Dr. Ted Schroeder is a Professor of Economics at Kansas State University.
His research on livestock marketing and price analysis provides information and direction for the livestock and grain industries. This research focuses on improving commodity market efficiency by investigating price discovery methods, improving market coordinating mechanisms, and applied risk management. Schroeder also teaches courses in marketing and risk management.
Links:
Cattle Contract Library: Cattle Contracts Library Pilot Program | Agricultural Marketing Service (usda.gov)
General Ag Market and Econ info: AgManager.info | AgManager.info
Dr. Ted Schroeder is a Professor of Economics at Kansas State University.
His research on livestock marketing and price analysis provides information and direction for the livestock and grain industries. This research focuses on improving commodity market efficiency by investigating price discovery methods, improving market coordinating mechanisms, and applied risk management. Schroeder also teaches courses in marketing and risk management.
Links:
Cattle Contract Library: Cattle Contracts Library Pilot Program | Agricultural Marketing Service (usda.gov)
General Ag Market and Econ info: AgManager.info | AgManager.info
Thanks for joining us for episode 45 of practically ranching. I'm Matt Perrier, like always practically ranching is made possible by Dale banks, Angus make plans to attend our annual bull sales Saturday, November 18th, that Eureka Kansas go to Dale banks.com for more information and to request a catalog. You ever since the late 1980s. Nearly every economics teacher, professor that I've ever heard has had to overcome a stereotype that I had about them and their profession. From the movie Ferris Bueller's day off. You remember the guy. Anyone. Anyone. That was Ben Stein and his character was teaching about the Laffer curve and voodoo economics and all of these. Kind of boring topics to a bunch of high school students. And it was hilarious in my opinion. I guess, as long as you weren't an econ teacher. Ted Schroeder is our guest this episode and he is no Ben Stein. Instead of just standing up there and droning on and on and on. About supply and demand fundamentals to a bunch of disengaged teenagers. Dr. Schroeder has spent nearly four decades at Kansas state university. He has worked with ag producers. Producer associations, agro businesses. All different groups and segments of this business, trying to make his contribution to the betterment of production agriculture for all of us. His list of these research projects and papers and lectures and presentations. Numbers well into the hundreds. Maybe a thousand. His subject matters have ranged the gamut within and outside of the beef industry. But especially in the beef industry, he's worked with beef demand, calculation, consumer behavior, and even the effects of captive supply on the beef marketplace and price discovery and all of these things that you've heard about for the last couple of decades, he's been working on them for nearly 40 years. Dr. Schroeder was raised on a diversified farm. He still owns farm ground. And as you will soon realize he's about as passionate about finding ways to keep us producers profitable. As nearly anyone you'll meet. Now, like many of the folks that I have on this podcast, there may be a few of you who don't always like his findings. But he keeps trying to seek out the best tools and the best information that he can find. To help arm us with the best data and knowledge that we can find for our decisions. And then it's up to us to decide how, and if we're going to use them. So I hope you'll enjoy this visit. With Dr. Ted Schroeder from Kansas state university. And as always, thanks for listening to practically ranching.
Track 1:I have had several folks that you would recognize names and, um, Greg Dowd, Glen Tozer, Joe Kavana here recently talking about livestock risk protection. And so I figured that it was finally time to, to get the OG Ag Economist on here that, uh, collaborated or, or taught them everything they know. so I, I appreciate you being, being on practically ranching this week, and I think it'll be a fun discussion on the boring topic of ag economics that always seems to get pretty heated when we get past what we think is the boring parts.
squadcaster-0535_4_10-19-2023_140625:You know, the, the good thing about that, Matt, is it means people care and and if they don't care, then we're really in trouble. But as long as they care and, and are willing to, to voice their opinion, whether we agree or disagree, we can at least hear each other out and hopefully learn from each other.
