All Eyes on the Ears

Is R-Calf Dead? – by Lee Pitts

Sit down in almost any rural coffee shop these days and it won’t take you long to discover that THE topic of conversation amongst farmers and feeders is corn. Everyone from ethanol entrepreneurs to poultry pluckers wants to know how many of the golden ears will be available to feed, trade, turn into plastic, gasify or eat.

If you can believe the USDA, farmers plan to plant from fence row to fence row, sowing 90.5 million acres of corn this year, 15% more than last year and the most in 63 years. The National Corn Growers Association estimates that farmers will harvest 12.7 billion bushels, the largest crop ever.

Big crop equals cheap feed, equals high prices for feeder cattle right?

Ordinarily news of such a bumper crop would have sent feeder cattle futures skyward and feedlots would be plumb full of baby Holsteins and five-weight calves as cattle feeders sought to take advantage of an abundance of corn. Poultry and pig farmers would be licking their chops under normal circumstances. But nothing about this gold rush is normal as both the supply and the price are going up at the same time, defying economic theory. The USDA says corn for ethanol use is expected to eclipse corn for export this year and that we’ll produce a BILLION less pounds of meat in 2007. Americans will eat 1.7 pounds less per person and pay more for it.

Wheat and soybean prices have also jumped as farmers planted more acres to corn. A cattle feeder who may have used more wheat instead of high priced corn would have to pay 25% more for it than he did last year. Yes, ethanol has made a mess of economic theory, and feedlot closeouts, and it could get worse before it gets better.

A Cruel Hoax?

Cattleman want to like ethanol, they really do. The 31 new ethanol plants built in the U.S. since 2005 help farmers, revitalize rural towns and put money in the pockets of people who look almost like them, except for the bib overalls. That sure beats sending our money to Mideast sheiks who sponsor terrorists. Ethanol is better for the environment and the politically correct thing to do, but it’s still hard to fall in love with something that threatens to completely destroy your business. Let’s face it, the U.S. cattle business is based on a grain-fed product. So what do we do when 20% of the corn harvest was diverted to produce ethanol? A figure that is sure to rise.

Sure, there are nay sayers who contend that ethanol is just a cruel hoax on cattle feeders and won’t last long. They say ethanol is not really a viable answer to our energy problems as all the ethanol produced last year was equal to about 3% of our gasoline supply. According to the University of Minnesota to replace all our gas it would take all the cropland in the U.S. plus 20% more! But when 60% of our current crude oil supplies come from overseas, making us vulnerable and less secure, every little bit helps. Ethanol critics point out that gas will some day be made from less valuable crops but don’t get too excited about that prospect… the main product they are planning to use in the future to replace corn is grass! That can’t be good for cowboys!

 

Ethanol may not be the long-term answer to our energy needs, and it may be a fraud, but it’s a popular fraud and it has the backing of the Democratic Congress and the environmentalists, two pretty powerful groups at the moment.

Some say that if we weren’t subsidizing ethanol to the tune of $7 billion a year it would make absolutely no economic sense, but when you look on the other side of the ledger you’ll see that $7 billion was negated by the $7 billion less our government paid out in farm subsidies because farmers got more money for their corn. Perhaps we ought to just get used to the idea that higher corn prices are here to stay.

Corn Plastic

There’s something else we haven’t told you about. Even if ethanol is not the panacea some people think it is the untold story is that, when it comes to corn, cattlemen have more than ethanol to worry about. Corn is also an ingredient in Coca Cola™, candies, cakes, carpets, cups, coffee, cooling fluid and a whole host of other products that don’t begin with the letter C. Corn is also used in the packaging material used to ship or serve these products, from soda pop containers to packaging foam.

Corn syrup basically replaced sugar in the 1980s as the main sweetener in soft drinks and other food products and in the future corn is being considered for all sorts of products formerly made from petrochemicals. Although currently only 2% of the chemicals used in this country come from crops, researchers say that in the future “bio-products” will be used for everything from car seats to surf boards.

We’ve been here before. Henry Ford believed that crops would be used to produce a plethora of products. In the 1930s Ford bought 12,000 acres with the idea of mass-producing car bodies from soybeans. The trend didn’t catch on then but fast forward to today and the Ford Motor Company is once again considering using crops to produce foam to be used in car seats, armrests and headrests.

With oil prices over sixty bucks the next BIG THING happens to be bio-plastics. The time is certainly right; renewable bio-plastics made from corn and soybeans are cleaner for the environment, produce fewer greenhouse emissions and would make us not quite so dependent on foreign sources of oil. But, and this is a BIG but for cattlemen, with so much corn being diverted to ethanol and bio-plastics will there be any corn left to feed cattle? And if so, at what price?

The Corn Conundrum

With ethanol and plastic plants digesting corn that was formally digested by cattle it’s probably safe to assume that cattle will spend as little time as they can in the feedlot and the maximum amount of time on grass.

Everyone seems to have an answer as to how cowmen can cope with the corn conundrum. Some magazines, supported by drug dollars, and professors, aided by research grants, say that to maximize gains on grass cattlemen should revisit implants. To quote one magazine, “Growth implants may be an efficient and economic strategy for ranchers to add pounds to their calves and gain extra income next fall.” One professor said, “To offset lower calf prices, producers may want to consider using growth implants on the ranch to garner extra pounds come sale time.”

Those quotes hit the streets just days before daily newspapers carried the news that men whose mothers ate a lot of beef during their pregnancy have a sperm count about 25% below normal and three times the normal risk of fertility problems. Research scientists said the problem may be due to anabolic steroids used to fatten cattle. The article in the journal, Human Reproduction, said that in the daughters of those same beef-eaters the growth hormones could alter the incidence of polycystic ovarian syndrome, the age of puberty and the postnatal growth rate.

