1. Maintaining U.S. Beef Industry Competitiveness with High-Priced Grain Derrell S. Peel Breedlove Professor of Agribusiness And Livestock Marketing Specialist Oklahoma State University

2. Major Beef Industry Issues Changes in U.S. Agriculture Increased Global Demands on Agriculture Current U.S. Beef Market Situation Long Run Structural Change in the U.S. Beef Industry Other Issues – Environmental, animal welfare, local foods, etc

3. U.S. Beef Industry Opportunities and Challenges Ability to use forage implies an important role in meeting global food demand High grain prices means that the beef industry must adjust production systems Beef industry must take advantage of flexibility in production to maintain competitiveness

4. Livestock Marketing Information Center Data Source: USDA-NASS

5. Livestock Marketing Information Center Data Source: USDA-AMS, Compiled & Analysis by LMIC

7. Livestock Marketing Information Center Data Source: USDA-NASS

8. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC

9. United States: Beef Trade

10. U.S. Beef Exports Major Markets

11. Livestock Marketing Information Center Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC

12. Livestock Marketing Information Center Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC

13. U.S. Agricultural Challenges Agriculture is being asked to do more of everything… – Biofuels – Global food demand …with more restrictions and challenges – Environmental limitations – Anti-science/anti-commercial mentality – Social agendas that threaten agriculture Resource pressures in agriculture – More competition among crops for acres – More competition from crops for forage and hay production High and volatile input prices

14. Corn for Food, Seed and Industrial Use

15. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Forecasts by LMIC

16. Corn Price Omaha, Monthly, Jan 2000-Jun 2012

17. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Forecasts by LMIC

18. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC

19. Change in Planted Acres, 2006 -2012 Based on 2012 Planting Intentions CropAcres Planted, Million, 2012 % change (to 2012) Corn96.4 + 23.1 Soybeans73.9- 2.1 Wheat55.9- 2.4 Hay (harvested)57.3- 5.7 Cotton13.2- 13.9 Rice2.6- 9.8 Sorghum6.0- 8.5 Oats2.9- 31.8 Barley3.3- 4.9

20. Increased Crop Values $/bushel, Crop Years 20052006200720082009201020112012*% Change 2005-2012 Wheat3.424.266.486.784.875.707.206.8099 Corn2.003.044.204.063.555.186.205.90195 Soybeans5.666.4310.109.979.5911.3012.4014.00147 Sorghum1.863.294.083.203.225.026.105.50196 Barley2.532.854.025.374.663.865.355.80129 Oats1.631.872.633.152.022.523.493.50115 Rice (cwt.) 7.659.7412.8016.8014.4012.7014.1014.3087 Cotton ($/lb) 0.4770.4650.5930.4780.6290.8150.9100.70047

21. Short and Long Run Impacts of High Grain Prices on Beef Cattle Short Run – Adjustments within current production systems Tweaking the current system – Other factors dominating Current market situation Long Run – Adjustments to new production systems Different fundamental market incentives – Within the context of dynamic short market conditions

22. Beef Production and Marketing System MARKETINGPRODUCTION

23. U.S. Cattle Industry Evolution 1960s-2006 Built on cheap energy and cheap grain Increasingly grain intensive Limited stocker role (more calves in feedlots) Influence on production systems – Animal genetics (carcass weights) – Type and use of technology Industry infrastructure (location and capacity) – Cattle feeding – Meat packing

24. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC

25. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC

27. Cattle on Feed as a % of Feeder Supply, January 1

28. “The Beef Industry Can Survive High Corn Prices Better Than the Pork and Poultry Industries” True statement? What are the implications for the beef industry? It is often said:

29. Data Source: KSU Focus on Feedlots, Compiled by LMIC

30. Estimated Concentrate Feed per Pound of Meat Produced Broilers1.80 Hogs2.90 Beef (by feedlot placement weight) – 550 lb. 3.50 – 750 lb.3.02 – 1000 lb.2.39

31. Beef Industry Market Coordination Price Signals to Coordinate Production Sectors – Level of Production – Change Production System Allocate Forage Resources Grain versus Forage Use – Timing

32. Feeder Cattle Prices, Average, OKC, January 1992-December 2011

33. Price Signals in the Beef Industry Cow-calf Production – Increase or decrease cattle production based on calf prices Stocker Production – Increase or decrease forage use based on price relationship between light and heavy feeder cattle Feedlot Production – Increase or decrease grain use based on grain price and relationship between light and heavy feeder cattle

34. Price-Weight Relationship Medium/Large No. 1 Steers

35. Feedlot Cost of Gain Kansas, $/cwt.

36. Cattle Markets are Providing Twin Signals to U.S. Producers at the Current Time Increase Calf Production – Herd Expansion – May change in 3-6 years More Stocker Production – Keep feeder cattle on forage longer – More flexibility – Likely to be permanent Both Signals Imply Increased Demand for Forage

37. Permanently Higher Grain Prices is a Game Changer for the U.S. Beef Industry Change from grain intensive to forage intensive to maintain competitiveness – Must emphasize ruminant advantages – Will continue to use grain finishing but in a less intensive way – Enhanced role for stocker production Influence on production systems – Animal genetics (change animal size?) – Type and use of technology? – Better forage management – New forages and new forage systems? Industry infrastructure (location and capacity) – Different feeding industry? – Regional shifts in cattle feeding, cow-calf and stocker production

38. Potential Structural Change in the U.S. Beef Industry Current SystemNew System? Cow Size (pounds)1100-1500950-1350 Stocker (Forage based) Gain (pounds)0-400150-500 Feedlot Placement Weight (pounds)550-850750-1050 Slaughter Weight (pounds)1250-15001050-1300 Days on Feed (Feedlot)130-20090-120 Feedlot (Grain based) Gain (pounds)450-700300-500 Age at Slaughter15-2018-22

39. U.S. Ave., -8.5 % Change in Beef Cow Inventory, January 1, 2007-2012 -11.4% -18.1% -1.4% +5.4% -0.9% -2.6% +3.3% -4.9% -15.7% -1.75, 2011 -5.4% -4.1% -16.4% -3.7%, 2011 -11.8% -1.1% -15.4% -8.3% -3.5% -2.9% -17.6% -5.4% -12.5% -1.3% -11.4% -0.8% -7.5% -9.9% -7.8% 0.0% -22.5% -16.7% -0.4% -9.4% -8.2% +4.9% +0.9% +6.7% -2.0%

40. “The Beef Industry Can Survive High Corn Prices Better Than the Pork and Poultry Industries” True, but with implications – Ruminant flexibility is an advantage only if the industry changes to capitalize on those capabilities – Failure to change is a disadvantage Ruminants will always be the least efficient user of grain

41. The U.S. Beef Industry Faces New Questions For the last 4-5 decades: – “How can we get cattle to use more grain?” For the coming decades: – “How can we produce high quality beef using the least amount of grain?”

42. The Weekly Email Newsletter From OSU Animal Science and Agricultural Economics Send Email to derrell.peel@okstate.edu