NEW ORLEANS, La. — The U.S. beef industry has turned itself around in the last 25 years.
In 1994, demand had fallen to all time lows, beef quality audits showed widespread consumer dissatisfaction because of tough steaks and profits were fleeting.
In the last year, 80 percent of graded cattle were either USDA Prime and Choice compared to about half of that 25 years ago.
That has improved demand because people are willing to pay more because they recognize the value.
“We finally started listening to the consumer, and the consumer has rewarded us,” said Randy Blach, chief executive officer of the market analysis firm Cattlefax.
In Canada, slightly more than three percent of carcasses graded Prime and more than 67 percent went AAA.
U.S. beef demand fell by 50 percent from 1980-98. About 400,000 producers left the industry and did not return. In the late 1970s the cattle herd was around 132 million head, but it dropped to less than 100 million. Since 1998 the industry has changed its focus and worked to improve the quality of the product.
“These numbers really bring to life the power of responding to a consumer signal,” he said during a market presentation at the National Cattlemen’s Beef Association convention held in New Orleans from Jan. 29-Feb.1.
“We don’t want to have to learn this again,” he said.
If demand had not grown in the last 20 years, the value of fed cattle would be about $20 per hundredweight less, or $270 per head. Calf prices would be $50 per cwt. lower if the trend had not been reversed.
Production practices changed to produce higher quality.
“To increase quality that much and maintain these price spreads, that is a strong reflection of the demand growth we have experienced in this business,” he said.
While today’s beef eaters show a willingness to pay more, the next generation is a different kind of consumer who wants more choice, quality and traceability.
“Are we willing to do what we need to do to produce a product that has those attributes that are important to them,” he said.
It is important to maintain momentum to keep the industry profitable and hold the next generation of producers, he added.
The accumulated profit for the entire industry was $50 per head in the late 1980s and early 1990s.
“We had four or five segments that were splitting that up. That is not a sustainable business,” he said.
Today’s profit ranges from $200 to $500 per head, although there are years when certain segments have lost money.
The cow-calf sector has been profitable since 1998.
“Nobody else in our industry makes money if the cow-calf producer isn’t in a position where he can respond … and keep ample numbers in front of us to keep our grazing areas full, our feed yards full and packing plants running at an efficient level,” he said.
There is more money in the industry, but the cattle cycle continues to function with its phases of expansion and liquidation.
The cycle lasts about 12 years, and Blach predicts this current period will have some more growth with peak numbers in 2020-21 followed by a gradual decline.