Track 1:Yep. I would agree. And, marketing discussions in agriculture, really any place, but especially, marketing and, and economics discussions in ag. just how much farmers and ranchers care about the markets and about economics and about the forces that, uh, determine prices and costs and profits and losses and everything else. So I had a class or two from you when I was an undergrad at Kansas State. the Futures and Options trading seminar, where we all pony up money at the beginning and did our trades throughout the semester. And then the promise, as I remember in the syllabus, Was that we divvy up everything that, that we had at the end, and I thought this would be great. Well, I don't think it took much math to divvy up what we had left my semester.
squadcaster-0535_4_10-19-2023_140625:uh, in indeed that, that's a class that I taught for several years. I, you know, and it's still offered here. And one of the things that's interesting about that class, Matt, is yeah, it. It kind of teach it, it taught you the right lesson. You know, it, it, there isn't money out there just waiting to be plucked by, by those who, uh, who speculate in those markets. But, uh, we're one of the few universities, Matt, that have ever, but especially that 25 years later, are still teaching that class every semester. Um, and with real money, real students, real trading. So, uh, you know, it's, it's tested time and it's, and it stood that test. So, uh, and no group has ever gone completely bankrupt yet, but,
Track 1:As I remember, I, I would've been in there in like 95 or 96. And um, of course most of us were cattle type folks and so that was where we were, by gosh, gonna make all the money. And, um, I've looked back since then as to. Market prices and things like that. And I mean, you know, fed cattle were trading in the 59 to 62 or$3 range. And um, yeah, there, there wasn't a lot of profitability. And I suppose we could have timed it, but, uh, I think by the end of our semester we were desperate enough that we were putting it all in pork bellies or something that we thought we could really make a quick buck on
squadcaster-0535_4_10-19-2023_140625:Yeah, and, and I'm guessing you didn't.
Track 1:We, we lost what little we had, if I recall correctly, but it happened quickly.
squadcaster-0535_4_10-19-2023_140625:That's, that's all right. It's, uh, you know, it, it's part of the reason I, uh, while I'm a speculator, I don't actively go out and speculate in the commodity futures markets. It would eat my lunch even, even though I study these markets all the time.
Track 1:Yep. Yeah. And it has a lot of people and it obviously has made a lot of folks very wealthy in addition. But, um, yeah, it, nobody's crystal ball is, is very shiny all the time. For sure. So in addition to teaching, you have done quite a bit of research and projects and have been funded with grants and everything else to look into the markets, uh, specifically on livestock, I guess is what we'll talk about today. What are some things that you're working on now, if you can talk about it and, and I guess go back in recent history, the last, at least Decade or two and, and some things that you've worked with and, and seen in terms of, the livestock side of, of marketing and merchandising, whether it be fed cattle, feeder cattle, price discovery, things like that.
squadcaster-0535_4_10-19-2023_140625:Yeah, well, you know, one of the topics that hasn't gone away since, uh, since I started my career and still. Is is front and center and, and there's several, but, but one of'em for sure is something I'm ongoingly working on now and was working on when I arrived here back in 1986, believe it or not. And that is price discovery in fed cattle markets. Uh, it remains a very important topic. It, it remains a topic that's changing. It's certainly, uh, having a different dialogue today even than it was 10 years ago for that matter, let alone 20 or 30, but still remains a very important topic. You know, we went through the eighties and, and nineties, you know, with the voluntary reporting being the mechanism by which we learned what was happening in that market. And of course, um, realized that that just wasn't providing the kind of. Depth and, and, detail and little concern about selective reporting and all that, uh, that was going on. And so we, we always were getting information. We were getting it on the radio, we were getting it from the market reporters. We, it was kind of real time, but, and you know, we were evolving out of stockyards and all that thing. There was a lot of change going on, but, but we became less and less, I guess, confident that the information we were getting was sufficient to really be an appropriate measure of what's going on in the market. And also at that time, in the late nineties, of course, mid nineties, we started having new methods of, of, cattle merchandising by cattle feeders or procurement by packers, uh, occurring and, and starting to become irrelevant. Anyway, it wasn't big yet, but we started to have