Your Reading List

Shotgun approach to beef production missing the target

I was at Cattlemen’s Corral in Lloydminster a while ago and caught a good presentation from Anne Dunford, a long-time beef market specialist for many years with Canfax and now with Gateway Livestock.

She had a very interesting series of slides with global beef cattle numbers, trends and markets. As Canadians we pride ourselves on our beef, but we are pretty small potatoes when you look at cattle numbers in places like the U.S., Brazil and even China. Another interesting point she made was that Canada is nearing a neutral or negative balance of trade in beef. This may not be particularly surprising given the fallout from the last decade and the fact that all of us are 10 years older than we were a decade ago. It is surprising given the fact that with a relatively small cattle population, we used to be an export powerhouse.

It is easy to focus inward and convince ourselves we are the centre of the universe, but at some point we need to look outward and make some decisions in the industry as to the direction we are going to take. This discussion occurs at the national level in groups such as the Canadian Cattlemen’s Association (CCA) and the federal government, and even provincially with commodity groups and provincial governments, but the reality is the industry is made up of the individuals on the ground with the cows, and any real direction is going to come from that level.

Canada is a big country and there are different production methods and markets across this country, and the same is true of potential customers.

Changing patterns

Certainly signals are coming from the processing end, as a large percentage (well over half) of the cattle processed in this country are sold off the cash market, through grids or other prearranged contracts. These contracts often contain direct incentives to produce to a specific target. The percentage of calves being sold directly off the farm has been growing as well.

While this does create new challenges for value discovery, it also provides some real incentive and traceback to these cattle. Add BIXS (Beef InfoXchange Service) and other similar programs to the mix and it is probable that at some point the number of calves sold direct off farm will outweigh those that are sold through auction.

I would argue this desire to purchase off farm is driven by packer contracts (which in turn are driven by retail contracts). In an effort to optimize cattle meeting the contract targets, improved health status is a good start for a lot of feeders. Additionally, knowing the source of the cattle allows feeders and their suppliers to get back to the level of genetics.

In my opinion this is where we have to make some serious decisions as an industry and where one of the real opportunities lies. The interesting thing about genetics to me is the answer to what is “right” is really and truly “it depends,” and the opportunity may lay not so much in changing genetics, but identifying and streaming them into the correct marketplace.

The definition of insanity

Currently the business model for many packers is to process enough animals that the law of averages will allow them to fill their contracts. There are preferred markets for lean meat, well-marbled meats, and other specific cuts/types of product and packers sign contracts to reduce their risk and try to lock in profits.

The current business model in essence relies on putting through enough animals in a day so high-priority orders can be filled with high-quality product. Occasionally a retailer may get lucky and get higher-spec product at a discounted price if the kill happens to be heavy in high-quality product. Conversely, a packer may get unlucky and not have enough of a specific product to fill orders. The best example of this may be lean beef/trim imported from Southern Hemisphere countries if there is not enough lean product to fill orders for lean grind.

It is relatively straightforward to say this model is somewhat absurd. Cattle feeders feed undifferentiated cattle for long periods in order to hit marbling targets and produce many carcasses with excess fat at a tremendous cost. It creates cattle with genetics for lean meat production being fed in systems where they cannot hope to ever achieve grade targets. It creates markets where lean cattle are imported in order to fill orders which in many cases could be filled by Canadian cattle if a bit more was known about their specifics.

Producing for the market

This is where a lot of the opportunity lies in the Canadian industry. Excellence in the case of an industry is created one farmer and rancher and one cow at a time. It does not necessarily mean that there is a perfect cow or breed combination. Rather it means that each level of production is knowledgeable about and accountable for what it is producing. There is real opportunity for cattle across many demographics and descriptions at various times and seasons, and every market is a niche market.

While potentially able to open market doors, this approach is very difficult for representative groups such as Canada Beef to tackle. We know that there is more total value to be obtained if we can proactively source and secure individual markets that require a specific product and this means that individual operations and co-operative brands must take responsibility from large scale approaches. We see this happening with some relatively new players on the scene even now.

This differentiated approach means that organic is not at odds with conventional, grass fed is not at odds with grain fed, and highly marbled is not at odds with lean. It means that we know going in what the customer wants and can consistently provide it, in whatever form they want it. It also means we can objectively assess market opportunities and determine whether they are worth pursuing or whether we can provide what they want at a level that is profitable.

Our export industry of a decade ago was largely constructed on a price advantage due to a low Canadian dollar and a feed advantage due to the loss of a shipping subsidy. As the industry has contracted we are once again faced with a unique opportunity to determine our own fate and whether we want to pursue it. Canadian beef is available in a vast colour palette, but knowing what the colours are is pretty helpful when painting a beef marketing masterpiece; and that is excellent. †

About the author

Contributor

Sean McGrath is a rancher and consultant from Vermilion, Alta. He can be reached at [email protected] or (780) 853- 9673. For additional information visit www.ranchingsystems.com.

Comments

explore

Stories from our other publications