Cattle prices hurting the rural farmer

By Neal A. Johnson, UD Editor
Posted 7/1/20

Ground beef prices have risen at retailers, but little of that increase is making its way back to cattle producers, particularly those in rural settings, according to Dave Luker, of Chamois, who …

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Cattle prices hurting the rural farmer

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Ground beef prices have risen at retailers, but little of that increase is making its way back to cattle producers, particularly those in rural settings, according to Dave Luker, of Chamois, who operates a small cattle farm called the Bar Luk, who believes that decisions made at the national level are having a detrimental impact on him and other producers.

“They know what’s going on,” said Luker. “These corporations spend a lot of money on lobbying not to change anything. They spent a lot of money to kill Country of Origin Labeling. The National Cattlemen’s Association is in lockstep with them. They’re the biggest Judas in the cattle industry. They emphatically deny they’re against the cattlemen, but all we can do is look at the reality of what’s happening in the cattle industry versus what they say. It’s a real mess.”

The real impact doesn’t occur on Wall Street, Luker said. “It occurs here on the rural countryside,” he added. “It occurs in small communities like Chamois, where farmers can’t get a decent price for their product. They have to go out of business or they can’t afford to upgrade their equipment, or pay their farm taxes, or pay their bills at MFA and other places that generate taxes that make our communities run. Cattle are a very important commodity in Osage County. This countryside being devoid of cattle is not going to be beneficial to the county.”

Luker believes the four major meat-packers, Cargill, JBS, National Beef, and Tyson, which he calls the “Big Four,” are behind the recent challenges cattle farmers are facing as these companies control over 85% of the United States beef supply.

“They’ve admitted that removing Country of Origin Labeling has had a tremendous impact on pushing cow prices down,” he said. “They all benefit from it. The other thing is, the Cattleman Beef Board, which is supposed to be a producer-funded program designed to help producers sell their cattle, is not helping. We pay a dollar a head in the beef checkoff program, and you would think that money would flow back to helping the producer, but it gets caught by the packers. All that money is collected by the meatpackers and the people that export beef out of this country. So they use our money to promote it, they brag about how they have built exports across the world, and the gentleman who runs the program is from the US Meat Export Federation.”

Luker believes there’s more going on than meets the eye. “They took one of their own foxes and put him in the henhouse,” said Luker. “The new CEO of the CBB is Lane Hanes, who comes to that position from the U.S. Meat Export Federation (USMEF), a subcontractor to the Beef Checkoff, where he was most recently the vice president of international marketing programs. There are a lot of moving parts here, and the independent cattle producer has no representation. I don’t care what they say.”

Country of Origin Labeling (COOL) was repealed in 2015 for beef and pork, but every other product sold in grocery stores, from chicken to produce, is still required to include information on where that product came from, which Luker said is ridiculous.

“Even Tyson has Country of Origin Labeling on its chicken, but they don’t want it on my beef,” said Luker. “Why is that? What’s the rationale behind that? I just don’t get it.”

Luker runs a herd of 125 cows, including bulls and replacement heifers, on his 400-acre farm, and production is time-intensive.

“What most people don’t understand is that it takes three years, from date of inception to the slaughter date, and that’s if everything goes like clockwork,” Luker said.

At their peak, the Lukers had 170 cows on the farm, but the farm does not become more profitable the more head are cultivated. “It’s just the opposite,” Luker said. “I’m not going to grow myself out of this mess. You just have to back off and understand the premium is being sold at the retail level.”

Tom Hurst, of Meta, grew up in the industry, and operates a larger cattle farm, though it doesn’t help him either.

“We all have cattle, but I made money and you lost money, or vice versa,” said Hurst. “There are years where producers don’t make money but the feeder does. We talk about agriculture, but we’re competing with each other at the local level. That’s part of what’s confusing, and it’s hard to get people to understand.”

CONTROLLING THE MARKET

Hurst explained the process regarding how the market is controlled.

“We don’t have a choice on what beef is sold for in the store,” said Hurst. “The processor has the big say on prices. They can set their own margins. The problem is now that foreign companies are producing beef and the only way to get around that is to have another competitor come in, but that’s tough with regulations at the local level. It’s hard to open a small packing house, let alone get a big one going.”

Hurst offered an example: 70 head each weighing 700 pounds being shipped to a feedlot would mean 49,000 pounds to handle. “You have the option to go pick them back up and bring them home to slaughter them, but who can do 70 head of cattle? Who would buy them? So the problem is the option to bring them back is not really an option, because the market is not there for that type of setup,” said Hurst. “It would be nice if we could, but after they’re fed, they weigh so much more it’s not realistic to take them somewhere else. The option is, do I take the chance and hope the market goes up? Or do I sell them for what the big meatpackers are willing to pay?”

Hurst said the big packers have ways of manipulating the market based on futures. “If they had to buy their daily kill it would be like the stock market,” he said. “How many cattle are out there today, and what do we have to bid to get them? What they’ve done instead is contract them.”

