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Blaming Our Troubles on the Market

By   /  April 10, 2017  /  6 Comments

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*Editor’s note: just to be clear and to avoid hurting anyone’s feelings, John would remind folks that on occasion, he, himself, is one of those lizard-eyed cattle buyers. (John runs a small grazing and marketing operation in Oregon.)

If you want to experience the unhappiness radiating throughout the ranching business, there is no better place to visit than your local auction yard. The sellers come drifting in, some wearing a stoic grimace, most bringing the face of defeat. There is some mumbling and grinding of teeth. The professional buyers know enough to keep quiet, staying back in their dark corner, sipping bad coffee from Styrofoam cups and watching the action through narrowed lizard eyes*.

The auctioneer takes his place at center stage and gives a little pep- talk about how we might have finally reached the bottom, maybe the market is ready to turn, maybe…. At the same time, everyone in the room has read the latest reports: a mountain of meat looms, cheap imports ready to flood in, futures down the limit again, red ink flowing throughout the industry. Even some signs that retail prices are starting to fall. So whether you’re sitting in the stands, wandering the pens or listening to cattlemen grouse in the parking lot, the story and the focus is always the same: the market is terrible and probably getting worse. The market is killing us. The market is going to cause massive failure within the ranching industry.

So, is the market the central difficulty for American ranchers? I guess I’m not so sure. Below is a graph showing the general cattle market for the past 65 years (see the green line). Clearly there are ups and downs along the way, but looking at the long-term picture we see a generally positive trend.  Inflation during that same period is shown by the blue line, which seems to track very closely to the general cattle market. The biggest variation between the two lines is the huge upswing and downturn in the cattle market during the past several years. During that period, inflation went along as normal, while the cattle market went wild in both directions. Still, the market and inflation seem to track along pretty well over time. If all that is so, why are there fewer ranchers and ranches left in America, and why is everyone worried about going broke? Something else must be wrong; it can’t be just the market.

I believe something is wrong —seriously wrong— in the ranching industry, and the data above suggest it’s not the market. Of course, the current market situation is very difficult as all of our products are worth far less than last year or the year before. But what the graphs tell me is that we should still be in relatively good shape, as our products have gained steadily in value (or at least held their own) for the past two or three human generations of ranchers. I hate to break the news, but the cattle market is not the problem. Here I am reminded of a famous quote by the poet-philosopher of the Okefenokee Swamp, who told us:

So, what is it that we ranchers have done to get ourselves into this mess? Simple: spend more money than we made. Over the past 65 years, while the value of our products has gradually risen at about the same rate as general inflation, the amount of money ranchers have spent on inputs has risen at a much faster pace. This grinding, relentless increase in the amount we spend to produce a pound of beef has gradually weakened the economic position of many ranchers to the point where they no longer have a viable business model, even though by outside appearances, things are going great. Drive by most any ranch in America and you will see signs of prosperity: rows of farm equipment and plenty of nice buildings. Glittering center pivots. Trucks loaded with fertilizer, feed, and diesel clogging the driveway. And all of these things must be paid for by a bunch of cows, animals that are elegantly designed to eat grass.

Below is an interesting graph provided to us by the good folks at the Livestock Marketing Information Center. It turns out that calculating the amount of money it takes us to produce a calf is a complicated affair, but the trend of the graph is clear. For some really scary data, check out the box in the upper right which shows that ranchers chose to spend $367 to raise a calf in 1990 while somehow electing to spend $851 to produce the same calf in 2016. While you process that, I would ask readers to remember that during that same time period the cost of sunshine and rain did not change at all.

My first guru in the ranching business was a fellow from southern Africa, Stan Parsons. Early on, Stan made an observation that struck me like a bullet through the heart:

“Most American ranches fail because they are designed to fail.”

Ouch! Now, Stan was not saying that ranchers desire to fail. What he was talking about is the idea that most ranches do not have an economic model that will function over time, even on paper! And the chief troubles confronting those ranches are schemes that include:

  • Ever-increasing amounts of input (primarily related to oil and iron) and
  • A lack of appreciation for or understanding of the ecological systems that support ruminant animals in nature.

Was Stan was right? The current market situation, which has us selling calves for $1 per pound will certainly not allow for much input costs. But what about the recent days of hysteria when the buyers coughed up $3 per pound? Surely we could afford to buy a new a new tractor or two back then, right?

I don’t think so, and here’s why: although most ranchers in America seem to have accepted the idea that they must spend more each year to produce a pound of red meat, the initial graph above suggests that the value of our product tracks pretty closely to general inflation. Increasing the amount we spend on tractors or infrastructure places a huge burden on the budget going forward. If we assume that our products must compete against more biologically efficient proteins like chicken, it seems evident that ranchers must seek an economic advantage somewhere. I believe the obvious advantage for cattlemen is to focus on the rumen rather than on more oil and iron. It appears that the recent ripple in the market –both up and down— will leave many ranchers right where they were before the market rise that started in 2012: going in the wrong direction, with big inputs and low profits.

