A Few Thoughts by John Nalivka: Focusing on greater production efficiency

The term “severe shortage” has been used to describe cattle numbers. I think that may be a poor choice of words. We know that herd liquidation began in 2019 spurred by drought and low cattle prices. However, as reduced cattle numbers coupled with strong demand pushed prices to record levels, cattlemen have been unwilling to retain heifers to build herds. There is another part to this story that rarely gets discussed or even mentioned for that matter and that is the costs of production. Yes, prices strengthened but those higher prices were not enough to outpace sharply higher operating costs which have mostly been driven by energy prices.
I often reference the importance of economies of scale in agriculture – both crop and livestock. Simply put, increasing the production base reduces per unit fixed costs per unit of output. Economies of scale are typically thought to impact fixed costs per unit of output. Over the years, I looked at costs on cow-calf operations ranging in size from 100 cows to 5,000 cows and viewed how economies of scale might reduce the variable costs per unit of output. Your ranch output is pounds of beef. Increasing your scale of production (pounds of beef), the cost to produce each of those pounds of beef sold off the ranch declines. It may require more cows to produce more calves, but it does not necessarily require more cows to produce more beef. Running the right cows on a quality grazing operation that is well-managed can produce more pounds of beef without increasing the size of the cowherd. It is important to focus on increasing output – selling pounds of beef – without increasing your costs of production.
No, cattlemen are not growing the beef herd. We are at least one year away from retaining enough heifers to expand cattle numbers. While this has left packers facing significant excess capacity, faced with little or no herd growth, they will resolve that situation. Focusing on marketing pounds of beef produced at the ranch rather than calf number stresses the economics of packing plants as plant capacity is tied to the number of cattle coming into the plant. I believe that liquidation and selection have produced a cowherd that is significantly more efficient. Cattlemen have younger, more productive cows losing fewer calves and these calves wean at heavier weights. But even more important, those calves are increasingly producing Choice and Prime carcasses from grain-fed cattle with increased feed efficiency. Most important, consumers are willing to pay a higher price for the quality beef now produced.
Consequently, we do not need to expand the herd to increase beef production. The industry has changed – both cattle and cattlemen. The focus is more on cost-efficient production of high-quality beef that is demanded by a quality-conscious consumer. Furthermore, this beef will increasingly be produced by ranchers who prioritize costs of production and managing the finances of their business. I do not view this as a drawback to the industry, but rather the correct focus for long-term success.