The Missouri Beef Audit An Analysis of Missouri's Competitive

The Missouri Beef Audit: An Analysis of Missouri's Competitive Position in the Beef Industry and a Resource for Potential Investors September 2004 Authors: University of Missouri Commercial Agriculture Program Beef Focus Team KC Olson Vern Pierce Joe Horner Carol Lorenzen Rex Ricketts Robert Larson Richard Randle Eric Berg Ryan Milhollin Robert Weaber Missouri Beef Industry Council Project Funded by America's Beef Producers. CHAPTER 1: HISTORICAL ECONOMIC, STRUCTURAL, AND COMPETITIVE TREND ANALYSIS ............................................................................................................... 2 1.1 CHARACTERISTICS OF MISSOURI’S BEEF INDUSTRY......................................................... 3 1.1.1 Evolution as a Cow-Calf State................................................................................. 5 1.1.2 Changes in Beef Cow Inventory............................................................................. 10 1.1.3 Ten-Year Cattle Cycle............................................................................................ 11 1.1.4 Top Beef Cow States .............................................................................................. 14 1.1.5 Cattle Shipments from Missouri ............................................................................ 15 1.2 STOCKER INVENTORY .................................................................................................... 16 1.2.1 Missouri Stocker Inventory .................................................................................... 16 1.2.2 Stocker Inventory Trends for Missouri and Surrounding States ........................... 17 1.2.3 Pastureland Potential Annual Stocking Rates by Missouri County....................... 18 1.3 BEEF COW OPERATIONS IN MISSOURI ............................................................................ 22 1.3.1 Missouri Beef Cow Operations and Inventory ...................................................... 22 1.3.2 U.S Beef Cow Operations and Inventory............................................................... 24 1.3.3 U.S. Beef Production per Head.............................................................................. 25 1.3.4 U.S. Beef Production per Head and U.S. Beef Cow Inventory.............................. 26 CHAPTER 2: CURRENT COMPETITIVE POSITION OF MISSOURI’S BEEF INDUSTRY............................................................................................................................ 27 2.1 COST OF PRODUCTION.................................................................................................... 27 2.1.1 Farm Real Estate Values ....................................................................................... 27 2.1.2 Pastureland Value.................................................................................................. 28 2.1.3 Pastureland Cash Rent .......................................................................................... 29 2.1.4 Agricultural Real Estate Taxes .............................................................................. 30 2.1.5 Corn Prices ............................................................................................................ 31 2.1.6 Hay Production and Prices.................................................................................... 32 2.1.7 Farm Labor............................................................................................................ 33 2.1.8 Nationwide Cost and Return Comparison ............................................................. 34 2.1.9 Interpretation of the Missouri Costs and Returns Survey...................................... 36 2.1.10 Beef Cow Potential Annual Stocking Rate........................................................... 38 2.1.11 Land Investment per Cow .................................................................................... 39 2.2 MISSOURI FARMLAND APPRECIATION............................................................................ 40 2.3 REGIONAL CATTLE PRICE RELATIONSHIPS .................................................................... 41 2.4 MARKETING CHANNELS FOR CATTLE ............................................................................ 42 2.5 PUREBRED INDUSTRY..................................................................................................... 43 2.6 ECONOMIC IMPACT OF THE MISSOURI BEEF INDUSTRY .................................................. 44 CHAPTER 3: SYSTEMS, STRATEGIES, AND ECONOMIC OPPORTUNITIES FOR MISSOURI ............................................................................................................................ 47 3.1 SYSTEM # 1: HERITAGE AND LIFESTYLE MOTIVATED BEEF PRODUCERS ....................... 48 3.2 SYSTEM # 2: ENHANCED-PROFIT-MOTIVATED, INDIVIDUALIST .................................... 49 3.3 SYSTEM # 3: ENHANCED-PROFIT-MOTIVATED, GROUP ORIENTED ................................ 50 3.4 SYSTEM # 4: SEEDSTOCK PRODUCER ............................................................................. 51 3.5 PRODUCTION STRATEGIES FOR MISSOURI’S FUTURE BEEF INDUSTRY ........................... 52 3.6 MARKETING STRATEGIES FOR MISSOURI’S FUTURE BEEF INDUSTRY ............................ 56 3.7 SUMMARY OF MISSOURI’S BEEF INDUSTRY CURRENT COMPETITIVE POSITION ............. 61 APPENDIX A: MISSOURI CATTLE FLOWCHART .................................................... 62 1 Chapter 1: Historical Economic, Structural, and Competitive Trend Analysis Missouri has more beef cows than any other state in America, except Texas. In 2002, cattle were raised on 68,000 of the state’s 107,000 farms. Sales of cattle and calves generated cash receipts of $821 million, or 19% of the state’s total farm cash receipts.1 As those farm level revenues were spent for goods and services, more than $1.5 billion dollars worth of economic activity was created in the state, primarily in rural areas.2 Beef cattle have been and likely will continue to be the most prevalent agricultural enterprise in Missouri’s economy. However, emerging marketing channels and innovations in technology in the beef industry will challenge Missouri’s cattlemen in the future. This report examines the economic, structural, and competitive characteristics of Missouri’s beef industry. It also includes the potential challenges and opportunities that appear on the horizon for Missouri’s future cattle industry and the type of structure that will be needed to take advantage of these opportunities. This audit identifies and describes opportunities for the Missouri beef industry to be successful. The three sections of the audit are as follows: 1. Analysis of the historical economic, structural, and competitive trends effecting the beef industry in Missouri during the past 20 years 2. Analysis of the current competitive position of Missouri’s beef industry 3. Identification of systems, strategies, and economic opportunities available to the industry and to producers who are prepared to adapt to structural and competitive changes 1 2 Missouri Agricultural Statistics Service, Farm Facts 2003, http://agebb.missouri.edu/mass/index.htm Economic analysis using cash receipts estimates from USDA ERS and multipliers specific to Missouri’s cattle industry derived from IMPLAN social accounting software. 2 1.1 Characteristics of Missouri’s Beef Industry Commercial beef cattle operations are organized in three basic ways: cow-calf, stocker, and fed cattle operations. In January 2004, 80% of Missouri’s total cattle inventory was held by cow-calf operations, 15% of the inventory was held as stockers, and less than 2% of the inventory was cattle on feed. Dairy cattle made up the remainder.3 Table 1.1-1 Cattle and Calves in Missouri, Number on Farm, 2000-20044 Class All Cattle & Calves All Cows That Have Calved Beef Cows Milk Cows Heifers-500 Pounds & Over Beef Cow Replacements Milk Cow Replacements Other Steers- 500 Pounds & Over Bulls- 500 Pounds & Over Calves Under 500 Pounds Cattle and Calves on Feed 1/ 1/ Also included in the classes above. 2000 4,350 2,220 2,062 158 580 250 70 260 450 120 980 100 2002 (Thousand head) 4,250 4,350 2,220 2,200 2,070 2,060 150 140 590 630 285 280 65 60 240 290 400 480 120 120 920 920 65 70 2001 2003 4,500 2,250 2,116 134 680 305 55 320 485 125 960 70 2004 4,350 2,250 2,125 125 610 280 60 270 440 120 930 65 3 Inventory in cow-calf operations included beef cows, calves under 500 pounds, beef cow replacements, and bulls 500 pounds and over. Stockers included other heifers, steers over 500 pounds minus cattle on feed. 4 USDA, National Agricultural Statistics Service (NASS). Cattle Reports, Jan 1 Inventory, 2000 thru 2004. 3 Missouri Cattle Flowchart Beef produced 1,824,000 head 1.4 billion pounds Production Expenses for Missouri Feed Purchased - $108,211,800 Forage - $568,601,200 Missouri Cattle Slaughtered Outside Missouri 1,733,600 head Slaughtered in Missouri 90,400 Head Interest on Operating Inputs $8,373,900 Missouri Calves Fed Out of State1,464,000 Head Marketing Calves Fed in Missouri175,000 Head $11,577,200 Machinery and Equipment Depreciation $490,084,300 Calves Backgrounded in Missouri- 700,000 Head Veterinary Services and Medicine Replacement Heifers 280,000 Head Sold Outside Missouri as Calves 939,000 Head Calf Inshipments 36,000 Head Cow Death Loss 75,000 $56,382,200 Labor Hired -$4,027,300 Family - $397,734,500 Beef Calf Crop 1,980,000 Calves Calf Death Loss 130,000 Cull Cows 185,000 Head The Missouri cattle flowchart depicts a snapshot of the flow of cattle and calves from Missouri’s farms into growing, finishing, and marketing channels, including how much money flows into the various support industries. USDA 2002 estimates form the backbone of this snapshot; however, differing estimation dates and derivation techniques may cause these estimates to be inconsistent with official estimates. Appendix A contains a copy of this flowchart and all the supporting references, derivations, and web links to the data sources. 4 1.1.1 Evolution as a Cow-Calf State Over the last century, many Missouri farmers accepted off-farm jobs in addition to their farming activities. Beef cow-calf operations were manageable as small or part-time farms because they required relatively little labor except when hay feeding was necessary and during calving. Because cow-calf enterprises fit well with part-time farmers’ available labor and management, Missouri grew as a cow-calf state. As table 1.1.1-1 depicts, the states with the most beef cow operations are also the states with the most farms. States with large numbers of small farms such as Texas, Kentucky, Tennessee, and Oklahoma are also major beef cow states. Missouri ranks second in the nation in the number of farm operations and in the number of beef cow operations. Like most of the other top ranking beef cow states, more than half of the farms in Missouri are beef cow operations. More than 90% of the beef cow operations in Missouri have less than 100 cows. Missouri had 107,000 farms in 2002. Sixty-four percent, or 68,000 of those, had cattle (beef or dairy) on them. Eighty five percent of the cattle farms were beef cow operations, composing 58,000 of the 68,000 cattle farms. Table 1.1.1-1 Comparing States with Large Numbers of Farms and Beef Operations5 Beef cow U.S. rank U.S. Number operations rank in in number as a % of of beef number of beef Number total cow cow of of farms operations farms State farms operations TX MO IA TN KY OK 1 2 3 4 5 6 1 2 8 4 5 3 229,000 107,000 90,600 87,500 87,000 83,500 133,000 58,000 26,000 45,000 40,000 50,000 58% 54% 29% 51% 46% 60% Beef cow operations with less than 100 cows as a % of total farms 53% 51% 26% 50% 44% 55% Beef cow operations with less than 100 cows as a % of beef operations 91% 93% 91% 97% 96% 92% Because of the pasture resources and the large number of small farms, Missouri has become a major producer of feeder calves. During the 20th century, Missouri’s national importance as a feeder calf producer grew. In 1920, 3.2% of the beef cows in the United States were in Missouri (table 1.1.1-2). By the year 2000 Missouri cattlemen held 6.1% of the nation’s cow herd. 5 USDA, NASS. Agricultural Statistics Database, Online. 2002 data. 5 Table 1.1.1-2 Comparisons of U.S. and Missouri Beef Cow Inventories Year 1920 1930 1940 1950 1960 1970 1980 1990 2000 U.S. Beef Cows 12,525,000 9,162,000 10,676,000 16,743,000 26,344,000 36,689,600 37,107,400 32,454,700 33,575,000 Missouri Beef Cows 395,000 338,000 429,000 594,000 1,135,000 1,910,000 2,278,000 1,914,000 2,062,000 3.2% 3.7% 4.0% 3.5% 4.3% 5.2% 6.1% 5.9% 6.1% 6 MO as % of U.S. Beef Cows Location of Missouri’s Beef Industry Beef cows are located in all 114 counties in Missouri. The 10 counties with the highest populations of beef cows are concentrated in the southwest and south central regions of the state. The distribution of beef cows by Missouri counties is shown in Figure 1.1.1-1. Figure 1.1.1-1 Beef Cow Numbers in Missouri Counties – January 1, 20037 6 7 Livestock Marketing Information Center. January 1 Cattle Inventory Missouri Agricultural Statistics Service. Farm Facts 6 Trends in Beef Cow Locations in Missouri Trends in the geographic distribution of beef cows in Missouri are illustrated in figure 1.1.12. Regions are those defined by the National Agricultural Statistics Service. Beef cow inventory decreased in all regions during the decade of the 1980’s but from 1990 to 2000, cow numbers increased in seven out of the nine regions. The central region held the largest percentage of Missouri’s beef cow inventory in 2000, with 22% of Missouri’s total beef cow inventory. Figure 1.1.1-2 Changes in Missouri Beef Cow Inventory, by Regions, 1980 to 20008 Atchison Nodaway Worth Gentry 2000 Harrison Mercer Putnam Sullivan Schuyler Adair Scotland Clark NW (11% of beef cows in 1980 296000Holt head 1990 210000 head Andrew 2000 225000 head Beef Cows 1980-90: -29% Buchanan Beef Cows 1990-00: +7% Platte DeKalb Daviess 1980 Clinton Caldwell Lewis NC Grundy of beef cows in 2000) (11% 280000 head Macon Linn 1990 220000 head Shelby Marion Livingston 2000 225000 head Chariton Monroe Ralls Knox NE (6% of beef cows in 2000) 1980 176000 head 1990 130000 head 2000 121000 head Pike Beef Clay Randolph Carroll Beef Cows 1980-90: -21% Ray Beef Cows 1990-00: +2% Saline Lafayette Howard Boone Beef Cows 1980-90: -26% Cows 1990-00: -7% Lincoln Audrain Callaway Montgomery Jackson Cass West (12% of beef cows in 2000) 1980 264000 head 1990 220000 head Bates 2000 240000 head Johnson Pettis Cooper Henry St. Clair Central (22% of beef cows in 2000) Osage 1980 437000Moniteau Cole head M or g head 1990 395000an Benton 2000 460000 head Miller Maries Warren .C St s rle ha Gasconade Franklin East (7% of beef cows in 2000) 1980 162000 head 1990 140000 head 2000 135000 head Jefferson St. Louis Beef Cows 1980-90: -17% Beef Cows 1990-00: +9% Vernon Cedar Barton Dade Beef Cows 1980-90: -10% Pulaski Hickory Beef Cows 1990-00: +16% Dallas Polk Laclede Camden Phelps Dent Washington Crawford BeefStCows 1980-90: -14% Ge e. Beef nCows 1990-00: -4% ev iev e Perry Cape Girardeau Iron Reynolds SW (15% of beef cows in 2000) Jasper 1980 319000 head 1990 285000 head 2000 307000 head Newton Beef Cows 1980-90: -11% Beef Cows 1990-00: +8% McDonald Greene Lawrence Christia Barry Stonen Webster Wright Texas Shannon Wayne Bollinger St. Francois Madison Scott Stoddard Mississ Taney SC (15% of beef cows in 2000) Carter Douglas 1980 294000 head Howell 1990 280000 head Ripley Ozark 2000 316000 head Oregon Beef Cows 1980-90: -5% Beef Cows 1990-00: +13% Butler SE (2% of beef cows in 2000) Madri d 1980 50000 head 1990 34000 head 2000 40000Pemiscot head Dunklin Beef Cows 1980-90: -32% Beef Cows 1990-00: +18% New During the decade of the 1980’s, when low crop prices decreased overall farm profitability, cropping areas of the state lost more beef cows than did non-cropping areas. Northwest Missouri lost 29% (86,000 cows), North Central 21% (60,000 cows), Northeast 26% (46,000 cows), and Southeast 32% (12,000 cows). It should be noted, however, that the Southeast region began the 1980s with a relatively small herd of cattle. As the 10-year cattle cycle turned, calf prices moved higher in the late 1990s and overall farm profitability increased. Central Missouri and South Central Missouri grew in cow numbers, with total inventory higher in 2000 than it was in 1980. Together the two regions contained more than 760,000 head of cattle, up 45,000 head from 1980. Much of the expansion in cow numbers in these areas may have been due to the availability of complementary enterprises. Complementary enterprises, such as contract poultry and hog operations, may have made cow-calf operations more economically viable by spreading overhead costs across enterprises. 