Chapter 1: Historical Economic, Structural, and Competitive Trend AnalysisMissouri has more beef cows than any other state in America, except Texas. In 2002, cattle were raised on 68,000 of the state's 107,000 farms. Sales of cattle and calves generated cash receipts of $821 million, or 19% of the state's total farm cash receipts.1 As those farm level revenues were spent for goods and services, more than $1.5 billion dollars worth of economic activity was created in the state, primarily in rural areas.2 Beef cattle have been and likely will continue to be the most prevalent agricultural enterprise in Missouri's economy. However, emerging marketing channels and innovations in technology in the beef industry will challenge Missouri's cattlemen in the future. This report examines the economic, structural, and competitive characteristics of Missouri's beef industry. It also includes the potential challenges and opportunities that appear on the horizon for Missouri's future cattle industry and the type of structure that will be needed to take advantage of these opportunities. This audit identifies and describes opportunities for the Missouri beef industry to be successful. The three sections of the audit are as follows:
1.1 Characteristics of Missouri's Beef Industry Commercial beef cattle operations are organized in three basic ways: cow-calf, stocker, and fed cattle operations. In January 2004, 80% of Missouri's total cattle inventory was held by cow-calf operations, 15% of the inventory was held as stockers, and less than 2% of the inventory was cattle on feed. Dairy cattle made up the remainder.3
Missouri Cattle Flowchart
The Missouri cattle flowchart depicts a snapshot of the flow of cattle and calves from Missouri's farms into growing, finishing, and marketing channels, including how much money flows into the various support industries. USDA 2002 estimates form the backbone of this snapshot; however, differing estimation dates and derivation techniques may cause these estimates to be inconsistent with official estimates. Appendix A contains a copy of this flowchart and all the supporting references, derivations, and web links to the data sources. 1.1.1 Evolution as a Cow-Calf State Over the last century, many Missouri farmers accepted off-farm jobs in addition to their farming activities. Beef cow-calf operations were manageable as small or part-time farms because they required relatively little labor except when hay feeding was necessary and during calving. Because cow-calf enterprises fit well with part-time farmers' available labor and management, Missouri grew as a cow-calf state. As table 1.1.1-1 depicts, the states with the most beef cow operations are also the states with the most farms. States with large numbers of small farms such as Texas, Kentucky, Tennessee, and Oklahoma are also major beef cow states. Missouri ranks second in the nation in the number of farm operations and in the number of beef cow operations. Like most of the other top ranking beef cow states, more than half of the farms in Missouri are beef cow operations. More than 90% of the beef cow operations in Missouri have less than 100 cows. Missouri had 107,000 farms in 2002. Sixty-four percent, or 68,000 of those, had cattle (beef or dairy) on them. Eighty five percent of the cattle farms were beef cow operations, composing 58,000 of the 68,000 cattle farms.
Because of the pasture resources and the large number of small farms, Missouri has become a major producer of feeder calves. During the 20th century, Missouri's national importance as a feeder calf producer grew. In 1920, 3.2% of the beef cows in the United States were in Missouri (table 1.1.1-2). By the year 2000 Missouri cattlemen held 6.1% of the nation's cow herd.
Location of Missouri's Beef Industry
Figure 1.1.1-1 Beef Cow Numbers in Missouri Counties - January 1, 20037
Trends in Beef Cow Locations in Missouri
Figure 1.1.1-2 Changes in Missouri Beef Cow Inventory, by
Regions, 1980 to 20008
During the decade of the 1980's, when low crop prices decreased overall farm profitability, cropping areas of the state lost more beef cows than did non-cropping areas. Northwest Missouri lost 29% (86,000 cows), North Central 21% (60,000 cows), Northeast 26% (46,000 cows), and Southeast 32% (12,000 cows). It should be noted, however, that the Southeast region began the 1980s with a relatively small herd of cattle. As the 10-year cattle cycle turned, calf prices moved higher in the late 1990s and overall farm profitability increased. Central Missouri and South Central Missouri grew in cow numbers, with total inventory higher in 2000 than it was in 1980. Together the two regions contained more than 760,000 head of cattle, up 45,000 head from 1980. Much of the expansion in cow numbers in these areas may have been due to the availability of complementary enterprises. Complementary enterprises, such as contract poultry and hog operations, may have made cow-calf operations more economically viable by spreading overhead costs across enterprises. The top ten Missouri beef cow counties in 2000 have shown some interesting trends in beef cow numbers since 1980. Although Texas County is currently the Missouri leader in beef cow numbers, it made a remarkable increase from 1990 to 1995 to gain the position it is in today. Conversely, Nodaway County had a major decrease in beef cow population from1980 to 1990. As depicted in figure 1.1.1-3 several of the top 10 counties show large changes in the 1990's.
