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Your Shrinking Share Of The Beef Dollar

Gracey puts some numbers to the loss

We all know it’s true but it still seems a bit harder to accept when the numbers are spelled out so clearly. That’s the feeling one gets when looking at Charlie Gracey’s recent analysis of the producers’ shrinking share of the beef dollar.

As most readers of this magazine know Gracey is a former general manager of the Canadian Cattlemen’s Association, a member of the Canadian International Trade Tribunal, a consultant involved in the creation of the Canadian Cattle Identification Agency and the Canadian Beef Grading Agency and currently sits on the board of the Alberta Livestock and Meat Agency.

Beyond that he’s always been a fierce advocate for beef producers, and never afraid to expose the truth as he sees it. This spring at a couple of producer gatherings he shared the results of a little study he did to satisfy his own curiosity. Everyone knows the producers’ share of the revenue from beef sales has been going down, that’s a worldwide phenomena — he just wanted to know by how much.

Using published data he tracked the returns of a 550-pound steer sold to the feedlot in July, 2008 and the packer in March, 2009. To keep things simple he restricted his calculations to gross returns.

The cow-calf man sold the steer for $1.08 a pound for $594.

The feeder finished it to 1,340 pounds and sold it to the packer for 89.8 cents per pound or $1,203. Deduct the $594 for the calf and his share is $609.

The 1,340-pound animal dressed out at 804 pounds hot (60 per cent) and 784 pounds cold after shrink. The packer sold it to a fabricator for $1.69 per pound or $1,325. Another $77 for drop credits brings the gross to $1,402 for chilled beef in a box. Deduct the $1,203 for the steer and the packer’s share is $199.

Today beef normally goes to a fabricator who cuts and wraps it for the retailer, restaurant or feed processor. For simplicity Gracey rolled them into one customer, the fabricator/retailer.

Retail weight on average is 73 per cent of the cold carcass weight after the beef is cut and wrapped. So the retailer ends up with 572 pounds of beef from that 1,340-pound steer.

At an average retail price of $5.25 per pound the retailer grosses $3,003. Deduct the $1,325 paid to the packer and his share is $1,678. The spread between the procurement cost and the selling price was $3.56 per pound.

The Tally @ $5.25 retail price Full Value: $3,003 + $77 = $3080 Cow-calf: $594, 19.3 per cent Feeder: $609, 19.8 per cent Packer: $199, 6.4 per cent

Retailer/fabricator: $1,678, 54.5 per cent Obviously these numbers will shift around

somewhat with changes in prices and market forces. Drop the retail price to $4.50 a pound, for example, and the percentages become: cow-calf 22.4, feeder 23, packer 7.5, retailer 47.1. But the basic relationship holds.

There are a couple of obvious conclusions from this exercise. One, the producers, cow-calf and feeders together, have lost considerable market power over time. And, two, packers are not the villains that we all like to paint them. Gracey says the packers’ share of the beef dollar hasn’t changed a great deal over the years.

The fact the producers’ share is shrinking is not a surprise, but the degree to which it has shrunk is something of a shock, even to Gracey. He can remember in the early ’70s when the producer share of retail value averaged 80 per cent. Then came the wreck of 1977 and by the mid-’80s producers were taking home only 60 per cent of the beef dollar.

Gracey still regards that time as a turning point for the Canadian industry. While the Americans looked at their dropping share and started a long, slow reduction in their beef herd, Canadians began a 20-year herd expansion that made us evermore dependent on the U. S. market. Along the way we lost sight of our home market.

In 1987 we consumed 85 per cent of what we produced and exported 15 per cent. By 1996 we produced 51 per cent more than in 1987 and domestic sales were 13 per cent lower.

Jump to 2008 and we were producing 89 per cent more beef but our share of the domestic market was still running behind 1987.

The lesson from this history seems to be that we have to look outside the U. S. to start reclaiming more of beef’s retail value.

I hesitate to put words in Gracey’s mouth, but if I read him right, his advice would be look to your home market first, then concentrate on selling more to the rest of the world. The U. S. will always be our most important export market, but the more the industry can reduce its reliance on the people next door, the closer we might get to recapturing some supply/demand balance within our industry and a greater share of that beef dollar.

About the author

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Gren Winslow

Gren Winslow is a past editor of Canadian Cattlemen.

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