8 ippi USDA, NASS 7 The top ten Missouri beef cow counties in 2000 have shown some interesting trends in beef cow numbers since 1980. Although Texas County is currently the Missouri leader in beef cow numbers, it made a remarkable increase from 1990 to 1995 to gain the position it is in today. Conversely, Nodaway County had a major decrease in beef cow population from1980 to 1990. As depicted in figure 1.1.1-3 several of the top 10 counties show large changes in the 1990’s. Figure 1.1.1-3 Top 10 Beef Cow Counties in Missouri9 50,000 1980 1990 2000 45,000 40,000 Beef Cows 35,000 30,000 25,000 Texas Polk Lawrence Barry Bates Howell Nodaway Johnson Greene Newton 9 USDA, NASS 8 During the decade of the 1990’s, several Missouri counties with large numbers of dairy cattle experienced a substitution of beef cows for dairy cows. Three counties in particular demonstrate this trend: Texas, Lawrence, and Barry Counties. These three counties are among the top ten dairy-producing and the top ten beef-producing counties in Missouri. Figure 1.1.1-4 Shift from Dairy to Beef Cattle in Major Cattle Counties10 50,000 45,000 40,000 35,000 30,000 Cows 25,000 20,000 15,000 10,000 5,000 0 1990 2000 Milk Cows Beef Cows Milk Cows Beef Cows Milk Cows Beef Cows Texas County Lawrence County Barry County The U.S. and Missouri dairy industries are consolidating more rapidly into fewer, larger farms than are the U.S. and Missouri cow-calf industries. As dairy farmers discontinue their dairy operations, they may continue to operate their farms, but replace dairy cows with beef cows. One consequence of this substitution is a drop in gross income from approximately $2,000 per cow per year with dairy cows to approximately $500 per cow per year with beef cows. A corresponding drop in purchased inputs is another consequence of converting from dairy to beef. Unless other agricultural enterprises grow in these counties, the overall impact will be a decline in economic activity from this transition. 10 USDA, NASS 9 1.1.2 Changes in Beef Cow Inventory Cattle inventory numbers in the U.S. and in Missouri tend to peak in roughly 10-year increments, causing low prices and liquidation until the stage is set for the next expansion phase of the 10-year cycle. Missouri’s beef cow inventory has decreased 7% since 1980. In many respects, this decrease has mirrored the national trend (figure 1.1.2-1). Missouri’s beef cow inventory during this period did, however, move independently from the U.S. beef cow inventory trend in two key areas. First, liquidation appeared to be more widespread in Missouri from 1980 to 1992 than it did in the nation as a whole. Small Missouri herds are typically one part of a diversified income portfolio that includes off-farm jobs or other agricultural enterprises. As such, it is feasible to liquidate and repopulate these beef herds as economic conditions dictate. The second apparent departure from the national trend (2001 to present) is that Missouri’s cattle inventory may be rebuilding while the national herd is still in liquidation mode. Beef prices have been favorable for expansion since 1999. However, persistent drought in the Great Plains and parts of the Midwest has forestalled a national increase in beef cow numbers. By contrast, adequate forage availability and relatively low feed prices across most of Missouri have mitigated in favor of beef herd expansion. Figure 1.1.2-1 Change in Beef Cow Inventory since 198011 110 105 100 Percent Change USA index MO index 95 90 85 80 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 11 Livestock Marketing Information Center 10 2004 1.1.3 Ten-Year Cattle Cycle The U.S. cattle cycle tends to move in a decade-long pattern of price variation that has its basis in producer’s response to price signals. The simplest explanation is that cow-calf producers tend to act as if the current calf prices will continue into the future. When cattle prices are high, beef producers respond by retaining heifer calves to use as replacements, in the hope that a larger herd will result in a larger income. This is the case even though the financial reward for retaining heifers can be two to three years away and current market revenues from the sale of heifers will be sacrificed. The net effect is as the number of beef cows increases nationally, the number of slaughter cattle produced consequently increases. As a result, prices are depressed as demand for beef cattle and beef products exceeds supply. As beef cattle prices decline below break-even levels, beef producers respond by reducing herd size or liquidating to minimize losses. Figure 1.1.3-1 U.S. Cattle Cycle12 46,000 41,000 36,000 31,000 26,000 21,000 16,000 11,000 6,000 1,000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 110 90 70 50 30 10 U.S. Beef Cow Inventory Slaughter Steer Price, Choice YG2-4, Nebraska Direct, 1100-1300 lb A corollary explanation is that cash flow needs drive heifer retention and thus herd expansion. When cattle prices are low, beef producers must sell proportionally more of their heifer crop in order to meet cash flow obligations. The net effect is that the number of heifers available for use as replacements is limited and herd size remains static or contracts. As prices increase, fewer total calves must be sold to meet cash flow obligations. Beef producers respond by retaining a larger proportion of the heifer calves they produce to use as replacements. Herds are once again positioned to expand production.13 It is likely that the price cyclicity typical of the beef industry results from a combination of producer attitudes toward cattle prices and the need to meet cash-flow obligations. 12 13 USDA, ERS. Livestock, Dairy and Poultry Situation and Outlook and USDA, NASS Lawrence, John D, “Profiting from the Cattle Cycle: Alternative Cow Herd Investment Strategies.” A.S. Leaflet R, Iowa State University. 11 Dollars Per Cwt. Thousand Head Figure 1.1.3-2 depicts two decades of cattle prices and inventories in Missouri and demonstrates the manner in which cattle owners respond to price cyclicity. Worthy of note is that the top of the 10-year price cycle in 1990 coincided with the trough of the inventory cycle. Ten years later in 2001, another price peak coincided with a relatively low cow inventory. Figure 1.1.3-2 Missouri Cattle Cycle14 2,400 2,200 Thousand Head 2,000 1,800 1,600 1,400 1,200 1,000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 110 90 70 50 30 10 Dollars Per Cwt. MO Beef Cow Inventory MO Average Calf Price Received by Farmers Beef cow inventories in states surrounding Missouri are shown in table 1.1.3-1. All states, including Missouri, reduced beef cow inventory between 1980 and 1990. Conversely, only Iowa and Illinois lost inventory between 1990 and 2000. Between 1980 and 1990, the U.S. lost 13% of its cow herd while Missouri lost 16%. Even larger decreases were reported in major cropping states (Iowa, -36%; Illinois, -29%; and Kansas, -21%). 14 Missouri Agricultural Statistics Service, Farm Facts 12 Table 1.1.3-3 Changes in Beef Cow Inventory15 State Missouri Iowa Illinois Kentucky Tennessee Arkansas Oklahoma Kansas Nebraska Texas U.S. Thousand Head 1980 1990 2,278 1,914 1,751 1,115 699 493 1,106 1,045 948 1,010 1,079 901 2,161 1,860 1,716 1,362 1,950 1,760 5,585 5,110 37,107.4 32,454.7 2000 2,062 1,025 480 1,050 1,034 928 1,898 1,492 1,974 5,430 33,575 Percent Change Beef Cows 1980-90 Beef Cows 1990-00 16% decrease 8% increase 36% decrease 8% decrease 29% decrease 3% decrease 6% decrease 1% increase 7% increase 2% increase 16% decrease 3% increase 14% decrease 2% increase 21% decrease 10% increase 10% decrease 12% increase 9% decrease 6% increase 13% decrease 3% increase Major grain producing states tend to decrease cattle numbers the fastest when beef cattle prices are unfavorable and are among the slowest to increase inventory when prices are strong. Within Missouri, the same phenomenon can be observed among counties. Those that produce the most grain also decreased cattle numbers the most during the 1980’s and increased cattle inventories the least during the 1990’s. With each passing decade, producers become more specialized. Crop farmers concentrate more on crops. Cattlemen focus more on cattle. Because cattlemen are more attuned to the rhythms of the commodity cycle of their particular industry, they may respond the fastest to price incentives. 15 Livestock Marketing Information Center 13 1.1.4 Top Beef Cow States Figure 1.1.4-1 compares the number of beef cows in the top 10 cow-calf states and the states surrounding Missouri. Texas controls more than twice the beef cow inventory of any other state. Missouri, Oklahoma, Nebraska, and South Dakota closely compete with one another for the number two position. Figure 1.1.4-1 Top Ten Beef Cow Inventory and Missouri’s Surrounding States, 200416 6,000 5483 5,000 Thousand Head 4,000 3,000 2125 2,000 1970 1848 1711 1550 1472 1128 1103 984 982 937 432 1,000 0 TX MO OK NE SD KS MT KY TN IA AR ND IL Figure 1.1.4-2 Top Five Beef Cow States in the United States from 1980 to 200017 7,000 6,000 1980 Thousand Head 5,000 4,000 3,000 2,000 1,000 Texas Missouri Nebraska Oklahoma South Dakota 1985 1990 1995 2000 Figure 1.1.4-2 depicts the trend in cow numbers for the top five beef states from 1980 to 2000. Over the period, Texas maintained a considerable lead when compared with other states. Beef cow numbers in Missouri, Nebraska, Oklahoma, and South Dakota fluctuated moderately as the industry moved through price cycles. 16 17 USDA, NASS. January 1 Inventory, 2004 USDA, NASS 14 1.1.5 Cattle Shipments from Missouri Shipments of cattle into and out of Missouri by state are detailed in table 1.1.5-1.18 The USDA database is not complete because some major cattle feeding states do not record shipments from Missouri. For example, transshipments between Missouri, Nebraska, and Oklahoma are not reported in this database. However, the table below does reflect the magnitude of the cattle trade with other leading cattle states. These flows represent dairy cattle as well as beef cattle. Table 1.1.5-1 Flow of cattle in and out of Missouri Inshipments Outshipments State # of Head State # of Head Iowa 18,186 Kansas 369,419 Mississippi 16,713 Iowa 147,562 Illinois 14,466 Texas 73,000 Kansas 14,300 Illinois 27,368 Arkansas 11,308 Colorado 21,890 Alabama 7,580 South Dakota 5,163 Texas 7,000 Idaho 3,196 Wisconsin 4,164 California 2,693 Georgia 1,967 Georgia 1,979 South Dakota 1,220 Arkansas 1,834 USDA, Economic Research Service (ERS). Interstate Livestock Movements: http://www.ers.usda.gov/data/interstatelivestockmovements/dataQandA.htm 18 15 1.2 Stocker Inventory USDA’s National Agricultural Statistics Service collects no direct information regarding the number of stocker calves grown in Missouri. Table 1.2.1-1 estimates the number of stockers that Missouri has had on inventory on January 1, 1980-2004. 1.2.1 Missouri Stocker Inventory The following estimate is derived by taking the inventory of steers and heifers over 500 pounds, as reported by USDA, and subtracting the number of cattle already known to be in feedlot inventory. The assumption is that all calves over 500 pounds that are not kept for breeding or that are not in feedlots are stocker cattle. These animals may be on pasture or drylot. Between 1980 and 2004, the number of stocker calves in Missouri varied between 490,000 head and 735,000 head. Table 1.2.1-1 Missouri Stocker Inventory 1980-200419 Heifers 500+ + Steers 500+ - All Cattle on Year lbs.