Figure 1.1.1-3 Top 10 Beef Cow Counties in Missouri9
During the decade of the 1990's, several Missouri counties with large numbers of dairy cattle experienced a substitution of beef cows for dairy cows. Three counties in particular demonstrate this trend: Texas, Lawrence, and Barry Counties. These three counties are among the top ten dairy-producing and the top ten beef-producing counties in Missouri.
Figure 1.1.1-4 Shift from Dairy to Beef Cattle in Major Cattle
Counties10
The U.S. and Missouri dairy industries are consolidating more rapidly into fewer, larger farms than are the U.S. and Missouri cow-calf industries. As dairy farmers discontinue their dairy operations, they may continue to operate their farms, but replace dairy cows with beef cows. One consequence of this substitution is a drop in gross income from approximately $2,000 per cow per year with dairy cows to approximately $500 per cow per year with beef cows. A corresponding drop in purchased inputs is another consequence of converting from dairy to beef. Unless other agricultural enterprises grow in these counties, the overall impact will be a decline in economic activity from this transition. 1.1.2 Changes in Beef Cow Inventory Cattle inventory numbers in the U.S. and in Missouri tend to peak in roughly 10-year increments, causing low prices and liquidation until the stage is set for the next expansion phase of the 10-year cycle. Missouri's beef cow inventory has decreased 7% since 1980. In many respects, this decrease has mirrored the national trend (figure 1.1.2-1). Missouri's beef cow inventory during this period did, however, move independently from the U.S. beef cow inventory trend in two key areas. First, liquidation appeared to be more widespread in Missouri from 1980 to 1992 than it did in the nation as a whole. Small Missouri herds are typically one part of a diversified income portfolio that includes off-farm jobs or other agricultural enterprises. As such, it is feasible to liquidate and repopulate these beef herds as economic conditions dictate. The second apparent departure from the national trend (2001 to present) is that Missouri's cattle inventory may be rebuilding while the national herd is still in liquidation mode. Beef prices have been favorable for expansion since 1999. However, persistent drought in the Great Plains and parts of the Midwest has forestalled a national increase in beef cow numbers. By contrast, adequate forage availability and relatively low feed prices across most of Missouri have mitigated in favor of beef herd expansion.
Figure 1.1.2-1 Change in Beef Cow Inventory since 198011
1.1.3 Ten-Year Cattle Cycle The U.S. cattle cycle tends to move in a decade-long pattern of price variation that has its basis in producer's response to price signals. The simplest explanation is that cow-calf producers tend to act as if the current calf prices will continue into the future. When cattle prices are high, beef producers respond by retaining heifer calves to use as replacements, in the hope that a larger herd will result in a larger income. This is the case even though the financial reward for retaining heifers can be two to three years away and current market revenues from the sale of heifers will be sacrificed. The net effect is as the number of beef cows increases nationally, the number of slaughter cattle produced consequently increases. As a result, prices are depressed as demand for beef cattle and beef products exceeds supply. As beef cattle prices decline below break-even levels, beef producers respond by reducing herd size or liquidating to minimize losses.
