12/21/2021
Another great attempt at utopia is pictured below.
Let's break down why this is a world of imagination and not real life.
1. Small to medium sized packing houses opening up in every city and town across America.
Let's shop this out. How many cities and towns want a packer? Even a small to medium one? Bozeman, MT didn't. How many cities and towns outside of cattle country want to drop in a packer? How many have the waste management facilities to deal with solid and liquid waste produced by a packer? How many are within driving distance to a rendering facility? What are you going to do with bones and guts and s**t from the pens?
2. Fat cattle are delivered by hometown ranchers.
Hometown ranchers? You mean the cow calf guys whose cash flow models would have to be upended? The guys on annual payments for equipment, land, lines of credit? The local hometown rancher who relies on an annual payment from selling weaned calves. Who is going to tell him or his banker that to make this work, he is going to need to retain ownership through to the packer. Which is on average a 24-30 month cycle. He is going to need to totally upend his entire operation, source feed, make sure he isn't overstocking his land by retaining calves to feed instead of wean and selling, and then focus for the rest of his life on breeding cows, calving, weaning, feeding and finishing, and then marketing them to the local packer? You are asking him to assume 100% of the financial risk for no guaranteed reward. He will need to consider his cows and bulls, will they produce calves that will grow and grade? What if they don't?
What does this do to beef consumption? Sure, the guys in South Dakota and Iowa will be eating great! But without trucking their fats or the beef from them across the country who buys the product in areas where there are more cows than people? Or, what about those of us who might live in areas where feeding out fat steers is a little more complicated. Are we trucking in feed? How do cattle producers outside of the grain belt make feeding pencil out? How are consumers affected in areas where, hate to say it, but cattle don't feed out well? What happens when your favorite steakhouse in the city gets delivered a 5 year old Corrientes ribeye that you could dribble across the restaurant instead of a sub-30 month grain fed angus out of the Midwest? You think a lack increasing the lack of consistency in beef eating experiences will help the beef industry or the pork and chicken industry?
3. Jobs are created. Excuses my while I laugh until I cry and throw up.
How many people you know are going to sign up to be a knocker, a first legger, a bunger, a gutter? How many people in your community are going to sign up to work in 34 degree boning rooms with a knife in their hand doing a repetitive motion all day while standing in steel toe rubber boots on concrete all day? How many people in your friends group will sign up to push carcasses through a cooler? Tyson is starting people at $30/hour and they can't find or keep employees. Churn rate for a packer is 25%. It is hard, long hours in an uncomfortable environment. You're either killing animals all day or cutting them up. This isn't sexy work. It's not glamorous. AND might I add in ag country, how many of your neighbors will whine and complain about the influx of immigrants to your community to fill these positions?
4. Fresh meat is delivered to local restaurants and fast food places.
Clearly, I should stop here. But I won't. Nationally owned fast food chains negotiate in volume with large packers to drive down price. Large packers often run their grinding facilities at breakeven. Fast food places are real estate companies, who mitigate risk by dealing with large, specialized producers who have the means and capabilities of being on the cutting edge of food safety. Fast food establishments 100% of the time require extensive, expensive and time consuming food safety procedures, audits and testing to even be considered as a supplier. To put it in cowboy terms, this is the equivalents of asking every rancher to be set up like Express Ranches. Sounds practical right?
To build on this, 20% of the animal is trim. Ground beef you see at the store is based on blending this lean trim and the fat trim into a ratio that a consumer wants. (80/20, 93/7, etc.) This 20% of the animals weight varies per live animal, and so a ground beef program for a small packer would be heavy fat trim and short lean trim. You'd end up making a fat mush if you just ground everything that came off the carcass.
To keep going, restaurants and retailers use a different mix of products. They are often not capable of breaking down and cutting steaks or further processing in house. In this scenario, you are cutting out food service distributors like Sysco or US Foods, who carry and age inventory for restaurants (which is why your steak is better in fine dining than it is coming off the grocery store shelf.) So you either are going to force the packer or the restaurant to take on aging and holding that working capital in inventory or downgrade the consumer eating experience. How do you think that will affect beef consumption?
I can hear the tiny violins gearing up in the background about dry aging a whole carcass and I'd like to pump the brakes and put that bad idea through the windshield before we even go there. Dry aging the whole carcass will result in a 10-15% yield loss, it is inefficient and expensive and totally and wholly unnecessary to age a whole carcass.
But wait! There is more. So you've manage to sell your middles, your roast, by some stroke of luck even your thin meats get sold---what about the drop? Ah, yes, the elusive drop credit---hide, bones, offal. The real actual margin holder in packers. Small outfits in every city and town, how are they going to merchandize lungs and livers and kidneys and hides? Are they going to buy tripe washes? Are they going to be able to save tripas? Or are these small shops already $120 upside down because they can't save or sell the drop?
5. Without a price increase to the consumer.
So hang with me. We are going to decrease efficiency throughout the industry. We are going to ask ranchers to retain ownership. We are going to input working capital. We are going to open small shops which will pay more for every single thing they utilize from labor to boxes to bags to chemicals to logistics. We are going to greatly reduce the value of the drop. We are going to decrease carcass utilization. We are going to pay ranchers more for their cattle and we are going to these small packers are going to pay more to kill them, but the consumer price will be unaffected?
There is a pretty quick way to evaluate post like this for feasibility. Does it sound too good to be true? Does it sound like it was written by someone in the industry or someone on the outside looking in?
You know how irritated you get when people say cow farts are the cause of global warming? Well, that is how irritated people in the packing sector get when we see cattlemen saying that they could do it better and keep more money for themselves, when let's be honest post like this prove---you don't know what you don't know.