With news like that hitting the streets, along with the growing popularity of natural beef and the rancher’s natural tendency not to implant, we really doubt that implants will be the answer to the corn problem. Just the opposite could happen. We know that some implants can consistently lower the grade of beef and this is definitely NOT what the Doctor ordered when you are faced with feeding less corn and shortening the fattening period.

High priced corn will make it harder for some implants and beef breeds to survive. During the past 15 years in an attempt to increase the number of Choice cattle and improve carcass merit there has been a tendency to make the nation’s cowherd blacker… as in Angus. The U.S. Meat Animal Research Center has confirmed what most ranchers already know: that Angus and Red Angus marble higher than all other beef breeds. (The MARC study actually showed Red Angus actually out-marbled the black Angus!) Despite this move on the part of ranchers to improve the gradability of our cattle there has been no increase in the percent of cattle grading choice in the past 15 years! About 55% of cattle currently grade Choice.

Angus breeders would, no doubt, say that we haven’t yet made our cattle black enough! But if we haven’t made an improvement yet, and we are faced with feeding our cattle even less grain in the future, things do not look good for the consumer acceptance of our product down the road. Our checkoff dollars will really be challenged! One would think that slaughter weights would fall as a result of high priced corn and we may even see breeds come to the fore, or make comebacks, like Murray Greys, Jerseys, Shorthorn and Brown Swiss and other breeds known for their early maturity and ability to grade. Or it’s conceivable that Angus could come to dominate the beef business like Holsteins have the dairy. All because of corn… or lack thereof.

The other thing that will no doubt change is the price of real estate. All of a sudden Midwestern farm ground that can produce 180 bushels of corn is worth something again. Ditto a good grass ranch.

With all the pain high-priced corn may cause cattlemen at least we can be thankful that a steer is not a chicken. Cows are not walking soybeans. Can you imagine what the price of corn has done to our competition, the poultry pluckers and pig farmers who don’t have the grass option and must lock up their animals and feed them grain for their entire lives? Even if consumers will eat less meat as a result of higher corn, as the USDA projects, cattlemen may have a window of opportunity to gain back some market share from the other white meat… and the other other white meat.

Riches In Niches

Some cattlemen have bet their ranches on the idea that faced with higher priced grains their salvation lies in grassfed beef. In the past five years more than 1,000 U.S. ranchers started raising their cattle for the grassfed market. It is estimated that 60,000 grass-fed cattle were marketed in the U.S. in 2006, compared to 5,000 head in 2000. That’s less than 1% of the nation´s supply, but sales reached $120 million last year and are expected to increase 20% a year over the next decade as upscale groceries like Whole Foods and Trader Joe´s are now selling grassfed beef.

“It´s a niche, niche market,” said Angela Jackson, president of the Organic Grassfed Beef Coalition in South Dakota. “It´s been growing 50 percent a year the last three years, but the number of producers coming on is not as fast as the growth in demand. We don´t ever see being able to catch up.”

Those ranchers putting on grassfed demonstrations in upscale supermarkets have a lot to brag about. Grassfed beef is lower in saturated fats than grain fed beef, higher in omega-3 fatty acids and vitamins A and E. Proponents of grassfed beef say that their product can also reduce cholesterol, diabetes, cancer, high blood pressure and that consumers have less of a chance of being contaminated with E coli.

Having said all that there is a big perceived problem with the product: it doesn’t taste as good as grain fed beef. Mack Graves, CEO of Panorama, formerly Western Grasslands, admits that is the case if the consumer buys the Uruguayan product now available in U.S. stores. “They kill their animals at 900 pounds and they are old.” Needless to say, Mack is a big supporter of country of origin labeling.

Graves insists, as do the customers at Trader Joes where Panorama’s beef is sold, that their grassfed beef is different. First of all, it is produced by 43 ranchers in 4 western states, primarily California. The cattle are at least 50% Angus and ideally 100%. Panorama cattle are never fed animal byproducts or grains, although they do go into what Graves calls a “finishing facility” for the last 60 days where they are fed grass or alfalfa hay. This is to achieve consistency of product. Panorama itself does not own any cattle and the ranchers are paid for their cattle hanging on the rail. At the time of this report they were receiving two dollars per pound compared to a buck for generic cattle. They are processed and distributed by Yosemite Meats.

If you are surprised by the price per pound be advised that just because it’s grassfed does not make it cheaper. Graves said their product typically sells for 20-30% more per pound. At Trader Joes their ground round was selling for $4.99 per pound. Ranchers need to be paid for all the extra hassle and genetics but also a grassfed carcass will only yield 57% compared to 62-63% for grain fed cattle.

Graves insists that their beef is not tough and has no displeasing yellow fat normally associated with grassfed beef if it is cooked properly. On each package consumers are warned that it cooks much faster. Also on each package is a “Born and bred in the USA tag,” to distinguish it from the foreign product. Graves says their grassfed beef is different because they kill their cattle at 16 to 18 months of age when they weigh 1050 to 1100 pounds and that only the best in Angus genetics are used.

One would think that Graves would be jumping for joy as the beef industry seems to be moving in their direction but he points out that because of the high priced corn all cattle will be spending more time on grass which pushes up the price of pasture and makes it less available. Like we said, the corn conundrum is having a revolutionizing effect on all aspects of the cattle business. But lest we get to feeling too sorry for ourselves we should remind ourselves that things could be a lot worse. The last time corn was this high, in February 1996, fat cattle were only bringing sixty three cents!