contractual types of relations start to evolve and, and marketing agreements started to launch. And so, Volunteer reporting had no mechanism by which to even recognize those transactions. It didn't fit so fast forward, right? Shortly thereafter came into Livestock Mandatory reporting, L M R, some call it M p R, but l m r, uh, in, you know, early two thousands. Um, now go the whole 20 year. Fast forward, we are still today, Matt, despite having a transformation in how we sell Fed cattle over the last 20 years, a huge transformation. We are still largely collecting and reporting fed cattle price data under L M R in a very similar way to, we did 20 years ago, when it started 2022. Now, when it started, well L M R started, you know, we, uh, we were still selling cattle mostly on a live address negotiated cash basis. So as you looked around the country saw it at any given day or week, especially, you know, within trade, within a trading window, there really wasn't much price variation. You'd see one or$2, a hundred weight live, or, you know, dollar$52 dress. That'd be the range prices that cross a window of several days, sometimes across transactions. Um, and so that's when we started L M R, that's what we had. And that was 60% roughly of our trade, 55, 60%. And so we designed L M R data collection and data reporting. To really mirror what was happening there. Right. And, and U S D A did an incredible job of designing a system that could report those prices with more confidence than what we had under voluntary reporting. But it really was a commodity price reporting system that was just more inclusive. So all the packers that were, that were eligible were dumping the prices twice a day for both fed cattle as well as box beef sales. And it was commodity market, but it was very deeply, uh, you know, populated because we had every transaction there. Well, like I say, fast forward now to today 2023, we still are getting every transaction we're we're getting on both fed cattle sales as well as on box beef sales, fed cattle purchases by the Packer box beef sales by that packer. We're still getting all of those transactions twice a day to the U S D A. But for the most part, most of that information we're getting looks the same and is therefore reported very similarly or almost identically to what it was in 2020 when it started. And yet we have switched this thing from a commodity business. Live negotiated cash dress, negotiated cash to a formula grid system where the price range. Now, on any given day, any given week, typically in the formula trade can be 60 or 70 or even$80, a hundred weight dressed. Okay, that's the range, not the one to two we were seeing before, but a 60 to 80 across pens, not animals. And now you go to individual animals within a pen, you get even greater variation. So, so, so, Still collecting those similar information, reporting similar information, and we've learned, wow, we now have an incredible range and variation in prices and you know, how do you use that new information to discover prices in a whole new arena? I mean that, that's been a big part of my life for a long time here.
Track 1:Well, and I remember the discussions and anybody that's listened to this podcast much has heard this till they're blue in the face. But I remember the discussions when I was in college of how do we make these cattle. Bring what they're worth. We know that there are huge differences between pens. We know there are huge differences within the pens. How do we, and this, this was producers the make no mistake. These were not packers saying, we wanna pay what that animal's worth. These are producers saying, we want to be paid what that animal is worth. Obviously it was those who felt like their animals were worth more than the par, the average. And now, fast forward today, and here we are. We got exactly what we asked for. A lot of hard work, a lot of determination, a lot of vision and foresight went into creating companies and structures and pricing models that enabled us to do exactly that. Now here we are basing that plus or minus the average for a grid or a formula, um, asking ourselves, and I'm one that asks this, do we have enough cattle to make that average a valid price and, and that, I mean, you're, you're nodding your head and, and smiling knowing that I'm not the only one that's asking that, I guess it's a nuanced question or discussion, but is 15 to 20 some percent sold in the cash market the way that we are reporting it today and selling them today? Is that enough in your opinion to base everybody else off of,
squadcaster-0535_4_10-19-2023_140625:Yeah. So, uh, you know, there's several dimensions to that. It's a complex question, and indeed it's um, And sort of add, you know, I said we had sort of stayed the same in terms of what we were doing and reporting, uh, but a new wrinkle was the cattle contracts library. And I want to just talk a bit about relative to what you're asking, what we learned from that, because there is something there that we hadn't known before.
