Industry benefits: Flexibility keeps cattle industry on topWritten by Gayle Smith
Despite having a complex marketing system, flexibility is what makes the cattle industry so successful, according to an economist from Oklahoma State University.
“When we are talking about cattle and beef markets, the question is what will get produced and how much will get produced,” Darrell Peel told producers at the Nebraska Grazing Conference. “As a producer, we think we can decide what will get produced, but we really don’t. These two questions are answered by the demand-side of the industry.”
“Ultimately, consumers decide what will get produced and how much,” he said.
What producers can control are the resources that will be used for this production.
“Producers make the decisions on how to allocate those resources amongst alternative uses,” he explained.
The cattle industry is flexible. Cattle can survive on a forage-based diet or a heavily grain-based diet, and anything in between, Peel said.
The market determines the most efficient way to get it done.
“It puts the cattle industry in the middle of everything from a crop standpoint, and in terms of land and forage resources and how they are allocated,” Peel explained. “We have fixed and variable forage resources.”
“Rangeland is a fixed resource and crop production and crop aftermath are variable resources,” he told producers. “Since the cattle industry is the biggest livestock enterprise in the U.S., it falls on cattle producers to determine how to utilize and change in response to changing conditions.”
“If we had a bigger sheep industry, the way these resources are used would be different,” he noted.
Corn, soybeans, hay and wheat account for 86 percent of the crop production in the U.S.
“What happens in these markets signals what will happen with other crops,” he said.
If corn acres increase, soybeans typically follow, he said. Wheat acres are declining, and hay production has been significantly down during the last decade.
“Cattle inventory was down also, so now that it is rebuilding. It will be interesting to see if hay acres also increase,” he said.
When corn underwent a significant increase in acres several years ago, some pastureland was tilled and put into crop acres.
“The question now is to what extent is that a long-term or permanent change? There was lots of fence torn out, ponds filled in and expensive terraces built for crop production. That doesn’t revert back instantaneously,” he said.
Between 2007 and 2012, Peel says 9.2 million acres were also pulled from the Conservation Rescue Program (CRP) and put into crop production. Little was put into pasture.
“There are lots of things happening regionally in terms of how the big picture has changed over time,” he said. “How will we utilize the land resources and how will that apply to cattle production, since it is the biggest variable factor that has to change in response to those kind of incentives?”
Peel sees Nebraska cattle producers having an advantage.
Between 2007 and 2012, not much change occurred in the number of acres of pastureland in the state. Cropland accounts for 20 millions acres, while rangeland is 23 million acres.
“Nebraska is unique,” Peel said. “There is no place else that has so many major cropping areas so close to rangeland.”
In fact, Peel sees the ability to use forage and grain to finish cattle as a factor that makes beef competitive with alternative meats.
“There are 4 million acres of rangeland in this country that don't have a better use than cattle production,” he stated. “Can we take for granted that we will continue to have a cattle industry in this country?”
“I think we can because cattle eat grass and we don’t have anything else that does. If we had to compete solely on other things, we probably wouldn’t win that,” he explained.
“We have to compete against all other uses of land and production of that land, without using those forage resources that can’t be used for other things,” he continued. “We have the ability to adjust, which is an advantage and an opportunity, but it means that we can’t sit still. Changes in the market conditions outside of beef production means we have to make changes to this industry. We have the flexibility to be more responsive to those changes.”
“Ultimately, economics will force us to utilize that flexibility. The question is whether we do it willingly, or wait until after the market beats us up to get the point,” Peel stated.