tongues, cheek meat, cheek meat, head meat, oxtail, lips, liver, tripe, lungs, fat melts, meat and bone meal, and blood meal. This is where large-scale packers make a portion of their money. These products are largely sold in large, shipping container lots as frozen, chilled, or dried products. It takes a large-scale plant to take advantage of these opportunities. Currently, it’s worth approximately $97, but that’s down from over $200 a couple of years ago. However, a small-scale packer pays a rendering company to pick up these products. The difference can be as much as $200 to $250 per head between a large-scale and a small-scale packer, based on my experience working with small-scale packers. These costs get passed on to consumers. They can result in a $.50 per pound difference in price of beef at retail.

As an industry, currently, we provide safe, wholesome products to all consumers at a reasonable cost, and we have value-added opportunities for those producers and small-scale packers that serve local and regional product demands, especially for differentiated products like non-antibiotic and non-hormone, or grass-raised. The reasons we don’t have more small-scale packers include the cost of building a packing plant, equipment, cooler costs, HAACP oversight and paperwork, the availability and cost of rendering, making up the losses from fat trim, finding a workforce that wants to work in a chilled environment, insurance, refrigerated trucking, and worker’s compensation as meat processing has one of the highest rates. It’s a business that people need to really want to be in, because it’s not a great return on investment at a small scale.

Now, let’s look at what happens to a fed beef animal that’s harvested, and the implications for the entire industry. How much product comes from a 1350-pound steer? A fed steer that’s a Yield Grade 3 will have a carcass that’s approximately 65% red meat, 20% fat, and 15% bone (https://extension.sdstate.edu/how-much-meat-can-you-expect-fed-steer). Naturally, these vary depending on the muscling and fatness of the animal. However, I am using these in this example.

1350 live weight x 62.5 dressing % = 844 lb. Hot Carcass Weight

844 x .65 = 549 lb. lean

844 x .20 = 169 lb. fat and 50/50 fat trim

844 x .15 = 126 lb. bone

We must understand that seam fat is the largest fat depot in a steer. If we did not have lean trim from cull cows and imported lean to mix with the fat and fat trim, all fed cattle would be worth less. We consume approximately 70% of our beef as ground beef, which can contain at most 30% fat, and the most common blends are 80% lean with 20% fat, and 85% lean with 15% fat.

Do we have enough cow culls to use all this fat, and how much can a cull cow yield? Remember that there were 3,236,800 cull beef cows and 3,271,700 cow dairy cows harvested in the U.S. in 2019. Thus, we are using ALL of our cull cows to go into the meat supply chain! According to the USDA National Agricultural Statistics Survey, there are 31,316,700 beef cows in the U.S. on January 1, 2020. (https://www.nass.usda.gov/Charts_and_Maps/Cattle/bcow.php). We have the same cow herd inventory as we did in the early 1960’s, and we are down by over 14.3 million cows compared with the high in 1975 of 45.7 million beef cows. (https://beef2live.com/story-beef-cow-inventory-1920-2014-88-116224). In the same time frame, there were 11.139 million dairy cows in 1975 (https://www.ers.usda.gov/webdocs/publications/47162/17864_sb978_1_.pdf?v=41056) compared with 9.33 million on January 1, 2020 (https://www.nass.usda.gov/Publications/Todays_Reports/reports/catl0120.pdf), a decrease of 1.8 million dairy cows. In addition, there are over 330,701,590 people in the U.S. today compared with 209,513,341 people in 1970 (https://www.worldometers.info/world-population/us-population/, Accessed 5-4-2020). Over a period of 45 years, our human population in the U.S. has increased by over 121 million people at the same time that we’ve reduced our beef and dairy cow numbers by a total of approximately 16.1 million head. Thus, we have a greatly increased demand for beef and fewer cull animals to go into ground beef.

So, what’s the red meat yield of a cull cow? It varies greatly, but using the example of a lean cull animal, which closely resembles the lean beef that’s being imported. ‘Cows with a BCS of 1 to 4 and an estimated red-meat yield of 85 to 90%; will yield at most a few merchandisable cuts with the majority of the carcass used for boneless processing beef’ (https://www.beefresearch.org/CMDocs/BeefResearch/PE_White_%20Papers/Beef_from_Market_Cows.pdf). Let’s use an 85% lean meat yield and 15% bone with very little fat.

1200 pound cow, BCS 1-4 (lean)

Hot Carcass Weight (HCW) 45%–55% range, use 50%.

1200 lb live x 50% dress = 600 pounds

600 pounds x 85% lean = 510 pounds lean

The fed steer weighing 1350 pounds in our carcass example had 169 pounds of fat trim. The cull cow in our example had 510 pounds of lean trim. Remember that ground beef may not contain greater than 30% fat.

At an 80/20 mix, 510 pounds of lean needs to be mixed with 124 pounds of fat to come up with 634 pounds of 20% fat ground beef.

At an 85/15 mix, 510 pounds of lean needs to be mixed with 90 pounds of fat to come up with 600 pounds of 15% fat ground beef.

Let’s now look at the amount of cull cows that are needed to use this trim fat. There were 26,500,200 fed steers and heifers harvested in the U.S. in 2019. Using the 169 pounds of fat trim in our example: 26,500,200 head x 169 pounds fat trim = 4,481,913,800 pounds of fat trim. In 2019, the U.S. imported 3,057,176,000 pounds of lean beef and veal (https://www.ers.usda.gov/data-products/livestock-and-meat-international-trade-data/). At 510 pounds of lean per cull cow in my example, this equates to 5,994,462 cull cow equivalents imported. This isn’t surprising as we are down over 16.1 million head of beef and dairy cows since 1975. We need imported lean, because we don’t have enough cull cows! This is one example. It’s not perfect, but it gives a good representation of the size of the industry, and the structural changes that have occurred over the past several decades. We can’t forget that we export a high-marbling product and import lean, and the reason we need the lean meat is to mix with the fat trim from our fed cattle due to a reduction in the U.S. cow herd size and an increase in the human demand for beef, domestically.

There is no doubt that producers are under stress, and that anger is one of the stages of grief over the fear of losing a way of life that’s been the backbone of our country. When things aren’t going well, everyone looks for a reason, whether it’s corporate profits, international ownership of traditionally American companies, or profit taking by different segments of the industry. Some of these probably have merit. Everyone I know in animal agriculture has been through tough times. At these times, we need to do things that improve our operations. Many people don’t weigh their cattle, but if a producer can identify the most and least profitable animals in a herd, the operation becomes more efficient. One way to do this is to divide the calf weaning weight by the dam’s weight at weaning, and rank cows from highest to lowest percentage. Another thing that producers are doing is focusing on developing value-added markets. Many cow-calf and backgrounding operations need to focus on management that improves forage utilization. One final thought is that most of us wouldn’t think of driving a car without insurance, but the vast majority of beef producers don’t do much in the way of risk management or marketing. Perhaps, it’s time that we all started there. I have faith in our collective ability to survive this.

 

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