Some questions for all of us to ponder, if we can stop ourselves from concentrating on the market or the futures or the cost of a new F-350:

Why have ranchers constantly sought to increase the amount of money they spend on each cow each year?

Why have ranchers moved farther and farther from systems based on self-harvested grass?

Why have ranchers adopted grass-growing practices that require tremendous economic and energy inputs?

Why have ranchers developed cattle that are less and less biologically efficient, eventually reaching the point where many of our modern beef cattle look suspiciously like Holsteins and threaten to starve if turned out on pasture?

And finally, a really tough question: Who is it that has helped guide us down this merry path?

Well, at the risk of sounding harsh or ungrateful, here are my answers:

If your Land Grant College has encouraged you to spend ever more on facilities, machinery, fertilizer, feed or other inputs, blame them.

If your breeder or breed association has advised that what you need is more frame and milk in your cows, blame them.

If your industry leadership has encouraged you to design your ranch model to assure the success of the feeding sector, the packing sector, the supplement sector, the vet medicine sector and all the other “supporting” sectors, blame them.

But most importantly, if you have made management decisions that constantly increase the amount you spend to produce a pound of beef, well, heap some blame on yourself. And then go forward and change your model.

A final note: spring is in the air. Let there be grass!

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  • Published: 4 months ago on April 10, 2017
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  • Last Modified: April 10, 2017 @ 7:14 pm
  • Filed Under: Consider This

About the author

John Marble grew up on a terribly conventional ranch with a large family where each kid had their own tractor. Surviving that, he now owns a small grazing and marketing operation that focuses on producing value through managed grazing. He oversees a diverse ranching operation, renting and owning cattle and grasslands while managing timber, wildlife habitat and human relationships. His multi-species approach includes meat goats, pointing dogs and barn cats. He has a life-long interest in ecology, trying to understand how plants, animals, soils and humans fit together. John spends his late-night hours working on fiction, writing about worlds much less strange than this one.

6 Comments

  1. TJ says:

    The chart tracking inflation to beef prices is misleading.

    At the start in 1950, beef prices are at $20 with inflation at 10. This difference looks small in the chart, but it’s a 2x difference. If you start them both at $10, then you see that inflation has gained faster than beef prices.

    The funny thing is, I think a truly accurate chart would support your argument better, that cattle farmers need to look to reduce input costs and consider returning to a more natural grazing method due to the changing external factors.

  2. John Marble says:

    John Marble responds:

    Sincere thanks to each of you for your comments. I should note here, Chip, that I have stolen many of my best ideas from your writing.

    Dwight, I have to agree: there are plenty of other data points that would bring the picture more into focus. That said, I believe one of the great hurdles ranchers need to overcome is deciding what to worry about. There are so many things we have absolutely no control over, like the price of fuel or fertilizer or concrete or_____. My response to those prices is to look for ways to reduce or eliminate those troubles from my business model. My old friend Allan Nation said if a grazier is thinking about pouring concrete, he should take two aspirin and go back to bed. Probably good advice.

    When it comes to land and rent values, I choose not to compete with whoever wants that class one crop soil. Currently, hazelnut growers are paying in excess of $10,000 per acre. Clearly, I need to look somewhere else for pasture possibilities.

    Thanks again.

    • DWIGHT EICHORN says:

      It is just my understanding that the nominal inflation rate is massaged and manipulated to make the dollar appear to have experienced less inflation than reality.

      My point is in the same line as yours. Just the fact that most input costs have risen so much faster than the price of beef means that beef producers need to go back to the drawing board and do the math all over again instead of just assuming what worked before will work today.

  3. Doug says:

    Brilliant analysis and article. Grazing animals were built with 4 stomachs and 4-wheel drive, and the ability over time (and selection) to adapt to the specific country they inhabit. So trucking them hundreds of miles and feeding them grain in a feedlot is already a bad decision (at $/day), plus extra medical charges and higher mortality rates.

  4. chip Hines says:

    I’m in John Marble’s corner, though I want to expand a little from my view. The 1970’s high performance cattle movement was an assumption that since we sold pounds, more pounds would lead to prosperity. There was no economic analysis to back this up. The upshot was profit per animal and that led to big cows that feedlots and packers loved.
    The cow calf industry subsidized them while diminishing their profits.

    I like John’s inflation line as our profits pay for our living expense which as we all know, has ballooned.

  5. DWIGHT EICHORN says:

    Hi John Its not that the conventional beef producers are more mentally challenged than the ave business person, its just that they have not been informed that times have changed and the model that so many current beef opperations were built on and that worked so great from the 50s till the eighties no longer works.

    It would make the facts a little clearer if you were to add some more metrics to your graph that are more pertinent than nominal inflation to the conventional beef producer, such as machinery, concrete and fuel prices. For one we could add the price of regular gasoline to your graph. 26 cents in 1950 and by 2012 its 354 cents (increasing at 3 times the rate compared to the price of beef).

    Another metric that needs to be taken into account is the increase in Ag land prices including taxes and rental rates since the 50s. This has the potential to negatively affect the graziers even more than the conventional producers.

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