For example, packers agree to buy the 70 head and pick them up sometime in the next couple weeks.

“So what they can do, is if they get enough head of cattle bought that day, they don’t have to buy anything for two weeks because they have a contract saying you have to deliver or else,” said Hurst. “They choose when they pick them up, and they’ve determined the price. Let’s say you’re an independent, and you decide you’re not going to take that dollar a pound today. If you feed those cattle another 30 days and they gain four pounds a day, that’s 120 pounds per animal. If you get them too big, they’ll dock you for having too big a carcass, or they’ll butcher and grade them, and then pay you based on the processed weight and grade. Who controls all that? They do.”

Another possibility is that the packers won’t buy your beef at all. “What they’re doing is offering a price today, and if you hold out thinking they’ll need your cattle, they tell you your options are to come and get them, which they know isn’t feasible, or you can keep feeding them, which will cost you a little more, and then they’re going to dock you on the price. It’s not a good situation for the producer, and 90 percent of the time, you’re better off taking the first bid you get because it’s not going to get any better.”

Hurst said odds are bad no matter what, and so many cattle producers are going the contract route to lock in a price, and anyone choosing to avoid that route is taking a big chance.

“Contracts are fine, but the packers are very picky, especially when it comes to horns,” said Hurst. “There have been times when packers claimed horns bruised meat, and people have been docked on the price. They want horns cut down to the skull so it’s easier to take off the hide. That’s how picky they’ve become. And the problem remains that they can just decide to not buy your cattle because they have extra horn length. Why? Because they can.”

Hurst went on to say that in a competitive world, it would be different. “If you had a product that I had to tinker with, but I could make money on it, wouldn’t I go out of my way to buy it? Someone would buy it,” he said. “If I had a car with an alternator out, someone would still buy it, but if the car industry said if your alternator is out there’s not a dealer in this country that will buy that vehicle, in your mind, you would think something doesn’t seem right.”

The same logic applies to cattle, and Hurst said the big four packers are not supposed to talk. “Who wouldn’t bet everything they own that someone meets in a coffee shop and asks what should be offered for cattle today? It’s too easy, and there’s too much money on the line for someone not to do it,” he said. “No, they’re not going to admit to it, and I have no idea how you could prove it, but when you consider supply and demand economics, the livestock industry doesn’t add up without something interfering somewhere.”

CUTTING OUT THE MIDDLEMEN

Luker and his wife, Dee, made the decision in the summer of 2019 that if they couldn’t make their beef business profitable by the end of 2020, they were going to call it quits.

“We decided we’d slaughter the herd, sell the equipment and move on to something else,” he said. “I’m going to have a very small tax footprint in Osage County if we get rid of everything.”

For now, Luker is developing his own brand, selling beef directly to consumers.

“The backgrounder, feed lot and packer are no longer my customers,” said Luker. “They’re telling me they don’t want my product, because they’re not willing to pay me what it costs to raise it. They’re not willing to let me make a living doing this. They’re sending me a very clear signal: they don’t want what I’m producing, but the consumer does, so we’re leap-frogging the three middlemen.”

Luker added he has enough cattle on the farm to feed 176 families per year.

“I just need a fraction of the population to want my beef to make a profit on the farm,” said Luker.

Retailers are selling ground beef for about $7 per pound, and Luker is selling his ground beef for $4.50 per pound, with the first offering sold out in about two hours.

Luker takes his cattle to Missouri Meat & Sausage in Fulton for processing. He is required to have his beef processed in a USDA-inspected facility to be able to sell it to consumers across the nation.

“Actually, all we have to do is have it killed there,” said Luker. “Under a special USDA exemption we could bring it back here and process it ourselves, label it and send it out.”

Luker said he will soon know whether he plans to continue. “We have to sell and process three head of beef a month,” he explained. “Who would have thought in our new business model that the month we decide to do this, all the processing plants around here are booked and overwhelmed. Due to the disruption in our beef supply from COVID-19, you can’t get into some of them until the spring of next year.”

At this point, Luker is sticking to ground beef. “We wanted to be very particular in what we sell,” he said. “We’re not going to offer alternate cuts unless we really have some quality beef to sell. No one wants a tough steak or a roast that’s chewy.”

On-site inspectors grade the beef, and if it’s graded “Select,” the entire animal is processed as ground beef. If it’s graded as “High Choice” or “Prime,” then other cuts will be offered.

“It’s like a box of chocolates,” Luker said with a laugh. “You never know what it will be until you open it up.”

CATTLE BY THE NUMBERS

Heifers are put with a bull at about 800 pounds, and in general terms, heifers are about two years old before a calf is born. Hurst said it’s usually takes about two and half years before a calf will produce a check. 

In a general example, a backgrounder buys the calf and then feeds it, sometimes using a feedlot, to make it as fat as possible. Once cows reach the selected weight, around 1,400 pounds, they are sold to meatpackers, who then slaughter and market the beef to retailers and restaurants.

With a 90% success rate, that still leaves a 10% death rate.