-other lbs. Feed = Stocker Supply (1,000 Head) (1,000 Head) (1,000 Head) (1,000 Head) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 224 236 214 217 231 238 221 182 180 215 230 190 200 205 230 235 255 260 250 260 260 240 290 320 270 564 583 567 580 568 490 533 480 460 440 460 430 380 425 460 470 475 490 480 510 450 400 480 485 440 120 105 90 100 90 90 85 90 110 95 90 105 90 105 120 70 100 95 100 105 100 85 70 70 65 668 714 691 697 709 638 669 572 530 560 600 515 490 525 570 635 630 655 630 665 610 555 700 735 645 19 USDA, NASS. Jan 1 Inventory Report and Cattle on Feed Report 16 1.2.2 Stocker Inventory Trends for Missouri and Surrounding States Other state stocker inventories are shown in figure 1.2.2-1 and 1.2.2-2. Presently, the top three states in terms of stocker inventory are Kansas, Nebraska, and Oklahoma. Over the last 20 years, the stocker business in Iowa has contracted significantly. After an initial decline, Nebraska stocker numbers sharply increased to place it among the top three stocker states. Other major stocker states (Tennessee, Kentucky, Illinois, and Missouri) have had relatively stable stocker inventories over the 24-year period. Figure 1.2.2-1 Stocker Inventory for Missouri, Iowa, Oklahoma, Nebraska, and Kansas 1,800 1,600 1,400 1,200 Thousand H ead 1,000 800 Missouri Iowa Oklahoma Nebraska Kansas 600 400 200 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Year Figure 1.2.2-2 Stocker Inventory for Tennessee, Kentucky, Arkansas, and Illinois 450 400 350 300 Thousand Head 2004 250 200 Tennessee Kentucky Arkansas Illinois 150 100 50 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Year 17 2004 1.2.3 Pastureland Potential Annual Stocking Rates by Missouri County Using the 2002 Census of Agriculture statistics for county-by-county pasture acreage and for beef cow inventories, an overall potential annual stocking rate by county was estimated. Table 1.2.3-1 derives a total potential annual stocking rate, by county, for all Missouri counties. Each county’s pasture acreage was separated into cropland pasture, woodland pasture, and rangeland pasture to further delineate pasture quality. Table 1.2.3-1 Potential Annual Stocking Rates for Missouri Counties 2002 Cropland Used Only For Pasture Counties Or Grazing 43,804 Adair 23,723 Andrew 14,195 Atchison 24,793 Audrain 72,925 Barry 30,935 Barton 68,898 Bates 39,848 Benton 32,681 Bollinger 35,463 Boone 17,338 Buchanan 10,152 Butler 35,157 Caldwell 46,584 Callaway 40,530 Camden 38,316 Cape Girardeau 32,832 Carroll 11,348 Carter 44,863 Cass 48,753 Cedar 44,064 Chariton 61,541 Christian 24,136 Clark 16,018 Clay 29,981 Clinton 32,722 Cole 37,111 Cooper 45,462 Crawford 56,929 Dade 54,241 Dallas 29,463 Daviess 34,592 DeKalb 48,980 Dent 72,765 Douglas 3,203 Dunklin 46,906 Franklin 2002 2002 Pastureland And Rangeland Other Than Cropland And Woodland Pastured 2002 Woodland Pastured 12,932 6,019 3,278 9,797 45,407 10,343 15,393 45,385 30,476 16,245 5,086 7,612 8,651 23,924 48,264 11,768 8,639 15,880 9,497 27,683 8,418 24,764 14,785 3,368 5,181 30,676 21,308 30,153 23,156 39,800 14,673 7,586 30,658 53,436 1,413 23,418 61,548 24,340 14,311 24,526 84,354 53,681 98,268 61,526 28,936 39,975 22,136 10,357 32,363 55,158 33,513 19,310 33,614 15,533 54,540 63,970 38,567 42,238 26,785 35,377 41,659 32,275 35,277 47,045 86,779 46,105 47,639 35,026 51,727 90,864 1,111 34,292 Beef Cow Inventory 21,700 11,000 7,800 12,900 42,500 22,800 42,000 20,500 18,400 18,500 9,500 6,000 13,000 24,700 15,300 19,100 14,500 5,100 25,500 24,700 17,900 26,600 9,900 10,500 16,500 20,500 20,800 14,500 33,000 23,200 15,500 16,000 19,500 26,200 1,100 21,000 2002 Potential Annual Pastureland, All Types-Stocking Rate (acres/cow/year) 5.45 4.92 4.07 4.58 4.77 4.16 4.35 7.16 5.01 4.96 4.69 4.69 5.86 5.09 7.99 3.63 5.18 8.38 4.27 5.68 5.09 4.83 6.64 5.22 4.66 4.67 4.50 8.46 5.06 6.04 5.92 4.83 6.74 8.28 5.21 4.98 18 Table 1.2.3-1 Potential Annual Stocking Rates for Missouri Counties (continued) Counties 2002 Cropland Used Only For Pasture Or Grazing 33,673 47,703 70,367 27,157 56,374 53,442 26,370 11,863 42,813 82,954 12,518 10,760 39,378 18,992 60,741 25,415 70,675 25,913 65,584 23,793 24,150 61,525 26,097 55,944 20,195 46,935 13,581 40,247 39,884 51,866 1,738 48,585 29,703 18,785 39,043 1,474 56,608 75,796 45,889 47,699 45,783 1,114 26,342 56,207 39,151 34,744 2002 2002 Pastureland And Rangeland Other Than Cropland And Woodland Pastured 2002 Gasconade Gentry Greene Grundy Harrison Henry Hickory Holt Howard Howell Iron Jackson Jasper Jefferson Johnson Knox Laclede Lafayette Lawrence Lewis Lincoln Linn Livingston Macon Madison Maries Marion McDonald Mercer Miller Mississippi Moniteau Monroe Montgomery Morgan New Madrid Newton Nodaway Oregon Osage Ozark Pemiscot Perry Pettis Phelps Pike Woodland Pastured 27,938 6,684 25,972 7,117 11,857 12,147 33,312 4,288 20,869 48,037 10,000 3,449 14,564 18,057 18,309 10,090 56,335 9,366 24,766 13,026 13,860 9,702 8,212 23,583 15,494 43,149 10,992 36,631 9,556 63,073 268 28,115 14,499 16,267 26,745 58 26,788 9,049 29,431 66,417 32,811 703 17,645 20,845 32,943 23,172 26,712 44,383 61,808 23,569 76,126 77,883 36,035 9,810 36,715 120,429 11,938 24,457 78,284 17,644 89,951 32,863 67,426 33,099 75,496 27,634 17,411 49,246 31,359 82,301 17,575 47,789 20,663 57,723 36,751 48,367 1,680 42,929 37,285 22,661 43,481 693 66,574 64,613 77,503 65,657 116,261 1,584 19,451 62,043 51,803 31,449 Beef Cow Inventory 14,000 18,000 37,500 11,000 26,500 28,300 15,900 5,700 14,800 39,300 5,100 5,500 26,500 6,000 36,500 14,800 29,000 18,000 43,500 7,700 10,600 26,500 10,700 24,500 9,700 22,800 10,500 27,000 14,200 29,500 1,200 28,000 19,000 10,500 21,500 600 35,000 36,000 24,500 31,000 22,800 300 14,000 27,500 17,500 14,200 2002 Potential Annual Pastureland, All Types-Stocking Rate (acres/cow/year) 6.31 5.49 4.22 5.26 5.45 5.07 6.02 4.55 6.78 6.40 6.76 7.03 4.99 9.12 4.63 4.62 6.70 3.80 3.81 8.37 5.23 4.55 6.14 6.61 5.49 6.05 4.31 4.99 6.07 5.54 3.07 4.27 4.29 5.50 5.08 3.71 4.28 4.15 6.24 5.80 8.55 11.34 4.53 5.06 7.08 6.29 19 Table 1.2.3-1 Potential Annual Stocking Rates for Missouri Counties (continued) Counties 2002 Cropland Used Only For Pasture Or Grazing 15,533 95,567 34,684 44,866 18,233 27,884 33,101 22,661 24,725 27,558 32,158 23,904 7,369 35,239 22,743 7,143 39,248 25,619 2,090 25,298 14,492 27,348 68,671 27,048 91,060 49,187 10,968 28,393 15,569 75,797 22,087 75,509 4,178,574 2002 2002 Pastureland And Rangeland Other Than Cropland And Woodland Pastured 2002 Platte Polk Pulaski Putnam Ralls Randolph Ray Reynolds Ripley Saline Schuyler Scotland Scott Shannon Shelby St. Charles St. Clair St. Francois St. Louis Ste. Genevieve Stoddard Stone Sullivan Taney Texas Vernon Warren Washington Wayne Webster Worth Wright State Total Woodland Pastured 5490 50,178 33,928 19,024 11,744 15,461 12,497 11,164 24,187 14,486 6,301 7,872 2,507 27,751 9,539 4,006 34,274 15,424 1,311 19,033 3,586 17,543 16,549 41,904 65,203 18,552 8,115 19,688 11,297 44,594 4,817 51,956 2,281,064 15,567 88,600 28,834 80,795 22,241 41,163 41,124 13,770 26,497 28,491 37,365 31,050 5,154 19,172 23,853 7,311 52,042 20,474 1,924 20,206 10,844 40,142 93,221 47,591 137,334 94,227 9,509 21,700 14,259 67,222 25,710 75,207 4,854,438 Beef Cow Inventory 8,000 45,500 13,000 22,200 9,400 14,500 16,500 6,000 11,000 18,500 13,800 10,200 3,900 11,900 11,400 4,000 26,000 12,000 700 12,100 6,800 15,600 29,500 13,500 45,500 30,500 6,200 9,400 7,000 26,000 11,500 26,500 2,060,000 2002 Potential Annual Pastureland, All Types-Stocking Rate (acres/cow/year) 4.57 5.15 7.50 6.52 5.56 5.83 5.26 7.93 6.86 3.81 5.49 6.16 3.85 6.89 4.92 4.62 4.83 5.13 7.61 5.33 4.25 5.45 6.05 8.63 6.45 5.31 4.61 7.42 5.88 7.22 4.58 7.65 5.49 20 The number of potential beef cows stocked per acre varies tremendously across Missouri counties. However, there are some interesting differences in the top five cattle counties, as shown in table 1.2.3-2. Lawrence County, with a beef cow population of 43,500, had the lowest potential stocking rate (fewest number of acres needed per cow) in the top five cattle counties at 3.81 acres per cow. Lawrence and Barry Counties are major poultry producing counties. The ready availability of poultry litter for use as a pasture fertilizer contributed to greater than normal forage production and permitted their relatively low potential annual stocking rates. Table 1.2.3-2 Beef Cattle Potential Annual Stocking Rates in Top 5 Counties (2002) County Texas Polk Barry Bates Lawrence Beef Cow Inventory 45,500 45,500 42,500 42,000 43,500 Potential Annual Pastureland, All TypesStocking Rate (acres/cow/year) 6.45 5.15 4.77 4.35 3.81 21 1.3 Beef Cow Operations in Missouri Thousands of small cattle herd operations control more than 40% of Missouri’s cattle inventory. This characteristic has implications for technology adoption and for market channel innovation for Missouri feeder calf producers. Section 1.3.1 compares the size of Missouri cattle operations verses the number of cattle controlled by that particular demographic group. In section 1.3.2, the same contrasts are highlighted for the U.S. 1.3.1 Missouri Beef Cow Operations and Inventory Almost 80% of the beef operations in Missouri have less than 50 head of cattle. These operations hold 41% of the cattle in the state. Beef operations with 50 to 99 head of cattle account for only 15% of the cattle operations but they hold 26% of the cattle inventory. Combined, these two categories comprise 94% of all of the beef operations in the state and they hold 67% of the inventory. Table 1.3.1-1 Missouri Beef Cattle Operations, by Size & Inventory, January 1, 200220 Classification Number of Operations Percent of Operations Percent of Inventory 1-49 Head 50-99 Head 100-499 Head 500 Head & Over 46,000 8,200 3,700 100 79% 14% 6% 0.2% 42% 26% 28% 4% 20 USDA, NASS 22 Operations with 100 to 499 head of cattle make up 6% of the farms but they represent 28% of the cattle. Beef operations in Missouri with more than 500 head in inventory make up less than 0.2% of the total number of operations and control about 4% of the inventory. Figure 1.3.1-1 Comparison between Missouri Beef Cattle Inventory and Missouri Beef Cattle Operations in 2003 (January 1 Inventory)21 90 80 70 60 Percentage 79 50 40 30 20 10 0 41 26 14 6 4 0.2 29 1-49 Head 50-99 Head 100-499 Head 500 Head & over Inventory Operations 21 USDA, NASS 23 1.3.2 U.S Beef Cow Operations and Inventory The demographic trends in U.S. beef cow operations and their inventory follow closely those in Missouri. Beef cow operations with an inventory from 1 to 49 head represent 78.3% of the total number of beef cow operations in the country. Collectively, they own 29.2% of the U.S. beef cow inventory. The largest percentage of inventory (37.5%) comes from beef cow producers with herd sizes between 100-499 head. Figure 1.3.2-1 Comparisons between U.S. Beef Cattle Inventory and U.S. Beef Cattle Operations in 2003 (January 1 Inventory)22 90 80 70 60 Percentage 50 40 30 20 10 0 1-49 50-99 100-499 500-999 1000+ 29.2 18.9 12.1 8.9 7.8 0.5 6.6 0.2 37.5 78.3 Inventory Operations 22 USDA, NASS 24 1.3.3 U.S. Beef Production per Head The amount of beef produced per harvested calf in the U.S. has trended strongly upward during the last 30 years (figure 1.3.3-1). Beef production per harvested animal is calculated by dividing annual commercial beef production by annual commercial cattle slaughter. Figure 1.3.3-1 Commercial Beef Production per Harvested Calf in the United States23 780 760 740 lbs. per head 23 720 700 680 660 640 620 600 USDA, Livestock Annual Summary 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 25 1.3.4 U.S. Beef Production per Head and U.S. Beef Cow Inventory As beef production efficiency has increased over the last 20 years, the U.S. beef cow inventory has generally decreased. Figure 1.3.4-1 shows the beef production per beef cow in the U.S. from 1980 to 2003. If this trend continues in the future, there may be a marked decrease in the physical feedlot space required to fulfill domestic and export demand for beef. Reduced demand for feedlot space will put pressure on lower efficiency feedlots initially as they compete for animals. Ultimately, a continuation of this trend will have downside pressure on prices encouraging larger and more efficient operations. Figure 1.3.4-1 Commercial Beef Production per U.S. Beef Cow24 850 800 750 lb per beef cow s. 700 650 600 550 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Figure 1.3.4-2 U.S. Commercial Beef Production per Head vs. Beef Cow Inventory25 45,000 40,000 780 760 740 Thousand Head 35,000 30,000 25,000 20,000 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 700 680 660 640 620 600 Beef Cow Inventory Commercial Beef Production per head 24 25 USDA, NASS USDA, NASS 26 lbs. per head 720 Chapter 2: Current Competitive Position of Missouri’s Beef Industry Missouri’s apparent comparative advantage in feeder calf production may be partially explained by a cost advantage in purchasing the major inputs of production: land, pasture rent, real estate taxes, corn, hay, and farm labor. 2.1 Cost of Production As a transition state from the Corn Belt to the Great Plains, Missouri exhibits lower land costs, lower pasture rental rates, and lower property tax rates than other Corn Belt states. In addition, because Missouri is near major feed grain producing areas, corn and feed prices tend to be lower in Missouri than in areas further south or west. 2.1.1 Farm Real Estate Values The cost of farm real estate is critical to the overhead cost associated with hay and pasture. Missouri farmland is less expensive than land in most of the states to the east, and more expensive than most of the states to the west. The average value per acre of farm real estate is shown in figure 2.1.1-1. Figure 2.1.1-1 Farm Real Estate: Average Value per Acre, by State, Jan. 1, 200326 26 USDA, NASS 27 2.1.2 Pastureland Value Pastureland values as of 2003 for the United States are shown in figure 2.1.2-1. The land value for each state varies, mainly due to location, land productivity, and pressure from alternative uses. Missouri currently has an average pastureland value of $1,100 per acre, significantly above the pastureland values in states to the west and north of Missouri. The cost of the pastureland as a feed resource for beef cow enterprises depends upon both the cost of the land and upon how many acres of pasture have to be purchased or rented to support a beef cow. Figure 2.1.2-1 Pasture: Average Value per Acre on Jan. 1, 200327 27 USDA, NASS 28 2.1.3 Pastureland Cash Rent Pasture rental rates for each state in 2003 are compared in figure 2.1.3-1. In 2002, Missouri had an average rental rate of $23.50 per acre for pastureland. It is important to note that pasture rental rates in different regions of Missouri varied by as much as 50%, (see figure 2.1.3-2). The range went from a high of $26.50 in Central Missouri to a low of $17.50 in South Central Missouri. These rates reflected the relative scarcity of rental pasture and also the productivity of the pastureland and its value to the lessee. Figure 2.1.3-1 Pasture Rented for Cash: Avg. Cash Rent Per Acre, by State, 200328 Figure 2.1.3-2 Pasture Cash Rent Per Acre, Missouri, By District, 200329 28 29 USDA, NASS Missouri Agricultural Statistics Service, Farm Facts 29 2.1.4 Agricultural Real Estate Taxes Average real estate tax rates for the United States are shown in figure 2.1.4-1. Missouri real estate tax rates were much lower than tax rates on the coasts, the northeast, the southeast, and much of Corn Belt. Missouri had agricultural real estate taxes that were comparable with the Great Plains states. Figure 2.1.4-1 Average Agricultural Real Estate Taxes $/Acre in 199530 30 USDA, ERS. Agricultural Real Estate Tax Survey data. 30 2.1.5 Corn Prices The price of corn is a major component of the cost of cattle feeding. The corn basis price is the difference in price between a local bid price for corn and the nearby corn futures contract at the Chicago Board of Trade. Spatial maps of corn basis prices reflect the regional supply and demand differences for corn at any given moment. During harvest season, major corn producing areas show a depression in corn prices as storage elevators lower their harvest time bid as they fill with corn. The gradually rising basis throughout the year reflects the elevator’s recapture of storage costs as they gradually sell corn to users. Figure 2.1.5-1 depicts the corn price basis across most of the U.S. Corn Belt. Corn prices move higher as one moves farther south (i.e., along the Mississippi River) and west from the Corn Belt. Figure 2.1.5-1 Seasonal Corn Price Basis Maps,31 <-30 January 2003 -30 to -20 -20 to -10 -30 to -20 June 2003 +20 to +30 +10 to +20 >+30 -20 to -10 -10 to 0 0 to +10 +10 to +20 -10 to 0 -10 to 0 0 to +10 >+30 -10 to 0 +10 to +20 >+30 0 to +10 +20 to +30 0 to +10 +20 to +30 <-30 -30 to -20 -30 to -20 -20 to -10 +10 to +20 October 2003 <-40 -40 to -30 -30 to -20 January 2004 >+20 -30 to -20 -20 to -10 -20 to -10 >+10 -10 to 0 -20 to -10 -10 to 0 +10 to +20 >+10 -10 to 0 0 to +10 0 to +10 >+10 0 to +10 0 to +10 31 Derived from Montana State University, Extension Agricultural Marketing, Spatial Basis Report http://www.montana.edu/extensionecon/Marketing/spatial.html 31 2.1.6 Hay Production and Prices Missouri is a major hay producing state, harvesting between 3.6 and 4 million acres of hay annually in recent years. Approximately 10% of Missouri hay is alfalfa; most of the rest is tall fescue or mixed grass-legume hay containing fescue. Most hay is not sold on the open market but is instead used on-farm. The prices in table 2.1.6-1 reflect market prices but may overestimate the value of hay used on-farm. It is important to note that a significant part of the prices reported in table 2.1.6-1 reflect transportation costs. Reports of large round bales of tall fescue trading in the $35 to $45 per ton at harvest are common in Missouri. When reviewing nationwide hay markets, few states report hay prices lower than Missouri’s. The exception is the gulf coast region where coastal Bermuda grass is often priced lower than tall fescue.32 Hay production is distributed throughout Missouri. However, there are significant concentrations of counties in the southwest and central parts of the state where hay production exceeds 60,000 tons annually (figure 2.1.6-1). These areas of the state also tend to have the greatest concentrations of beef cows. Table 2.1.6-1 Average Prices Received by Farmers, Missouri, 1999-200333 Commodity 1999 2000 2001 2002 2003 All Hay $72 $70.50 $75 $67.50 $66.50 Alfalfa Hay $107 $105 $107 $111 $105 All Other Hay $64 $63 $62.50 $54 $49.50 Figure 2.1.6-1 Missouri Hay Production, By County, in 200234 32 33 Missouri Agricultural Statistics Service, Farm Facts USDA, NASS 34 Missouri Agricultural Statistics Service, Farm Facts 32 2.1.7 Farm Labor Farm labor wages in Missouri have risen strongly in recent years, reflecting a national trend. Wages tended to be near national farm labor wage rate averages. In the five-year period of 1999 to 2003, the price of livestock labor in Missouri and Iowa increased from $7.35 per hour to $9.83 an hour. This $2.48 per hour increase equates to a 34% rise in labor costs or growth at an annual compound rate of 6%. Table 2.1.7-1 Farm Labor and Wage Rates, Missouri and Iowa, 1999-200335 Year & Month 1999 Hours Worked per Field Hired Hired Number of Hired Workers Worker Workers (Thousand) Livestock Combined All Hired Hired Hired Workers Worker Workers 2/ Hourly Rate 3/ (Dollars per hour) January April July October 2000 16 24 30 26 19 23 30 31 14 21 29 41 24 27 30 25 20 24 23 26 19 28 29.9 37.0 34.4 43.1 41.1 37.7 34.7 37.3 37.3 37.5 35.7 34.4 33.5 32.5 32.1 34.7 27.2 36.6 36.7 42.6 33.0 33.7 $7.36 $7.02 $7.22 $7.85 $7.31 $7.56 $7.62 $7.41 $7.86 $8.19 $7.80 $8.06 $8.62 $7.84 $8.42 $8.69 $9.24 $9.94 $9.60 $8.62 $9.12 $9.04 $7.35 $8.54 $8.07 $7.86 $7.87 $8.18 $8.63 $8.19 $8.61 $8.55 $8.08 $9.26 $9.41 $9.82 $10.72 $8.30 $9.01 $10.00 $8.87 $9.83 $9.79 $9.03 $7.35 $8.07 $7.58 $7.85 $7.80 $7.88 $8.00 $7.72 $8.49 $8.41 $7.94 $8.52 $9.26 $8.89 $8.94 $8.59 $9.08 $9.97 $9.31 $8.87 $9.50 $9.04 $7.86 $8.27 $7.90 $8.17 $8.13 $8.08 $8.39 $7.90 $9.05 $8.80 $8.10 $8.78 $9.74 $9.34 $9.20 $8.81 $9.50 $10.71 $9.51 $9.30 $10.15 $9.48 January April July October 2001 January April July October 2002 January April July October 2003 January April July October 2004 January April 1/ Missouri and Iowa combined. No individual state estimates are available 2/ Field and livestock workers combined 3/ Includes supervisory and other types of workers along with the field and livestock workers 35 USDA, NASS. Farm Labor 33 2.1.8 Nationwide Cost and Return Comparison The USDA’s Economic Research Service estimates regional differences in costs and returns for cow-calf producers using data collected through its Agricultural Resource Management Surveys. The most recent summary of costs and returns for cow-calf operations was completed using 1996 data.36 Between survey years, the USDA uses the baseline survey data to project annual commodity costs and returns. Rather than use state or political boundaries to categorize regions, the Economic Research Service has delineated regions of the country that have similar resource endowments and management patterns. These farm resource regions, which are depicted in figure 2.1.8-1, are not necessarily contiguous.37 Missouri contains two of these regions: Heartland and Eastern Upland. The Eastern Upland region is concentrated in the southwest and south central regions of Missouri, roughly corresponding to the portion of the state that lies south of US Highway 50. The Heartland region covers the rest of the state. Table 2.1.8-138 and section 2.1.9 describe the cow-calf production costs and returns by these farm resource regions. Information concerning the Northern Crescent and Southern Seaboard regions for cow-calf costs and returns is not available. Figure 2.1.8-1 USDA-ERS, Farm Resource Regions 36 Characteristics and Production Costs of US Cow Calf Operations, USDA Statistical Bulletin Number 974-3 http://www.ers.usda.gov/publications/sb974-3/sb974-3.pdf 37 USDA, ERS. Farm Resource Regions http://www.ers.usda.gov/Emphases/Harmony/issues/resourceregions/resourceregions.htm#new 38 USDA, ERS. Commodity Costs and Returns, Cow-Calf Data http://www.ers.usda.gov/Data/CostsAndReturns/testpick.htm 34 Table 2.1.8-1 Cow-Calf Production Costs and Returns per Bred Cow, 2002 United States 2002 USDA-ERS Farm Resource Region Fruitful Basin and Mississippi Northern Prairie Eastern Rim Range Portal Heartland Great Plains Gateway Uplands 2002 2002 2002 2002 2002 2002 2002 dollars per bred cow 171.57 115.34 34.95 10.80 64.54 401.47 23.26 26.81 40.24 202.16 13.20 73.61 0.36 356.38 38.49 1.34 4.27 40.18 16.16 29.24 4.40 513.72 0.60 219.81 280.63 5.55 44.23 84.10 634.92 1148.64 -747.17 -112.25 51 45 65 9 26 94 72 76 149.17 92.34 112.41 32.48 88.55 481.26 34.21 19.56 45.60 154.63 7.57 115.74 6.56 349.66 14.68 0.25 6.31 29.42 16.36 21.33 3.79 476.01 0.77 339.53 89.28 3.26 33.88 56.46 523.18 999.19 -517.93 5.25 174 162 95 4 1 89 61 84 156.77 85.03 133.85 70.47 79.42 532.63 105.13 31.45 6.91 115.22 28.10 96.56 1.58 279.82 19.81 0.04 7.09 24.93 22.32 32.47 3.99 495.60 2.81 200.90 139.62 1.49 30.90 62.98 438.70 934.30 -401.67 37.03 78 66 42 14 44 81 66 77 128.39 102.45 51.27 22.72 59.62 371.42 39.01 23.63 14.38 194.15 3.11 65.01 0.44 300.72 16.25 0.63 6.97 26.98 15.65 25.91 3.73 435.85 3.31 166.34 195.18 2.29 32.65 55.19 454.96 890.81 -519.39 -64.43 50 38 19 23 58 87 87 96 81.26 56.13 55.20 21.88 62.87 282.27 51.68 20.08 3.79 88.48 3.79 159.66 1.66 277.46 36.63 0.49 4.93 56.88 22.12 19.72 3.98 473.89 18.09 285.67 76.82 1.02 31.59 54.65 467.84 941.73 -659.46 -191.62 138 113 46 3 51 55 80 83 154.52 96.42 132.65 57.79 80.84 528.68 87.74 10.19 3.15 148.27 5.42 123.71 3.55 294.29 17.87 0.81 6.46 27.09 18.81 19.04 4.04 476.15 1.57 416.11 69.40 1.59 31.54 56.63 576.84 1,052.99 -524.31 52.53 170 152 81 6 13 69 60 81 121.93 104.45 69.02 17.43 58.94 377.40 37.39 21.27 17.67 172.52 3.66 56.50 0.00 271.62 19.58 0.01 5.63 20.45 27.07 22.02 2.83 406.60 0.45 547.14 198.28 2.44 26.50 55.52 830.33 1,236.93 -859.53 -29.20 53 44 22 14 64 82 87 75 Item Gross value of production: Steer calves Heifer calves A Yearling steers Yearling heifers Other cattle Total gross value of production 2/ Operating costs: Purchased cattle for backgrounding Feed: Concentrates and other feed Supplemental feed Harvested forages Cropland pasture Private pasture Public land Total feed costs B Other: Veterinary and medicine Bedding and litter Marketing Custom operations Fuel, lube, and electricity Repairs Interest on operating inputs Total operating costs Allocated overhead: Hired labor Opportunity cost of unpaid labor C Capital recovery cost of machinery and equip. 3/ 145.49 90.45 95.20 41.17 74.83 453.26 62.08 25.17 19.83 143.33 14.10 102.47 2.48 307.38 22.53 0.43 6.12 31.52 19.09 26.23 3.95 479.33 3.66 253.74 142.30 2.45 33.66 61.73 497.54 976.87 -523.61 -26.07 83 71 49 13 38 84 72 80 Opportunity cost of land Taxes and insurance General farm overhead Total allocated overhead Total costs listed D Value of production less total costs listed Value of production less operating costs Supporting information: Bred cows (head) 1/ Calves weaned (head) 1/ Calving season (percent of ranches) 1/ One Two E None set Cost of homegrown harvested forages (percent of total cost) 1/ 4/ Cost of pasture owned: Private pasture (percent of total cost) 1/ 5/ Cropland pasture (percent of total cost) 1/ 5/ 1/ Developed from survey base year, 1996. 2/ Includes marketing costs below to avoid double counting. Market prices used to update the gross value of production are net of marketing costs. 3/ Machinery and equipment, and housing, manure handling, and feed storage structures, and breeding herd. 4/ Percent of total harvested forage cost from charge on homegrown forages. 5/ Percent of total pasture cost from charge on owned pasture. 35 2.1.9 Interpretation of the Missouri Costs and Returns Survey A careful review of the cost and return estimates depicted in table 2.1.8-1 allows one to better understand what drives regional competitiveness in the U.S. cow-calf industry. As depicted on the map in figure 2.1.8-1, Missouri breaks into two distinct farm resource regions implying that Missouri cow-calf operations employ two very different management systems. As a generalization, the farms in Missouri’s northern half, (Heartland region), have higher investment costs, employ more management input, and produce product of relatively high value. Compared to operations in the Heartland region cow-calf operations in southern Missouri (Eastern Uplands region) generally have a lower level of capital invested per cow, employ less management input, and produce product of relatively low value. The Heartland region and the Eastern Upland region, which include but are not limited to Missouri, have the smallest average herd sizes compared with other reported regions. Value of Production (Section A of table 2.1.8-1) The Eastern Upland region had the second lowest value of production per bred cow of the reported regions in the country. Primarily, this came from having the lowest percentage of calves produced per bred cow. Operating Costs (Section B of table 2.1.8-1) The Heartland region had the highest total feed costs of all reported regions in the U.S. This was due mostly to it having the highest cost of harvested forage. The Eastern Upland region had the third highest total feed costs in the reported regions. As with the Heartland region, this was attributable to having the second highest cost of harvested forage of the reported regions. Overhead Costs (Section C of table 2.1.8-1) The Heartland region had the second highest total allocated overhead costs per cow of any of the reported regions of the country. This appeared to stem from having the highest machinery and equipment capital recovery costs. The Eastern Uplands region had the third highest cost for machinery and equipment capital recovery costs in the reported regions but managed to have the lowest total overhead costs. This was because the Eastern Upland region had the lowest labor costs among all the reported regions. Small herds typically have high overhead costs per cow. The Heartland and Eastern Uplands regions had the smallest herd sizes among the reported regions, (Section E of table 2.1.8-1). Total Costs (Section D of table 2.1.8-1) Missouri’s diverse natural and human resources combined to create two beef cow production systems with dramatically different costs. Heartland operations had higher costs than any other reported region of the country, whereas the Eastern Upland had lower total costs than any other reported region of the country. 36 Value of Production Less Total Costs (Section D of table 2.1.8-1) Deducting the total listed costs from the value of production provides a net basis by which to compare production systems. Missouri’s Eastern Upland region ranked as the third most profitable reported region in the country. Missouri’s Heartland region ranked second to last. The Heartland region could be described as a system managed for top production, in which overhead costs were allowed to get out of line. In contrast, the Eastern Upland region could be described as a system managed for least cost that did not achieve a level of production sufficient for competitive levels of profitability. Weaning Percentage (Section E of table 2.1.8-1) In the Heartland region, the average herd size was 51 bred cows producing 45 weaned calves. Weaning percentage was equal to 88%. In the Eastern Upland region, the average herd size was 50 bred cows, which produced 38 weaned calves. Weaning percentage there was 76%. The Eastern Upland region had the lowest weaning percentage of the reported regions surveyed in the U.S. Calving Season (Section E of table 2.1.8-1) In the Heartland region, 65% of the operations had a single calving season, 9% had two calving seasons, and 26% had no set calving season. In the Eastern Uplands region, however, 19% of the operations had one calving season, 23% had two calving seasons, and 58% had no set calving season. 