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55494

Big Demand for More Hamburger Cattle

They say change is the hardest thing for people, but to change the cattle industry? Now that may take divine intervention. Yet, that’s what Don Close is trying to do. Earlier this year, the Rabobank chief cattle economist went to the National Cattle Industry Convention to advocate for the industry to retool itself to current consumer realities: We’re a nation of hamburger eaters.

About 60% to 62% of beef is consumed as hamburger, he says. Yet, the industry, particularly the feedlot phase, still operates in the high-quality phase that rewards well-marbled and finished Choice- and Prime-quality carcass grades. 

“Under the existing business model, the U.S. cattle industry manages all fed beef as if it were destined for the center of the plate at a white-tablecloth restaurant,” notes Close. “The industry is, essentially, producing an extraordinarily high-grade product for consumers who desire to purchase a commodity.”

If the cattle industry continues to produce ground beef in a structure suited to high-end cuts, the result will be continued erosion of market share, he says, pointing out that beef consumption since the 1970s has gone from over 90 pounds per capita to 54 pounds in 2013. It will fall again in 2014.

Close’s Rabobank report, Ground Beef Nation, goes on to explore the trend of changing consumer preferences and the role pricing plays in the decline of beef consumption. The industries that produce competitive proteins – pork and chicken – have grown and become more efficient. 

Meanwhile, the beef industry is pricing itself off the dinner menu of most families. “Average chicken price increases have been about 2% a year, while beef has increased 5% to 6% annually,” says Close.

Much of that beef increase has come in the hamburger sector, as demand and tight supplies pushed it closer to steaks. Ten years ago, average retail steak prices were about 2.5 times that of ground beef. Today, that price relationship has shrunk to 1.7, as the demand for grinding beef outpaces the demand for steaks. Under his proposal, the price for hamburger would become more competitive with chicken, rather than steak.

“The industry must adopt a model that determines the best end use of an animal as early as possible,” Close says. “A new system for end-use categorization that influences calf selection, cattle management, production costs, and feeding regimen throughout the life of the animal is vital to keeping beef competitive.” Close has many statistics to back up his report, all of which point to a market structure that encourages more grinding beef.

About 82% of total beef supply comes from the feedlot. Of those fed carcasses, only about 18.5% end up in the trimmings bucket for grinding. The rest goes for steaks, ribs, roasts, and briskets. 

Much of the supply for grinding beef has come from cull dairy and beef cows, both of which are shrinking. With the beef industry showing signs of expansion, that will limit future cull cows, as producers keep them longer.

The U.S. hamburger backup plan is Australia, where it feeds less grain and produces a commodity grinding-quality product. However, with the opening of the China market to Australia, beef shipments there have expanded by 635% in the last year alone. If the U.S. wants Australian hamburger, it will have to outbid China.

While the hamburger share of the beef pie has grown over the last 10 years, the share of cattle finished to USDA quality grade Choice or Prime has risen from 50% up to 70% now.

So what does he recommend? “In that upper end market for finished Choice and Prime beef, that’s definitely a good market. Let’s not change it,” he says.

“In the lower half of the cattle gene pool, let’s change how we target animals for the ground beef market. We leave them on lower quality forage diets before the feedyard and then have shorter feeding periods. We feed them lower-cost and lower-quality feed, probably to a slightly lighter end weight. Rather than Choice, they’ll grade Select.”

If we do that, says Close, “we might still be able to devote 27% or so of the carcass – the ribs and loins – to a low-Choice steak market. The rest of the carcass – shoulders, rounds, flanks, and briskets – would go to grind to fulfill the dominant market.”

He believes feedyard-sector changes would be minimal, as all cattle would still spend some time there. It could enhance the roll of backgrounders who specialize in longer grass gains. Cow-calf producers would have to determine their target end market and produce accordingly.

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