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Western Livestock Journal Mar 5, 2021

The worm turns

For many years, there was a key factor setting “leverage” in the beef industry, determining who held the key cards. That leverage derived from the supply of cattle, the inventory, that had peaked in the mid-1970s and trended downward ever since.

The packing capacity built to handle the numbers of the ’70s became a nagging problem for the packers. To adjust, some old plants were closed, some packers sold out. Big, efficient and well-capitalized plants survived. Smaller ones serving geographic areas removed from the big plants or serving specialized markets survived.

For decades, there had been a cattle cycle. Cattle numbers fluctuated on a fairly predictable cycle. Packers were set up to handle peak numbers and tried to be efficient enough and have deep enough pockets to outlast the smaller supply years and higher average processing costs.

But cattle numbers kept going down. Better monitoring of cattle numbers by cattlemen, harsher economic penalties for being wrong and mushrooming cattle production efficiency began eliminating the major cattle cycle swings and little bumps were typical.

But packers tended to play safe and their capacity was more than what was needed through most of the ’90s and early 2000s. Packers were always telling me, “Tell cattlemen we need more cattle.” Some packers actually contemplated helping cow-calf operators to expand.

Bigger plants, requiring more capital to build, remodel and run, needed to run in the high 80 percent range or more to make money. No one wanted to shut down plants. One couldn’t cut back capacity just some without losing tons of money. Rising costs made it more expensive to run plants at a loss during down cattle numbers.

But that extra packing capacity, requiring packers to bid more aggressively for cattle to keep numbers near profitable capacity utilization, gave cattle feeders some leverage. Feeders, indeed all the industry, got used to having that bit of leverage much of the time.

Eventually, the packers bit the bullet and closed some plants, and mandatory country-of-origin labeling closed some smaller and border packers. The tremendous progress the cattle industry has made in producing as much tonnage with roughly 30 million cows as it had from 45 million in the mid-’70s pushed the trend of smaller cattle numbers...


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