37 2.1.10 Beef Cow Potential Annual Stocking Rate Beef cow-calf operations are typically very capital intensive due primarily to land costs. One of the key determinants of investment efficiency is the amount of pastureland needed per cow. Using data from the most recent Census of Agriculture (2002), table 2.1.10-1 ranks selected states in terms of the land investment needed per cow. An average potential annual stocking rate for each of these states was determined by dividing the state’s total pastureland by its total beef cow inventory. Iowa pastures are potentially stocked at an average rate of 3.69 acres per cow per year, earning it the top rank among leading beef states for potential annual stocking rate Missouri ranks sixth in potential annual stocking rate, with an average of 5.49 acres per cow per year in the state. Table 2.1.10-1 Potential Annual Stocking Rates for the Top Ten Beef Cow States and Surrounding States of Missouri39 Pastureland and Rangeland Other Than Cropland and Cropland Pastured Woodland Woodland Acres Acres Pastured Total Stocking Stocking Stocking Stocking Rate Rate Rate Rate (acres/cow/ (acres/cow/ (acres/cow/ (acres/cow/ year) year) year) year) Rank 2002 IA IL TN KY AR MO OK KS ND NE SD TX MT Cropland Used Only For Pasture or Grazing Woodland Pastured Pastureland And Rangeland Other Than Cropland and Woodland Pastureland, All Pastured Types Beef Cow Inventory 1,355,161 528,275 2,066,097 2,580,719 1,705,723 4,178,574 5,050,399 2,401,459 1,285,642 1,881,599 2,351,951 12,937,991 1,726,012 548,815 374,571 850,513 903,863 909,796 2,281,064 1,638,323 356,223 125,487 233,765 165,652 4,202,337 1,698,879 1,735,421 770,995 1,948,445 1,613,681 1,977,177 4,854,438 15,732,765 15,504,008 10,984,441 21,940,679 22,025,971 83,402,865 38,241,382 3,639,397 1,673,841 4,865,055 5,098,293 4,592,696 11,314,076 22,421,487 18,261,690 12,395,570 24,056,043 24,543,574 100,543,193 41,666,273 985,000 445,000 1,060,000 1,075,000 927,000 2,060,000 1,936,000 1,504,000 1,008,000 1,932,000 1,803,000 5,435,000 1,471,000 1.38 1.19 1.95 2.40 1.84 2.03 2.61 1.60 1.28 0.97 1.30 2.38 1.17 0.56 0.84 0.80 0.84 0.98 1.11 0.85 0.24 0.12 0.12 0.09 0.77 1.15 1.76 1.73 1.84 1.50 2.13 2.36 8.13 10.31 10.90 11.36 12.22 15.35 26.00 3.69 3.76 1.84 4.74 4.95 5.49 11.58 12.14 12.30 12.45 13.61 18.50 28.33 1 2 3 4 5 6 7 8 9 10 11 12 13 39 2002 Census of Agriculture and USDA, NASS 38 2.1.11 Land Investment per Cow Average pasture values from the 2002 Census of Agriculture were used to derive the typical land investment per cow for selected states. The potential annual average stocking rate multiplied by the average pasture value equals land investment per cow in this analysis. In table 2.1.11-1, the land investment per cow was estimated for all of the major beef cow states and all of the states neighboring Missouri. North Dakota ranked first, requiring the lowest land investment per cow. This was the result of the state’s moderate potential annual stocking rate and low average pasture cost. Missouri ranked eighth among the states considered. Interestingly, the state with the most cattle, Texas, ranks last of the states considered in terms of land investment per cow, due to its relatively low potential annual stocking density and high per acre land cost. Table 2.1.11-1 Land Investment per Cow for the Top 10 Beef Cow States and Surrounding States of Missouri40 State ND IA SD NE IL KS OK MO AR KY MT TN TX Overall Stocking Rates 12.30 3.69 13.61 12.45 3.76 12.14 11.58 5.49 4.95 4.74 28.33 4.59 18.50 Pasture Value $165 $760 $210 $245 $1,030 $400 $435 $980 $1,150 $1,440 $255 $2,250 $600 Land Investment Per Cow $2,030 $2,804 $2,858 $3,050 $4,587 $4,856 $5,037 $5,380 $5,693 $6,826 $7,224 $10,327 $11,100 Rank for Land Investment 1 2 3 4 5 6 7 8 9 10 11 12 13 40 2002 Census of Agriculture and USDA, Agricultural Land Values 2002 (Pasture: Average Value per Acre) 39 2.2 Missouri Farmland Appreciation A prime motivation for maintaining a beef herd in Missouri is land appreciation. Beef cows may be seen as a way to pay operating expenses while owning land for appreciation purposes. A prime motivator behind many of the 58,000 beef cow operations in Missouri may be to store and build wealth over time from the compounding annual appreciation on land. Profits from part-time beef cattle operations may be used to pay operating expenses for a farm but long-term compound land appreciation is what justifies the decision to invest family assets into a beef operation. A review of land price appreciation in Missouri during the twentieth century demonstrates the wisdom of that particular investment (table 2.2-1). Although there were times during the century when land prices declined, land values appreciated at a compound rate of about 6% per year over the last 90 years. A 6% compounded return results in land values doubling every 12 years. Whenever beef cattle producers are challenged about low returns in the cow-calf business, many respond, “farmers live poor and die rich.” Land appreciation and the enforced savings from a low profit enterprise may be two key explanations behind this response. Several studies of small business owners have shown that they typically build more wealth over their lives than wage earners. Business owners often set their living expenses lower than their expected earnings to account for the variability in their expected earnings. Over time, this enforced savings builds wealth through long term compounding. Missouri beef cow operations may be a special case of this small business phenomenon where the enforced savings is the capital appreciation on land. Table 2.2-1 Appreciation of Missouri Farmland this Century Look-back Period 10 years 20 years 30 years 40 years 50 years 60 years 70 years 80 years 90 years Starting Value Period in Time Land Price: $/Acre 1992-2002 1982-2002 1972-2002 1962-2002 1952-2002 1942-2002 1932-2002 1922-2002 1912-2002 734 945 261 127 85 35 39 71 53 Ending Value Land Price: $/Acre 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520 Compound Annual % Return 7.6 2.4 6.0 6.4 5.9 6.5 5.4 3.9 3.8 40 2.3 Regional Cattle Price Relationships When comparing average feeder calf prices across the U.S., regional price differentials are clearly evident. While prices vary due to quality and weight differences in the cattle, most regional price differentials reflect transportation cost to major feedlot areas (figure 2.3-1). Eighty percent of the cattle on feed in the United States are finished in Texas, Oklahoma, Kansas, Colorado, and Nebraska. Figure 2.3-1 Feeder Steer Prices in Major Feeding Areas, October 200141 95 90 85 $/cwt 80 75 70 C ol O or kl ad ah o om a di D re od ct ge C ity ,K Te S xa s di re Ka ct ns as di O re kl ct ah om a C ity W yo m in Am g ar illo Sp ,T rin X gf ie ld ,M o M on St ta .J na os ep h, M O Ke nt uc ky Ar ka ns as So ut he as t Te nn es se 41 USDA, Agricultural Marketing Service. National Feeder Cattle Summary (report no SJ LS650) 700-800 pound steers, medium and large, No. 1. Weekly data averaged for month of October 2001. 41 2.4 Marketing Channels for Cattle Cattle Moving to Slaughter The majority of fed cattle moving to slaughter do not go through public markets. The longterm trend toward direct and negotiated purchases of slaughter cattle continues. In 1980, 77.1% of the slaughter steers, heifers, cows, and bulls went through non-public markets. By 2000, this figure was up to 87.1% of the slaughter steers, heifers, cows, and bulls.42 Feeder Cattle Feeder cattle moving to stocker operations or to feedlots continue to be purchased predominately through livestock markets and other commission sales channels. In 1983, there were 1,786 livestock auctions selling cattle in the U.S. By 1999, the number of livestock auctions selling cattle in the U.S. dropped 29% to 1,267 (table 2.4-1). The number of livestock auction markets in Missouri dropped at a rate of 41%. Table 2.4-1 Number of Livestock Auctions in U.S. and Missouri43 1983 United States Missouri Missouri as a % of US 1,786 120 7% 1993 1,450 85 6% Year 1995 1,386 79 6% 1997 1,333 78 6% 1999 1,267 71 6% The number of cattle (all classes) sold on commission in Missouri averaged 125% of Missouri’s calf crop from 1996 to 2000. This number was higher than the annual calf crop because of the sale of cull cows, the sale of a given animal more than once through the auction system, and cattle sold on commission in Missouri that originated in other states. Auction markets have traditionally been the most cost effective way to market feeder calves from a large number of small producers. Table 2.4-2 Commission Sales in Missouri Compared to Calf Crop Year 1996 1998 44 Head Sold on Commission 2,735,000 2,450,000 45 Calf Crop 2,170,000 2,070,000 Commission Sales as % of Calf Crop 126% 118% Commission sales include all auctions, terminal markets, video auctions and country commission firms 2000 2,550,000 2,060,000 124% 42 USDA, Grain Inspection, Packers and Stockyards Administration (GIPSA), Packers and Stockyards Statistical Reports, various issues. 43 USDA, GIPSA, Packers and Stockyards Statistical Report, various issues. 44 USDA, GIPSA. Packers and Stockyards Statistical Report, various issues 45 Missouri Agricultural Statistics Service 42 2.5 Purebred Industry Missouri purebred producers are an important part of the U.S. seedstock industry. There are 21 mainstream breed associations in the U.S. In eight of these associations, Missouri producers ranked among the top five states in the nation in terms of animal registrations in 2002 according to the National Pedigreed Livestock Council. Missouri ranks second in Angus registrations; third in Charolais, Simmental, and Limousin registrations; fourth in Gelbvieh, Salers, and Braunvieh registrations; and fifth in Shorthorn registrations. Table 2.5-1 lists the number of animal registrations per breed. Table 2.5-1 Cattle Purebred Registrations for the U.S.46 Breed Breed Registrations Angus 271,222 Hereford 80,976 Limousin 49,036 Charolais 45,354 Simmental 44,159 Red Angus 41,900 Gelbvieh 32,323 Beefmaster 30,416 Brangus 25,500 Shorthorn 21,608 Brahman 15,000 Maine-Anjou 12,267 Santa Gertrudis 11,500 Salers 10,286 Chianina 6,679 Braunvieh 6,235 Longhorn 6,200 Tarentaise 1,900 Highland 1,500 Pinzgauer 664 Blonde d’Aquitaine 625 715,350 Total 46 2002 National Pedigreed Livestock Council Report 43 2.6 Economic Impact of the Missouri Beef Industry In 2002, cattle were raised on 68,000 of the state’s 107,000 farms. Sales of cattle and calves generated cash receipts of $821 million, or 19% of the state’s total farm cash receipts.47 As those farm level revenues were spent for goods and services, more than $1.5 billion dollars in economic activity was generated in the state. Most of this activity was in rural areas.48 Table 2.6-1 records the distribution of cattle sales by county throughout the state of Missouri during 2002. The number of beef cattle sold in each county is estimated as a percentage of the state’s total cattle production. Gross income by county for sales of cattle and calves is also presented. This income is spent to purchase agricultural inputs and pay family living expenses in rural communities throughout Missouri. The multiplier effect supports thousands of additional jobs in the state and provides an additional $710 million annual impact on Missouri’s economy. Table 2.6-1 Farm Level Economic Impact of Missouri’s Beef Industry49 Estimated Total head of Cattle Sold in 2002 15,224 9,743 6,617 17,457 36,538 17,863 33,087 15,833 13,397 15,630 7,511 6,293 10,352 19,649 11,773 18,269 12,585 3,857 18,878 18,472 20,908 21,923 8,323 Percentage of Total Cattle Marketed in Cattle and Calf Sales in Total Annual Missouri 2002 Economic Impact 0.9 $7,118,757 $10,270,259 0.6 $4,563,306 $6,692,973 0.4 $3,103,048 $4,660,275 1.0 $8,031,418 $11,687,849 2.1 $16,975,497 $24,802,372 1.0 $8,305,216 $12,259,313 1.9 $15,332,707 $22,759,808 0.9 $7,301,289 $10,766,167 0.8 $6,297,362 $8,811,684 0.9 $7,210,023 $10,424,857 0.4 $3,468,112 $4,780,668 0.4 $2,920,516 $4,442,720 0.6 $4,837,104 $7,107,776 1.1 $9,126,611 $13,575,679 0.7 $5,384,701 $7,844,545 1.0 $8,487,748 $13,749,550 0.7 $5,932,297 $8,790,935 0.2 $1,825,322 $2,361,038 1.1 $8,761,547 $13,415,286 1.0 $8,579,014 $12,488,308 1.2 $9,856,740 $15,105,631 1.2 $10,130,538 $14,645,304 0.5 $3,924,443 $5,891,067 County Adair Andrew Atchison Audrain Barry Barton Bates Benton Bollinger Boone Buchanan Butler Caldwell Callaway Camden Cape Girardeau Carroll Carter Cass Cedar Chariton Christian Clark 47 48 Missouri Agricultural Statistics Service, Farm Facts 2003, http://agebb.missouri.edu/mass/index.htm Economic analysis using cash receipts estimates from USDA ERS and multipliers specific to Missouri’s cattle industry derived from IMPLAN social accounting software. 49 Data derived from Missouri Agricultural Statistics Service published estimates. 44 Table 2.6-1 Farm Level Economic Impact of Missouri’s Beef Industry (continued) Estimated Total head of Cattle Sold in 2002 8,323 13,925 15,630 18,269 10,555 24,765 23,141 13,397 13,519 14,615 24,765 1,015 19,690 13,194 14,615 30,448 8,931 20,908 25,374 13,803 4,100 12,585 39,380 3,938 5,481 21,517 5,684 30,042 13,600 27,606 19,690 43,034 11,570 10,352 23,953 9,134 19,081 7,511 18,107 9,540 21,923 10,555 22,532 1,015 23,953 17,457 8,729 Percentage of Total Cattle Marketed in Cattle and Calf Sales in Total Annual Missouri 2002 Economic Impact 0.5 $3,833,177 $6,059,279 0.8 $6,479,894 $10,095,934 0.9 $7,301,289 $10,517,258 1.0 $8,579,014 $12,705,803 0.6 $4,837,104 $6,487,088 1.4 $11,499,530 $16,833,483 1.3 $10,951,933 $15,805,994 0.8 $6,114,829 $8,865,145 0.8 $6,297,362 $9,454,185 0.8 $6,844,958 $9,509,974 1.4 $11,590,796 $16,409,693 0.1 $474,584 $696,892 1.1 $9,126,611 $13,673,690 0.7 $6,023,563 $8,662,402 0.8 $6,844,958 $9,754,490 1.7 $14,054,981 $21,942,693 0.5 $4,198,241 $6,176,041 1.2 $9,674,208 $14,982,997 1.4 $11,682,062 $17,145,319 0.8 $6,388,628 $8,963,123 0.2 $1,916,588 $2,671,962 0.7 $5,841,031 $8,598,950 2.2 $18,344,488 $27,006,077 0.2 $1,825,322 $2,381,978 0.3 $2,464,185 $3,719,367 1.2 $10,039,272 $15,535,934 0.3 $2,646,717 $3,784,575 1.7 $13,963,715 $20,612,496 0.8 $6,297,362 $8,874,557 1.6 $12,959,788 $19,160,657 1.1 $9,126,611 $14,515,419 2.4 $19,804,746 $29,579,735 0.7 $5,384,701 $7,544,332 0.6 $4,837,104 $7,237,942 1.4 $11,043,199 $15,986,003 0.5 $4,289,507 $6,913,935 1.1 $8,852,813 $12,778,823 0.4 $3,559,378 $4,845,556 1.0 $8,305,216 $11,532,158 0.5 $4,472,039 $6,655,987 1.2 $10,130,538 $14,783,191 0.6 $4,928,370 $7,070,939 1.3 $10,221,804 $15,223,006 0.1 $474,584 $691,552 1.4 $11,316,998 $16,480,061 1.0 $8,122,684 $11,810,675 0.5 $4,088,722 $5,980,377 County Clay Clinton Cole Cooper Crawford Dade Dallas Daviess DeKalb Dent Douglas Dunklin Franklin Gasconade Gentry Greene Grundy Harrison Henry Hickory Holt Howard Howell Iron Jackson Jasper Jefferson Johnson Knox Laclede Lafayette Lawrence Lewis Lincoln Linn Livingston Macon Madison Maries Marion McDonald Mercer Miller Mississippi Moniteau Monroe Montgomery 45 Table 2.6-1 Farm Level Economic Impact of Missouri’s Beef Industry (continued) Percentage of Estimated Total Total Cattle head of Cattle Marketed in Cattle and Calf Sales in Total Annual County Missouri Sold in 2002 2002 Economic Impact Morgan 18,472 1.0 $8,579,014 $13,028,640 New Madrid 609 0.0 $273,798 $371,660 Newton 29,230 1.7 $13,689,917 $19,995,136 Nodaway 28,215 1.6 $13,142,320 $19,581,308 Oregon 21,720 1.2 $10,130,538 $14,315,008 Osage 27,200 1.5 $12,777,256 $17,699,438 Ozark 20,502 1.2 $9,582,942 $13,426,142 Pemiscot 203 0.0 $91,266 $122,576 Perry 15,427 0.9 $7,118,757 $10,015,471 Pettis 23,547 1.3 $10,951,933 $17,103,656 Phelps 12,585 0.7 $5,841,031 $8,104,933 Pike 14,006 0.8 $6,479,894 $9,719,063 Platte 5,684 0.3 $2,646,717 $4,205,832 Polk 39,786 2.3 $18,070,690 $27,086,609 Pulaski 10,555 0.6 $4,837,104 $6,429,890 Putnam 19,081 1.1 $8,852,813 $13,269,809 Ralls 8,120 0.5 $3,741,911 $5,362,027 Randolph 10,555 0.6 $4,928,370 $7,841,268 Ray 12,585 0.7 $5,841,031 $8,774,052 Reynolds 4,385 0.2 $2,099,121 $2,568,211 Ripley 8,323 0.5 $3,924,443 $5,359,973 Saline 15,021 0.9 $6,936,224 $8,674,116 Schuyler 10,555 0.6 $4,928,370 $6,946,991 Scotland 9,946 0.6 $4,654,572 $6,650,042 Scott 3,857 0.2 $1,788,816 $2,879,671 Shannon 8,931 0.5 $4,198,241 $5,389,551 Shelby 11,773 0.7 $5,475,967 $7,709,822 St Charles 4,263 0.2 $2,007,854 $2,894,180 St Clair 20,502 1.2 $9,491,676 $13,888,561 St Francois 9,743 0.6 $4,563,306 $6,583,951 St Louis 609 0.0 $292,052 $408,039 Ste Genevieve 10,555 0.6 $5,019,636 $6,985,265 Stoddard 5,278 0.3 $2,464,185 $3,763,274 Stone 12,585 0.7 $5,841,031 $8,100,535 Sullivan 22,126 1.3 $10,313,071 $14,132,155 Taney 9,540 0.5 $4,472,039 $6,506,258 Texas 37,756 2.1 $17,614,359 $24,951,797 Vernon 23,344 1.3 $10,951,933 $16,058,535 Warren 5,075 0.3 $2,372,919 $3,467,945 Washington 7,917 0.4 $3,650,644 $4,770,863 Wayne 5,278 0.3 $2,464,185 $3,177,714 Webster 29,027 1.6 $13,689,917 $20,282,241 Worth 9,134 0.5 $4,289,507 $6,062,236 Wright 31,260 1.8 $14,785,110 $21,356,500 State Total 1,766,000 100.0% $821,395,000 $1,191,463,976 Missouri as a whole $821,395,000 $1,532,005,992 Additional economic impact for the state not directly attributable to a county $340,542,016 46 Chapter 3: Systems, Strategies, and Economic Opportunities for Missouri As Missouri’s beef industry continues to evolve, it will likely remain a predominately cowcalf state with a stable to growing stocker/backgrounding segment. Larger profit-motivated operations and smaller operations with a desire to compete will find opportunities to cut costs, increase margins, and capture value with innovations in production and marketing. Service providers willing to package and market their services to the large number of beef operations too busy to keep up with the pace of innovation will find margins to be captured by providing these services. Based on this audit, which highlights the comparative economic advantages, disadvantages, value drivers, opportunities, and challenges for the Missouri beef industry, authors have identified production systems that have the greatest opportunity for success in Missouri. Future Missouri beef production systems are likely to be described, wholly or in part, by one of four basic models. • • • • System # 1: Heritage and Lifestyle Motivated Beef Producer System # 2: Enhanced-Profit-Motivated, Individualist System # 3: Enhanced-Profit-Motivated, Group Oriented System # 4: Seedstock Producer Each model has different labor, management, land, and capital requirements. Moreover, each has different strengths, weaknesses, opportunities, and threats. A description of each of these four basic production systems follows. 