Figure 1.1.3-1 U.S. Cattle Cycle12
A corollary explanation is that cash flow needs drive heifer retention and thus herd expansion. When cattle prices are low, beef producers must sell proportionally more of their heifer crop in order to meet cash flow obligations. The net effect is that the number of heifers available for use as replacements is limited and herd size remains static or contracts. As prices increase, fewer total calves must be sold to meet cash flow obligations. Beef producers respond by retaining a larger proportion of the heifer calves they produce to use as replacements. Herds are once again positioned to expand production.13 It is likely that the price cyclicity typical of the beef industry results from a combination of producer attitudes toward cattle prices and the need to meet cash-flow obligations. Figure 1.1.3-2 depicts two decades of cattle prices and inventories in Missouri and demonstrates the manner in which cattle owners respond to price cyclicity. Worthy of note is that the top of the 10-year price cycle in 1990 coincided with the trough of the inventory cycle. Ten years later in 2001, another price peak coincided with a relatively low cow inventory.
Figure 1.1.3-2 Missouri Cattle Cycle14
Beef cow inventories in states surrounding Missouri are shown in table 1.1.3-1. All states, including Missouri, reduced beef cow inventory between 1980 and 1990. Conversely, only Iowa and Illinois lost inventory between 1990 and 2000. Between 1980 and 1990, the U.S. lost 13% of its cow herd while Missouri lost 16%. Even larger decreases were reported in major cropping states (Iowa, -36%; Illinois, -29%; and Kansas, -21%).
Major grain producing states tend to decrease cattle numbers the fastest when beef cattle prices are unfavorable and are among the slowest to increase inventory when prices are strong. Within Missouri, the same phenomenon can be observed among counties. Those that produce the most grain also decreased cattle numbers the most during the 1980's and increased cattle inventories the least during the 1990's. With each passing decade, producers become more specialized. Crop farmers concentrate more on crops. Cattlemen focus more on cattle. Because cattlemen are more attuned to the rhythms of the commodity cycle of their particular industry, they may respond the fastest to price incentives. 1.1.4 Top Beef Cow States Figure 1.1.4-1 compares the number of beef cows in the top 10 cow-calf states and the states surrounding Missouri. Texas controls more than twice the beef cow inventory of any other state. Missouri, Oklahoma, Nebraska, and South Dakota closely compete with one another for the number two position.
Figure 1.1.4-1 Top Ten Beef Cow Inventory and Missouri's Surrounding States, 200416
Figure 1.1.4-2 Top Five Beef Cow States in the United States from 1980 to 200017
Figure 1.1.4-2 depicts the trend in cow numbers for the top five beef states from 1980 to 2000. Over the period, Texas maintained a considerable lead when compared with other states. Beef cow numbers in Missouri, Nebraska, Oklahoma, and South Dakota fluctuated moderately as the industry moved through price cycles. 1.1.5 Cattle Shipments from Missouri Shipments of cattle into and out of Missouri by state are detailed in table 1.1.5-1.18 The USDA database is not complete because some major cattle feeding states do not record shipments from Missouri. For example, transshipments between Missouri, Nebraska, and Oklahoma are not reported in this database. However, the table below does reflect the magnitude of the cattle trade with other leading cattle states. These flows represent dairy cattle as well as beef cattle.
1.2 Stocker Inventory USDA's National Agricultural Statistics Service collects no direct information regarding the number of stocker calves grown in Missouri. Table 1.2.1-1 estimates the number of stockers that Missouri has had on inventory on January 1, 1980-2004. 1.2.1 Missouri Stocker Inventory The following estimate is derived by taking the inventory of steers and heifers over 500 pounds, as reported by USDA, and subtracting the number of cattle already known to be in feedlot inventory. The assumption is that all calves over 500 pounds that are not kept for breeding or that are not in feedlots are stocker cattle. These animals may be on pasture or drylot. Between 1980 and 2004, the number of stocker calves in Missouri varied between 490,000 head and 735,000 head.
1.2.2 Stocker Inventory Trends for Missouri and Surrounding States Other state stocker inventories are shown in figure 1.2.2-1 and 1.2.2-2. Presently, the top three states in terms of stocker inventory are Kansas, Nebraska, and Oklahoma. Over the last 20 years, the stocker business in Iowa has contracted significantly. After an initial decline, Nebraska stocker numbers sharply increased to place it among the top three stocker states. Other major stocker states (Tennessee, Kentucky, Illinois, and Missouri) have had relatively stable stocker inventories over the 24-year period.