Hurst said that rate is actually high for some producers, and lower for others, depending on many factors. “You never know what might adversely affect a cow here and there,” he added.

Luker believes that to be successful going forward, producers will have to leave the current captive supply chain and develop their own farm-to-table supply chain.  

“If you don’t control your own customer base you may not have a market for your cattle,” said Luker, who  pays $1 per pound for the beef to be processed, based on the size of the carcass. “The bigger the carcass, the less it costs me and the more beef I produce. When you take a look at the actual production costs, the inputs involved cost about $23,000 per year to maintain the herd.”

With 47 head, the input cost is $489.36, and if 90% of the cattle survive to processing, 44 calves will make it to market, which at 500 pounds at $1.10 per pound, would be $550, or a profit of $61 per head.

“I could make that $61 per head selling it the conventional way,” said Luker, noting these inputs don’t include other costs associated with running the farm like insurance, property taxes, land cost and upkeep. “Or, I could finish these calves out, have them processed and sell the ground beef myself.”

At $4.50 per pound, minus the $1 for processing, Luker said he can generate $3.50 per pound in gross profit. Ideally, with the best cuts, he would like to make $6 per pound for the entire processed, deboned animal.

With a 500-pound processed boneless carcass, he can generate $3,000, with a $1,200 net profit after paying processing fees and other associated costs.

“I can make a lot more money selling my beef directly to the consumer,” said Luker. “It’s a no-brainer to do it this way. I want to sell cattle, but there has to be something coming back for my time and effort. You have to be able to make a living, and raise your family, and send your kids to college. You have to be able to live a life like everyone outside of farming.”

Luker said everyone gets into farming differently. Some grow up on the farm helping the family, and decide to continue the business.

“I got here because I worked a corporate job for more than 20 years away from Chamois, and we would not be here if we hadn’t made our money somewhere else,” said Luker. “Dee and I decided to move here to the country and grow old together. We didn’t know anyone in Chamois.”

The Lukers first looked at a farm at Swiss, but the deal fell through. Instead, they were shown the farm south of Chamois. They closed on the property in 1996, and the Lukers moved here the next year.

Luker took a job in finance in the fall of 2007, and what followed was a recession that made it difficult to earn a living. Luker went back to the specialty chemical industry in the spring of 2012.

WHAT CAN BE DONE?

Luker has been outspoken in his frustration with the situation, using social media and websites operated by those making the decisions to voice his opinions. However, he has recently been banned from various sites, including the National Cattlemen’s Association and the Cattlemen Beef Board.

“They do not like to be challenged on what they’re doing,” Luker said. “It’s serious censorship, especially for a producer-funded program like the Cattlemen Beef Board. After a while, you feel hopeless.”

When asked about others who have spoken out, Luker said there haven’t been many. “I guess it’s apathy,” he said. “For some producers, this is just a part-time venture. They have another job that pays their bills, and raising cattle is just a sideline. They don’t think it’s a big deal because it’s not their bread and butter. When people have enough, they just go sell their herd, and equipment. If the government cracked down on the hobby farmers, you’d see a big change in the cattle population here. There’s not a person around here I know of with a cattle operation that doesn’t have a full-time, good-paying job off the farm to support their cattle operation, because the cattle alone won’t do it.”

Hurst would like to see more competition for locally-grown cattle.

“In Missouri, I would like see Country of Origin Labeling come back for beef, and I would like to promote Missouri beef,” he said. “They’ve talked about getting a packing house to come to Missouri for the fat cattle, but it’s easier to take them to somewhere like Kansas. They don’t have the humidity, and it’s hard to set up feed yards here because of that. It would be great if we could get a cow packing house here. With supply and demand, you’d think someone would have come along, and I don’t know why that hasn’t happened.”

There is no simple answer to opening up the market.

“The sad part is we have so many regulations on people that it’s hard for the small packers to do anything,” said Hurst. “I understand the safety issues. On the other hand, people have to be responsible for themselves. If I know where the meat comes from, I should be able to buy that meat if I have the same trust as if an inspector had signed off on it. I should be able to have it processed by someone I choose, but the federal government won’t allow any of that. They won’t even allow meat to be given away for free.”

Politics plays a role. “When President Trump mentioned something about the price of meat, the fat cattle market jumped 10 cents,” said Hurst. “Then it seemed to calm down after the price went up. The federal government needs to investigate this because it crosses state lines, and actually it’s worldwide. If they would investigate the workings of the industry, and had an expert in the field to look at things, and hold companies accountable, that would help. If it’s fair, farmers understand they will take losses, but if it’s always the packers win, that’s where suspicion and frustration comes in.”

Hurst, who is nearing the end of his second term as a state representative, suggested that if a panel of experienced people were to investigate every sector of the industry, they could get to the bottom of it.

“Who has something to gain? If they could figure that out, and get some answers, they could look at what needs to be done to help the market,” said Hurst. “We’re still going to compete with pork and chicken and even vegan producers, but when you’re competing with your own friends to make a living, it becomes really tough. I don’t know the answer, but something needs to be done.”