47 3.1 System # 1: Heritage and Lifestyle Motivated Beef Producers Description Heritage and Lifestyle Motivated Beef Producers currently operate a large percentage of Missouri’s beef enterprises. This type of producer typically depends upon non-cattle sources of income for the majority of his or her family livelihood. While this type of producer may be deeply committed to his or her farm and to the cattle business, they typically adopt a low input management style. The primary operational motivation on this type of farm may be to simplify the production system so that it does not consume more time than is absolutely necessary. This type of producer may also be extremely cost conscious in purchasing inputs, in an effort to avoid having to subsidize their farming operation. Strengths • Financially and geographically stable. • Low capital input. • Cattle operation enhances wealth due to land appreciation and enforced savings. • Cattle provide liquid family asset in times of need. Weaknesses • Low profitability – low operating returns on family capital and labor. • Access to borrowed capital depends upon personal finances and credit worthiness rather than profitability of the beef operation, which limits growth potential. Opportunities • Where suppliers or vendors can package simple production enhancements, these producers can adopt practices to enhance profitability. • Long-term land appreciation may justify the investment in a beef operation even with meager operating profits. • These operations provide liquidity to cattle markets by producing large numbers of calves in small batches. • The large number of these types of producers provides profit potential for supply and marketing companies with targeted service programs. Threats • Scarcity of time and capital may hinder the ability of producers to evolve and adapt to changing industry conditions. • Scarcity of time and capital may hinder the ability of producers to improve quality, thus degrading the reputation of other Missouri cattle. • Increasing speed of innovation threatens producers who lag behind. • Maintaining access to markets as consolidation continues and supply chains tighten. • Emerging demand for source verification will usher in changes in price and marketing for undifferentiated cattle. 48 3.2 System # 2: Enhanced-Profit-Motivated, Individualist Description The Enhanced-Profit-Motivated Individualist is a cattle producer who has the time and motivation to pursue new marketing and production innovations if they make money and if they can be accomplished as an individual rather than having to cooperate with others. They are among the most progressive of cattle producers. They are keenly interested in the industry and usually depend upon it for a large portion of their income. One of the prime reasons they are involved in the cattle industry is that it offers the opportunity to operate a business as an individual, managing and marketing their products without interference from or cooperation with government or other segments of the industry. Strengths • Willing to manage for more profit. • Willing to adapt, learn, and seek new information and models of operation. • Willing to seek and pay for value-adding services. • Characterized by a positive outlook on the industry and its future. • A single person making decisions allows the opportunity to adapt to emerging innovations in production and marketing. Weaknesses • Least stable type of operation because success depends upon one individual. • Solitary operations may lack the scale necessary to take advantage of some innovations. • Lack of capability to delegate authority creates an impediment to timely adoption of innovations and prevents full attention to a changing business environment. Opportunities • Independent focus permits concentration of efforts on cost reduction, revenue generation, and marketing strategy. • Streamlined decision-making permits rapid response to changing market conditions. • Implementation of production and marketing innovations is limited only by the operators risk profile. Threats • The ability to keep up with all significant changes in the industry may be a challenge. • Lack of scale may close some opportunities for marketing and for production innovation. • It may be difficult to properly evaluate opportunities with just one person’s viewpoint. 49 3.3 System # 3: Enhanced-Profit-Motivated, Group Oriented Description The Enhanced-Profit-Motivated, Group Oriented cattle producer is one who has the time and motivation to pursue new marketing and production innovations if they make him or her money. These producers are willing and able to work with other like-minded business people, if necessary, to take advantage of emerging marketing opportunities and production innovations. Strengths • Willing to manage for more profit. • Willing to adapt, learn, and seek new information. • Willing to seek and pay for value-adding services. • Characterized by a positive and progressive outlook on the industry and its future. • Positioned to benefit from the collective wisdom of business partners. Weaknesses • It can be difficult to find like-minded cattlemen with which to partner. • Mutually dependent upon other group members and the operator is exposed to risk resulting from poor group decisions. • Group-based decisions may occur too slowly to take advantage of emerging market conditions and production techniques. Opportunities • Opportunity to implement production changes prescribed by partners. • Operators have access to evolving marketing partnerships because of their business framework. • Operators have the potential to take ownership and profit all the way from the germplasm stage to the retail stage of production. Threats • There is a risk of choosing partners who are unable or unwilling to change as necessary. • It is difficult to evaluate the risks and profit potential associated with joining an alliance, particularly at the inception of such an organization. • Operator’s products may not match those of the alliance. • Branded beef programs carry both positive and negative price risk. • Anonymity is no longer a possibility, which presents some risks of liability. 50 3.4 System # 4: Seedstock Producer Description The Seedstock Producer is focused on producing bulls, heifers, semen, and ova that meet the needs of every segment of the beef industry, including operations that want to maximize preweaning traits, post-weaning terminal traits, and maternal traits. He or she is often passionately attached to a specific breed and even bloodlines within breeds. Profit is not the only motivator and may not even be the biggest motivator for these producers. Recognition and respect from peers and customers are also highly coveted in this segment of the industry. Marketing skill is among the hallmarks of successful seedstock producers. Strengths • Passionately committed to the operation. • Business responds positively to aggressive marketing. • Strongly in tune with the science of genetic improvement. • A great deal of beef industry research and resources are presently focused on seedstock production. • Accurate and detailed record keeping is highly valued. Weaknesses • Success depends upon marketing skill. • Passion for the operation may produce lack of objectivity about the business. • There is difficulty in producing genetic resources that have value to all segments of the beef industry. • Small-scale seedstock production is much more capital intensive and only marginally more profitable than small-scale commercial production. • Because of greater gross returns, there is a tendency among seedstock producers to ignore least-cost production methods in preference for higher priced inputs. This is particularly true with regard to nutrition. Opportunities • Seedstock enterprises are among the first in the beef industry to benefit from new technologies in animal breeding, genetics, and reproduction. • Emerging technologies, which are more likely to be used by seedstock producers, provide ample opportunity to differentiate and market a superior genetic product. • Seedstock enterprises are positioned to lead the industry into coordinated food production systems by providing germplasm and by providing source verification information. Threats • Breed associations may lead in a direction other than one focused on system profits. • Seedstock producers may choose or persist with breeds that lose market share. • New technology may alienate export markets. • New technology may fail to make a return on investment. 51 The competitive position of Missouri’s beef industry can be described by segmenting it into production and marketing sectors. A list of each sector’s strengths and weaknesses is presented; moreover, opportunities and threats facing each sector are identified and discussed. 3.5 Production Strategies for Missouri’s Future Beef Industry Table 3.5-1 Missouri’s Current Beef Industry – Production Sector Strengths Weaknesses Large acreage of productive pasture. Lack of adoption of defined breeding seasons. Cow-calf enterprise is well suited to partLack of commitment to select sires of time farmers and retirees. economically superior merit; failure to take advantage of hybrid vigor. Close proximity to decision makers in the Enterprises may be too small to motivate seedstock industry. producers to implement the level of management needed to create value. Proven forage management opportunities Lack of adoption of forage management are available to lower costs of production. techniques that lower costs and reduce endophyte toxicity. Established successful replacement heifer Historically high costs or low productivity. source in the Show-Me-Select Program. Established feed and by-product Continued selection for both terminal and infrastructure that permits a wide array of maternal traits within the same small herd feeding options. slows genetic progress. Opportunities Increase carrying capacity via intensive rotational grazing and/or use of by-product feedstuffs. Increase backgrounding and on-farm finishing; market farm-raised grain through cattle weight gains. Increase adoption of information technology to improve value capture. Threats The industry is small-scale and fractured. It may not be able to discover value or react quickly enough to take advantage of value drivers. Small enterprises may not adopt production innovations. Compliance with environmental regulations may be a barrier to creation or expansion of backgrounding / finishing operations. Commercial producers who specialize in Failure to take advantage of hybrid vigor maternal or terminal trait selection and who drastically reduces production potential and adopt synchronized breeding with artificial hinders the competitive position of the insemination can make rapid genetic state. progress. 52 Non-forested areas with marginal cropping potential, yet suited to producing grass, characterize Missouri’s land base. In the 1987 Census of Agriculture, 52% of Missouri’s arable land was devoted to hay and pasture. Missouri’s leading grain crop in 2003 was soybeans. Soybeans face increasing competition from South America. If long-term soybean prices fall in the future, more acreage may be shifted to forage production. Missouri has large numbers of small farms. Consolidation in production agriculture has compelled many farmers to grow larger and become more specialized to remain competitive. Conversely, it has also compelled many Missouri farms to become part-time operations. The gross income on most Missouri farms has become too small to generate family living expenses. However, beef operations lend themselves to part-time farming as a way to generate supplemental income from land devoted to forage. While the number of farms in Missouri continues to drop every decade, farm numbers are increasing in retirement areas and around large cities. Buyers of pastureland are often motivated as much by the appreciation potential of the land as they are by its productive capacity. Long-term compound appreciation rates on Missouri farmland approach 6% per year, effectively doubling land value every 12 years. Cow-calf production is typically a capital-intensive, low-margin business. Moreover, it is a tradition-bound business in which habit and experience, and not necessarily least-cost, determine management practice. Regardless of production system type, the management issues discussed below are those identified in three separate audits (USDA-APHIS50, Iowa State University51, and Texas A&M University52) as being most critical to the financial success of beef cattle enterprises. • Develop business sense – Producers must commit themselves to making their operations financially successful. They must measure and monitor progress toward financial and production goals. Their production and marketing strategies must not remain static but must continually evolve with the marketplace. Monitor and control feed costs – Feed costs explain over 50% of the variation in herd-toherd profits. High-cost, low-return feeding management options at the cow-calf level include unnecessary grain processing, creep feeding, self feeding, and long-term harvested forage feeding (especially homegrown forages). Consider balancing these management options with individual profit objectives or replacing them with higherreturning alternatives: feed whole grains to beef cows - do not roll or grind; stockpile cool-season perennial forages for winter grazing; graze dormant winter pasture and supplement with concentrates; offer supplements on an alternate-day basis; hand-feed rather than self-feed supplements; purchase rather than make harvested forages; and make use of Missouri’s extensive by-product feed availability. • 50 USDA, APHIS. 