Figure 1.2.2-1 Stocker Inventory for Missouri, Iowa, Oklahoma, Nebraska, and Kansas
Figure 1.2.2-2 Stocker Inventory for Tennessee, Kentucky,
Arkansas, and Illinois
1.2.3 Pastureland Potential Annual Stocking Rates by Missouri County Using the 2002 Census of Agriculture statistics for county-by-county pasture acreage and for beef cow inventories, an overall potential annual stocking rate by county was estimated. Table 1.2.3-1 derives a total potential annual stocking rate, by county, for all Missouri counties. Each county's pasture acreage was separated into cropland pasture, woodland pasture, and rangeland pasture to further delineate pasture quality.
The number of potential beef cows stocked per acre varies tremendously across Missouri counties. However, there are some interesting differences in the top five cattle counties, as shown in table 1.2.3-2. Lawrence County, with a beef cow population of 43,500, had the lowest potential stocking rate (fewest number of acres needed per cow) in the top five cattle counties at 3.81 acres per cow. Lawrence and Barry Counties are major poultry producing counties. The ready availability of poultry litter for use as a pasture fertilizer contributed to greater than normal forage production and permitted their relatively low potential annual stocking rates.
1.3 Beef Cow Operations in Missouri Thousands of small cattle herd operations control more than 40% of Missouri's cattle inventory. This characteristic has implications for technology adoption and for market channel innovation for Missouri feeder calf producers. Section 1.3.1 compares the size of Missouri cattle operations verses the number of cattle controlled by that particular demographic group. In section 1.3.2, the same contrasts are highlighted for the U.S. 1.3.1 Missouri Beef Cow Operations and Inventory Almost 80% of the beef operations in Missouri have less than 50 head of cattle. These operations hold 41% of the cattle in the state. Beef operations with 50 to 99 head of cattle account for only 15% of the cattle operations but they hold 26% of the cattle inventory. Combined, these two categories comprise 94% of all of the beef operations in the state and they hold 67% of the inventory.
Operations with 100 to 499 head of cattle make up 6% of the farms but they represent 28% of the cattle. Beef operations in Missouri with more than 500 head in inventory make up less than 0.2% of the total number of operations and control about 4% of the inventory.
Figure 1.3.1-1 Comparison between Missouri Beef Cattle Inventory
and Missouri Beef Cattle Operations in 2003 (January 1
Inventory)21
1.3.2 U.S Beef Cow Operations and Inventory The demographic trends in U.S. beef cow operations and their inventory follow closely those in Missouri. Beef cow operations with an inventory from 1 to 49 head represent 78.3% of the total number of beef cow operations in the country. Collectively, they own 29.2% of the U.S. beef cow inventory. The largest percentage of inventory (37.5%) comes from beef cow producers with herd sizes between 100-499 head.
Figure 1.3.2-1 Comparisons between U.S. Beef Cattle Inventory and
U.S. Beef Cattle Operations in 2003 (January 1
Inventory)22
1.3.3 U.S. Beef Production per Head The amount of beef produced per harvested calf in the U.S. has trended strongly upward during the last 30 years (figure 1.3.3-1). Beef production per harvested animal is calculated by dividing annual commercial beef production by annual commercial cattle slaughter.
Figure 1.3.3-1 Commercial Beef Production per Harvested Calf in the United
States23
1.3.4 U.S. Beef Production per Head and U.S. Beef Cow Inventory As beef production efficiency has increased over the last 20 years, the U.S. beef cow inventory has generally decreased. Figure 1.3.4-1 shows the beef production per beef cow in the U.S. from 1980 to 2003. If this trend continues in the future, there may be a marked decrease in the physical feedlot space required to fulfill domestic and export demand for beef. Reduced demand for feedlot space will put pressure on lower efficiency feedlots initially as they compete for animals. Ultimately, a continuation of this trend will have downside pressure on prices encouraging larger and more efficient operations.
Figure 1.3.4-1 Commercial Beef Production per U.S. Beef Cow24
Figure 1.3.4-2 U.S. Commercial Beef Production per Head vs. Beef Cow Inventory 25
1 Missouri Agricultural Statistics Service, Farm Facts 2003, http://agebb.missouri.edu/mass/index.htm | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||