Progressive Farmer Magazine gave the poultry industry a “4” on a scale of 0 being healthy and 10 being not healthy. The poultry industry set the example for integrators that the pork industry is striving for.
The poultry industry is now an oligopoly of major producers who re-act in concert to market signals and industry profitability. Poultry producers have reduced production to match demand much more effectively than the pork industry has because they got rid of traditional producers a long time ago through the decision-making process.
Contract producers found out they have risk if their partner reduces production as fewer chicken houses are needed.
Actually, contract hog producers are finding out the same thing to a smaller degree. Barns can sit empty, but payment obligation continues. I don’t think contract producers get paid enough for that kind of risk.
Decisions regarding the U.S. poultry industry are now made by just a few heads. Concentration, gaining control of domestic production, is not so much on their mind any more.
While the poultry industry has had the poor fortune of having to defend against bird flu and having Russia for a necessary customer for dark meat, they have proven that they can quickly adjust production accordingly.
The Pilgrim’s pride came before his fall. Poultry imports may be as much a risk as the export market. Brazil is a future threat, which is why U.S. integrators are investing in the Brazilian poultry industry.
Strength in the dollar may help them invest in Brazil. A rating of 4 on the Progressive Farmer scale of risk is probably about right.
The livestock industry that is in the best health is beef, giving it a 2 with zero being healthy. This industry is still dominated by traditional producers.
That’s not because the guys who write Beef Magazine like it that way. The NCBA-types see beef industry structure as a competitive disadvantage to poultry and pork industries. Domestic beef demand has strengthened even as domestic pork demand weakened on economists’ demand indexes.
The industry is not as dependent on exports as is the pork industry. In fact, it has limited beef exports itself by adoption of an uncooperative export policy.
The beef industry is not driven by a mindless expansion by major interests seeking to dominate the industry. You can’t build a building and put a cow herd in it, thank goodness, so the ability to over-expand the industry is missing in the beef equation. The idea that you have to be integrated, tied together by contracts, for producers to respond to consumer demand, is bunk.
I think beef producers have been more attuned to producing the product they like than commodity pork producers have. I think average pork quality may be more consistent than beef, but consistently lower quality.
Too much pork has become a dry, tasteless, lean product and I can’t see where the pork industry cares. I like traditional pork ,but have to buy it from a specialty locker store.
While the cash cattle market is threatened by captive supply, the cash cattle market is not gone forever like the hog market is. Some price discovery, though threatened, still exists at the feedlot level.
The industry also proved that it did not have to be vertically integrated to adapt technology to increase productivity. The beef industry also adapted well to the ethanol industry, consuming the dominate share of distiller’s grain.
Plains’ feedlots did not like the competitive advantage the ethanol industry gave the CornBelt feedlots, but that’s just sour grapes. They have milder winters, which served as a leveling of the playing field.
Risk to the beef industry, as I see it, comes from the tree huggers who see cattle as a source of global warming.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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