1996. Management practices associated with profitable cow-calf herds. http://www.aphis.usda.gov/vs/ceah/cnahs/nahms/beefcowcalf/beef_cow_calf.htm 51 Iowa State University Extension. 2001. Iowa beef cow business record: 2000 summary. http://www.iowabeefcenter.org/Publications/spa00.pdf 52 McGrann, J. 2002. Standardized performance analysis for southwest herds – 1991-2002. Texas Agricultural Experiment Station. http://agecoext.tamu.edu/spa/papers/spaforsouthwestherds.PDF 53 • Minimize machinery investment – Minimize investment in high-cost assets that tend to depreciate rapidly. Consider leasing needed equipment (e.g., tractors) or hiring machine work done on a custom basis (e.g., haying, silage making, earth work, etc.). Specialize production – Most beef herds in Missouri (> 90%) are composed of fewer than 100 cows. Managers of small beef herds typically find it challenging to raise both quality replacement heifers and quality terminal-type feeder cattle. The reason for this challenge is that herd improvement comes very slowly when selecting for both maternal and terminal characteristics within the same small herd. Managers of large beef herds (> 400 cows) minimize this problem by dividing their herds into maternal and terminal breeding programs. Managers of small beef herds can take a similar tack by specializing in either terminal- or maternal-type calf production. In the former case, replacement heifers are purchased and the majority of revenue is generated through the sale of calves that excel in terminal traits like growth and carcass merit. In the latter case, the majority of revenue comes from the sale of replacement heifers. This approach is sensible because in most years the break-even price of purchasing an average quality replacement heifer is only $50 to $100 more than the actual cash costs (excluding the value of labor and management) of raising one53. Furthermore, accessing or selling replacement heifers in Missouri is a simple task. The University of Missouri’s Show-Me-Select Replacement Heifer Program is one of the premier replacement heifer sources in the nation. Avoid small-scale seedstock production – Seedstock production is even more capital intensive than commercial cattle production. As such, it is typically very difficult to cash flow small seedstock operations. Operators of small herds should consider concentrating on commercial cattle production. Consider alternative income streams – Even well managed cow-calf herds offer only modest returns on investment. Cow-calf operators should consider dual-purpose land management as a means to generate additional revenue. Enterprises such as fee hunting and timber production are two possible income streams that can complement a cow-calf operation. Imagination and entrepreneurial spirit are the only factors limiting other possibilities. Control the breeding season – Confining the breeding season to 60 to 80 days greatly improves calf crop uniformity and marketing opportunities. Avoid industry fads – There is seldom a shortage of novel nutritional supplements, management techniques, or animal health products on the market. Invest only in those that have been scientifically evaluated and found to have a reasonable likelihood of enhancing profitability. Avoid tax shelter investments – All investments should be made with the expectation of an increase in after-tax equity. • • • • • • 53 Feuz, D. M. 2002. The costs of raising replacement heifers and the value of purchased versus raised replacement. In: Managing for Today’s Cattle Market and Beyond, Western Extension Marketing Committee. http://agecon.uwyo.edu/Marketing/mngtcmkt/RplcHeifr.pdf 54 • Be willing to accept additional risk – It is relatively easy to add value to beef calves through health programs, improved genetics, and special nutrition. Unfortunately, adding value is not synonymous with value capture. Most of the value added by the cow-calf producer through management and breeding is harvested after weaning. It is nearly impossible to significantly improve value capture without retaining ownership for some length of time past weaning. Backgrounding, retaining ownership through finishing, and marketing alliance membership offer means to improve value capture. However, all come with increased investment risk. Stocker / Backgrounding production Missouri ranks second in number of feeder cattle produced in the US. Many of these calves are exported to other states for growing or finishing, however, some are retained past weaning by Missouri farmers and ranchers to utilize the state’s vast forage resources as well as the abundant availability of by-product feeds. Some cow-calf producers may be interested in retaining their own calves past weaning rather than purchasing weaned calves. Retained ownership through a stocker production phase provides cow owners the opportunity to capture the benefit of superior genetics, nutritional practices, health programs, and overall management systems. It is also an opportunity for adding value to or marketing other resources such as labor, facilities, feedstuffs, management skills, and capital. Stocker operations with or without a cow/calf enterprise are designed to capture the growth potential of young cattle, as well as to harvest available forage in a manner that optimizes beef production. The knowledge required for nutritional supplementation of forage, maintenance of health, and marketing is different in stocker enterprises compared to cow/calf enterprises. Cow/calf producers who wish to add a stocker cattle enterprise must expand their cattle production and marketing knowledge base. Current stocker operators will increase in efficiency by adopting production and marketing technologies that offer the greatest profit potential. Genetics, health, and nutrition all greatly impact the production efficiency of young beef cattle grown with a grass-based diet. Marketing arrangements for both purchasing and selling greatly impact the financial efficiency of stocker operations. 55 3.6 Marketing Strategies for Missouri’s Future Beef Industry Table 3.6-1 Missouri’s Current Beef Industry – Marketing Sector Strengths Weaknesses Established network of local and regional Lack of maintaining information livestock auctions. relationships with supply chain after weaning impedes value discovery, value capture, and information transmission. Established set of beef cattle production Entrenched production systems and and marketing alliances with widespread cultural independence causes Missouri knowledge of their availability. cattlemen to perceive marketing changes as threats and not opportunities. Easy access to the Midwest corn belt and There are few market outlets for finished the Great Plains cattle feeding belt. cattle remaining within Missouri’s borders. Opportunities For producers willing to horizontally or vertically coordinate their production and marketing, size and scale are less of a challenge to capturing value than is often perceived. Alternative beef marketing structures have matured; most complications and problems have been identified and corrected. Emerging electronic identification systems will enable identity preservation opportunities that will aid in value capture. Feeders and packers view Missouri cattle favorably and are willing to align with individuals and groups who can deliver cattle in volume. Threats Increasing migration of cattle to regional livestock auctions may decrease viability of local auction markets and local market opportunities in cattle they market. Increasing migration of high-quality cattle to alternative marketing venues may decrease viability of regional auction markets without programmatic links to these venues. Cattle sold without source- or processverification could be discounted to unprofitable levels. Market prices for live cattle may become less meaningful as more cattle are traded via merit-based transactions. Characteristic-based pricing will move down through the value chain to the cowcalf producer, reducing the price for cattle without required specifications. Lack of price-risk management experience may expose new backgrounders and feeders to market losses. Continued strong interest in value-added grain processing in Missouri will provide investment opportunities that complement beef cattle production. Marketing in the beef industry is in the midst of a major structural and philosophical change. Prior to 1995, the vast majority of fed cattle were traded in a price-coordinated commodity marketplace where prices were based on the average retail value of all product produced. Cattlefax recently reported that a majority of fed cattle are now traded via some type of negotiated, non-price disclosed, value-based pricing agreement. Under value-based marketing systems, sellers are rewarded or penalized based upon individual animal quality. 56 Under the price-coordinated commodity beef system, fed cattle prices nationwide deviate by only a few dollars per head in spite of the fact that $500 differences in carcass value per head are common. Negotiated coordination, rather than price coordination, is the distinguishing feature of the value-based marketplace. It attempts to capture value based on the merit of individual carcass quality. Cattle sold into value-based processing systems may be committed for sale weeks or months in advance of their harvest date, under precisely negotiated terms, rather than on a spot-cash basis. In spite of the fact that many of these transactions occur at the behest of producers or producer-controlled alliances, they may fall under the definition of captive supply and potentially contribute to the price discovery controversy. In some cases, the use of value-based pricing is available without the accompanying preharvest commitment for sale. This system sends price signals regarding individual cattle back to producers with which they can make appropriate production decisions to respond to the market signal. In addition, information on genetics, health, and management that follow cattle through the production chain provides upstream value chain participants with the opportunity to learn which producers and production systems best fit their desired target market. This is an advantage for cattle that excel in certain physical traits and a disadvantage for those that are below average. Over time, as more animals are marketed through sourceor process-verified systems, the demand for commodity cattle will diminish. Reduction in price will follow. Predictability in terms of both growth and carcass merit is the distinguishing characteristic of cattle that are developed for value-based markets. Within groups of cattle developed for specific target markets, volume and uniformity have also come to play crucial roles in obtaining market rewards. The volume, uniformity, and predictability that are essential for success in a value-based marketplace can only be developed when the seedstock, cow-calf, and finishing sectors are full partners in the supply chain. These partners are necessary not only to meet supply requirements for a specific type of carcass but also to carry out suitable source- and process-verification procedures (e.g., health protocols and animal welfare practices) demanded by consumers. Beef Alliances Beef alliances use contracts and incentives to link stages of production and to create a marketing organization.54 They are a form of vertical coordination aimed at helping groups of producers capture some of the marketing margin, processing margin, and carcass value of the animal. Successful alliances operate in Missouri today such as the MFA Health Track Alliance, the Missouri Premier Beef Marketing Program, U.S. Premium Beef, and many others. Alliances are formed between groups of individuals that possess similar production goals or values that may include an emphasis on carcass quality, genetics, animal health, or geographic identity. They allow cow-calf and stocker producers an opportunity to increase their profitability through retained ownership and afford them the ability to market a larger group of cattle of consistent size, genetics, health, and finish. Currently, there are two distinct types of alliances. Alliances can be formed horizontally (among producers within the 54 Beef Alliances: A Basic Economic Overview; Anton, Tom, E. 57 same segment of the marketing chain) or vertically (among producers and other market participants from several levels of the marketing chain). Most alliances have rules that must be followed and documented in order to become a member. Normally, producers must pass an inspection, which is conducted by a member of the alliance or an outside party hired by the alliance. The most common requests are vaccination, weaning, castration, and dehorning records. Most alliances will ask producers to meet some basic management requirements, such as minimum genetic standards, on-farm weaning for 14 days or more, and on-farm adaptation to concentrate-based diets. These examples are basic in nature. Some alliances may require more in depth practices. All of these rules are set in an effort to create uniformity among the cattle in terms of appearance and performance. Alliances offer several advantages to producer members, which include reduced transportation costs, improved market power, streamlined sales, and improved down-stream information on their cattle. A successful alliance must operate as a single entity with common goals and values. Beef production and marketing alliances have brought about fundamental changes in cattle marketing: • Strategic business alliances in the beef industry have enabled the communication up and down the supply chain that is necessary to coordinate production from the level of cowcalf production to the packer. Soon this communication and coordination may extend from the level of germplasm to the retail meat case. • Alliances have enabled collective bargaining for beef producers and the creation of target markets for beef products. • Larger marketing entities and less market chaos have resulted, in part, from alliance formation (fewer than 2,100 feedlots now market 85% of fed cattle). • Alliances may be formal or informal and coordinated vertically (PM Beef) or horizontally (Missouri Verified Beef). Success of strategic alliances has been fostered by: • Greatly improved predictability of growth performance and carcass merit. • Fewer beef breeds in functional use. • Increased interest in post-weaning data collection. The organizing principle of most alliances is to establish brand-recognition or to supply product for an established brand name or brandable product. The following factors contribute to the success of alliances: • To enhance or add value, some type of product differentiation (i.e., a brand) must be established. • Beef demand is up significantly since 1998, partly a result of new branded beef products being brought to the marketplace. • Retailer and consumer demand centers first on food safety; branded beef products are positioned to supply the industry with the source- and process-verification needed to assure food safety. • The ultimate iteration of branded beef is the case-ready product: 58 • o Case-ready products place high emphasis on red meat yield. It is impossible to market waste fat in transparent cases, therefore, both the retailer and the consumer benefit. o Case-ready products offer the highest degree of control of food safety in the marketplace. Retailer and consumer demand also centers on convenience and consistency; case-ready beef products meet these criteria. It takes highly organized and reliable supply chains to bring a branded, case-ready product to market. Alliances are an unavoidable part of the process because no single business entity can own outright all of the resources necessary to bring a brand-name product to market on a global scale. Adding Value to Missouri’s Beef Under the present production and marketing structure, the large majority of the retail value of beef is added after the cattle leave their farm of origin. There are, however, several ways cow-calf producers can capture value prior to marketing cattle to the next step in the market chain. The term value-added is used to describe improvements made to a raw product before it is taken to the next stage of production. Discussions centered on value-added beef often focus on improvements or enhancement to the meat product. However, beef enhancement can also begin at the cow-calf level. Once a producer understands what is valuable to his or her customers, and then improvements to the product can be made that will benefit both. It is critical to understand that the concept of adding value is in fact the customers’ perception of value and not the producers’ perception. Therefore, communication between the producer and the customer is an important key to developing a profitable value-added beef program. Adding Value through Information One aspect of adding value is providing information to buyers about calves prior to the sale. Providing potential buyers with information on animal health practices, genetics, feedlot performance, and carcass performance reduces their investment risk. As a result, they may be willing to pay more for calves, thereby increasing a cow-calf producer’s profitability. Value is an economic term. The value of a commodity refers to how much that product, as an input, will benefit the next owner. The marketplace, however, does not automatically allow a producer to capture the value that his or her product provides. Indeed, a purely competitive market place would add price to a product based on the number and strength of competitive bidders for that product more than the characteristics therein. Adding value to beef can create an additional demand for that product if several rules are met. 1. The product and its characteristics are differentiable. 2. The buyer can identify the producer and the characteristics of the product sold 3. The buyer understands the extra value that is added to the system (i.e. he/she knows how much he/she could pay for the characteristics of the product). 4. The buyer has a way to communicate with the producer which characteristics of the product were most valuable, thus allowing the producer to repeat the same process or make changes to add even more value to the product. 5. The seller (producer) can re-establish contact with the end user of the product for negotiations in the next market cycle and has an alternative selling method available with minimal loss in profits. 59 Retained Ownership One of the most common methods of adding value to cattle is through retained ownership. Retaining ownership though post-weaning production stages can decrease losses from shrinkage and sickness, eliminate middleman fees, and improve the return relative to production costs. The major disadvantage is the delay in cash flow and the market risk of feeding cattle. Ready to Eat Beef Product In addition to safety and quality traits, American consumers seek meals that are convenient. One of the fastest growing areas of research and development in the beef industry is the development of ready-to-eat beef products. These allow consumers a high-quality meal that requires a modest commitment of time to prepare. These items come in eye-catching packages, are fully cooked, and provide preparation instructions. Most of consumer comments on ready-to-eat beef products are positive; consumers like the flavor and quality of these items. The price seems to be the primary draw back. Quality and convenience of these products will increase customer loyalty; increased sales volume should result in a reduction in price. Modified Atmospheric Packaging Modified Atmospheric Packaging (MAP) uses a combination of gases designed to prolong the shelf life of meat products and inhibit the growth of spoilage organisms. The MAP system uses a combination of oxygen, nitrogen, carbon monoxide, and carbon dioxide within a meat package. The oxygen and nitrogen are added to help create the cherry-red color consumers’ associate with fresh beef. Nitrogen, carbon monoxide, and carbon dioxide inhibit the growth of spoilage bacteria; however, it should be noted that the MAP system does not destroy or inhibit the growth of pathogenic bacteria. Proper handling is still necessary to prevent pathogen contamination. Beef cuts, under traditional packaging systems, will last for two to three days in the retail case before they are discounted or discarded. The MAP system can extend this time up to 21 days. It also allows for the product to be cut at a centrally located distribution center and delivered to many different stores. This reduces the retail labor force, which ultimately reduces labor costs. The major draw back to this system is that it tends to reduce the number of skilled, educated meat cutters who can interact with customers. 60 3.7 Summary of Missouri’s Beef Industry Current Competitive Position Missouri’s beef industry has continued to grow, predominately as a producer of feeder calves to be grown, finished, harvested, and processed elsewhere. The natural resources of the state as well as the number of part-time, forage-based farms have shaped the industry into what it is today. These underlying influences will continue to channel the future of the Missouri beef industry. Beef marketing opportunities in Missouri are evolving. Larger regional markets are displacing local livestock markets. More cattle are moving outside of auction venues in alternative market structures such as direct sales and marketing alliances. Competitive pressure continues to drive marketing in this direction. Currently, many Missouri cattlemen are not adopting cost-lowering and value-adding innovations such as forage stockpiling, intensive grazing, synchronized breeding, artificial insemination, vaccination, castration, and dehorning. Primary resistance to these innovations comes from the fact that the beef enterprise is not the primary source of income for most operations. Service providers, stocker operators, and livestock auction owners capture value by performing these services for the cow-calf producer. Economics dictates that value added to a supply chain is captured by those that own the product when the value is transformed. The single greatest opportunity for the Missouri cow-calf sector is in incorporating this truth into a business philosophy. Without a plan to capture value, adding value will accomplish little for the cow-calf producer. Beef industry infrastructure is changing to allow even the smallest operation to participate in this process. As is appropriate, the choice lies with the business owner. 61 Appendix A: Missouri Cattle Flowchart Beef produced 1,824,000 head 1.4 billion pounds (14) Production Expenses for Missouri (8) Feed Purchased - $108,211,800 Forage - $568,601,200 Missouri Cattle Slaughtered Outside Missouri 1,733,600 head (13) Slaughtered in Missouri 90,400 Head (12) Interest on Operating Inputs $8,373,900 Missouri Calves Fed Out of State1,464,000 Head (11) Marketing Calves Fed in Missouri175,000 Head (10) $11,577,200 Machinery and Equipment Depreciation $490,084,300 Calves Backgrounded in Missouri- 700,000 Head (9) Veterinary and Medicine Replacement Heifers 280,000 Head (7) Sold Outside Missouri as Calves (4) 939,000 Head Calf Inshipments (3) 36,000 Head $56,382,200 Cow Death Loss 75,000 (5) Beef Calf Crop (1) 1,980,000 Calves Calf Death Loss 130,000 (2) Cull Cows 185,000 Head (6) Labor Hired -$4,027,300 Family - $397,734,500 The Missouri cattle flowchart depicts a snapshot of the flow of cattle and calves from Missouri’s farms into growing, finishing, and marketing channels, including how much money flows into the various support industries. USDA 2002 estimates form the backbone of this snapshot. However, differing estimation dates and derivation techniques may cause these estimates to be inconsistent with official estimates. 62 Sources (1) (a) USDA, NASS. Meat Animals Production, Disposition and Income 2003 Summary. Cattle and Calves: Inventory, Supply, and Disposition by State and United States, 2002 Page 2. http://usda.mannlib.cornell.edu/reports/nassr/livestock/zma-bb/meat0404.pdf (b) USDA, NASS. Milk Production, Disposition and Income 2002 Summary, Milk Cow and Production of Milk and Milkfat, by State and U.S., 2002, Page 8 http://usda.mannlib.cornell.edu/reports/nassr/dairy/pmp-bbm/milk0403.pdf Note: Beef calf crop was derived by taking 2.09 million head of U.S. calf crop and subtracted 110,000 dairy calves. Dairy calf estimate based upon January 1, 2004 USDA, NASS Missouri dairy cow estimate of 137,000 multiplied by an estimated 80% annual dairy calf crop. (2) USDA, NASS. Meat Animals Production, Disposition and Income 2003 Summary. Cattle and Calves: Inventory, Supply, and Disposition by State and United States, 2002 Page 2, http://usda.mannlib.cornell.edu/reports/nassr/livestock/zma-bb/meat0404.pdf (3) USDA, NASS. Meat Animals Production, Disposition and Income 2003 Summary Cattle and Calves: Inventory, Supply, and Disposition by State and United States, 2002 Page 2, http://usda.mannlib.cornell.edu/reports/nassr/livestock/zma-bb/meat0404.pdf (4) USDA, NASS. Meat Animals Production, Disposition and Income 2003 Summary Cattle and Calves: Inventory, Supply, and Disposition by State and United States, 2002 Page 2, http://usda.mannlib.cornell.edu/reports/nassr/livestock/zma-bb/meat0404.pdf (5) USDA, NASS. Meat Animals Production, Disposition and Income 2003 Summary Cattle and Calves: Inventory, Supply, and Disposition by State and United States, 2002 Page 2, http://usda.mannlib.cornell.edu/reports/nassr/livestock/zma-bb/meat0404.pdf (6) (a) USDA, NASS. Livestock Slaughter 2002 Summary, March 2003 Livestock Slaughtered Under Federal Inspection: Number of Head and Percentage by Classification and Month, United States, 2002, page 15 http://usda.mannlib.cornell.edu/reports/nassr/livestock/pls-bban/lsan0303.pdf (b) USDA, NASS. Cattle January 2003, Cattle and Calves: Number by Class and Calf Crop, Beef Cows that have calved, page 3 and Cattle and Calves, by Class, By State, January 1, 2002-2003, page 6 http://usda.mannlib.cornell.edu/reports/nassr/livestock/pct-bb/catl0103.pdf Note: Other cows slaughtered (3,051,000) and divided it by beef cows that have calved (33,118,000). Rounding the cull rate to 9.0% and multiplying it by Missouri’s beef cow inventory in 2002 to equal 185,400 which was rounded to 185,000 head. (7) USDA, NASS. Cattle January 2003, Cattle and Calves, by Class, By State, January 1, 2002-2003, page 6 http://usda.mannlib.cornell.edu/reports/nassr/livestock/pct-bb/catl0103.pdf 63 (8) (a) USDA, NASS and USDA, ERS. Production expenses derived from 2002 Costs and Returns Surveys. http://www.ers.usda.gov/data/costsandreturns/testpick.htm (b) USDA, NASS. Cattle January 2003, Cattle and Calves, by Class, By State, January 1, 2002-2003, page 6 http://usda.mannlib.cornell.edu/reports/nassr/livestock/pct-bb/catl0103.pdf Note: The average of Missouri’s two regions (Heartland and Eastern Upland regions) for the year 2002 and multiplied it by the Missouri’s beef cow inventory for 2002 (2.06 million head) to come up with the production expenses for Missouri. (9) USDA, NASS. January 2003 Report Cattle and Calves, by Class, By State, January 1, 2002-2003, page 6 and 7 http://usda.mannlib.cornell.edu/reports/nassr/livestock/pct-bb/catl0103.pdf Note: To derive the calves backgrounded in Missouri, summed the 2002 steers 500+ (480,000 head) and other heifers 500+ (290,000 head) to equal 770,000 head. Subtracted MO cattle on feed (70,000 head) to equal 700,000 head. (10) USDA, NASS. January 2003 Report Cattle and Calves, by Class, By State, January 1, 2002-2003, page 9 http://usda.mannlib.cornell.edu/reports/nassr/livestock/pct-bb/catl0103.pdf Note: Used Missouri cattle on feed January 1 inventory (70,000 head) and multiplied it by 2.5 turns on cattle on feed per year to equal 175,000 head fed annually. (11) Notes: Added the difference between calves backgrounded in Missouri (700,000 head) and calves fed in Missouri (175,000 head) which equals 525,000 head. Added the sold outside MO As calves (939,000 Head) to equal 1,464,000 head. (12) USDA, NASS. Livestock Slaughter 2002 Summary, March 2003 Commercial Cattle Slaughter: Number of Head by Month, State, 2002, page 31 http://usda.mannlib.cornell.edu/reports/nassr/livestock/pls-bban/lsan0303.pdf (13) Notes: Sum of Missouri calves fed out of state (1,464,000 head), cull cows (185,000 head), and calves fed in Missouri (175,000 head) equals 1,824,000 head. 1,824,000 total head minus slaughtered in Missouri (90,400 head) equals 1,733,600 head. (14) USDA, NASS. Livestock Slaughter 2002 Summary, March 2003 Commercial Cattle Slaughter: Number of Head by Month, State, 2002, page 31 http://usda.mannlib.cornell.edu/reports/nassr/livestock/pls-bban/lsan0303.pdf Notes: Missouri cattle slaughtered outside Missouri (1,733,600 head) summed with slaughtered in Missouri (90,400 Head) equal beef produced 1,824,000 head. Pounds produced was determined by taking cattle average dress weight (765 lbs.) and multiplying it by 1,824,000 head to equal 1.4 billion pounds of beef produced. 64