Track 1:And explain what that is to folks that may not know all the details. You don't have to get deep into it, but what that cattle contract library is.
squadcaster-0535_4_10-19-2023_140625:yeah, indeed. So, uh, early 2023, the U ss d a from an act of Congress be pulled together a method by which they could summarize the contract type of cattle purchases packers were making, and provide that information back to producers. More detail than we had in our existing, uh, Price that I mentioned a bit ago, that was a 60 or$80 range, which is what we have in our, in our formula price bucket in the, in the existing U ss d A reports. Well, the cattle contracts library was introduced to provide more information about what is that 60 to$80 range referring to how come that's there, how can we understand what it is? And oh, by the way, some of this certainly, uh, could have more light shown on base prices as well, which is what you were referring to with the, uh, with, with the cash negotiated trade being the base prices of many of these contracts. So what the cattle contract library did was it said it, it basically, it's the large four packers that participate at this point. It's a pilot program, yet it was actually set to to, to, uh, be a pilot through the end of September, 2023. That was Pushed down the road. So, so it's still under pilot, but the four big ones, it's any packer that has 5% or more of the market is, is reporting all of their contract information, not the contracts themselves, but information U S D A has requested for every contract that that packer is using in their procurement system each week. So the big four are the ones that are the size enough to to to, match the law. That's not a U S D A. That was congressional law, um, of the, of the size it had to report. And so we're getting, oh, it varies. It's around 180 to 215 or so contracts every week that those packers are providing the details on to the U Ss d a A. And again, without getting in too deep into it, the kinds of things they're providing is information on sources of base prices. Uh, we'll come back to that in a second. But then they're also providing, uh, a list of premium and discount attributes that the Packers are paying under those contracts. Uh, they're also providing information on, uh, the volumes that are flowing through those contracts. Um, and and it's in a dashboard framework, which I really applaud U S D A for taking what could be really complex, messy stuff and tabulating it into an easily accessible. Easily interpretable dashboard kind of framework. So it's out on the way if anybody can find it on the A m Ss website. Um, and, and it's published, uh, through it, it's, it's, it's published on, on Friday or Monday. I mean, it, it's the, if it shows up on Monday, it's the previous weeks, if it's Friday, it's that previous week, during that Friday, but of, of what those Packers contracts were. So, um, now relative to your comment about thinning markets, what's interesting, and one of the components that I learned from that, that contract library and monitoring it over time is they do have base price sources in there. So where does the base price come from? A contract that's out there. Um, and what we find out is that there's, there's three main sources of. U S D A reports, which are basically cash market reports. Where those base prices are mostly coming from top three are Nebraska Cash trade. It's about 35% of the base prices. Of those a hundred, and so of the 180 contracts, let's say, that might be there this week, Nebraska is 35% of those contracts base price. Now, which price in the Nebraska report doesn't? We don't know. Could be various ones, but that's, that's a major source. Next in line is Kansas with about, uh, 28 to 30% next in line, and this an important one is Texas with about the remaining 23% way down the line. And fourth is Iowa at a little over 1%. Now, Iowa, Minnesota. Now think, think about that one for a second, because you know that that says that. Folks in Texas where we have said we've got one of the thinner cash negotiated trade going on. There's still base pricing. We're still base pricing, 23% roughly, of all of our contracts with a big four off of a Texas, Oklahoma, New Mexico cash price,
Track 1:Hmm.
squadcaster-0535_4_10-19-2023_140625:um, which is probably most of the cattle under contract in that region. I, you know, probably not all of'em, but most of'em, oh, there's a few on the five area report too, and I forget, forgot to mention that that's between Texas and Iowa. But, um, but the point here, the, the reason that's interesting to me is we know that Texas, at times is considered thin, certainly thinner than Iowa or Nebraska, and yet a lot of folks are still willing to use that as a base. It tells me they have enough confidence in it. That rather than going to a region where basis becomes a concern relative to their local market, they're willing to stay with a bit thinner price that might have a little more variability, a little more, you know, concern on whether it's representative of that week's price. They're willing to stay with it now. So I, I always used to say, I, I, I spent a lot of time over the years with the hog guys and the pork industry, and they're doing formula pricing with many weeks, 1%, 1%, of their trade being cash negotiated and using that in their base. And I always told them, I said, we'll know it's too thin when people quit using it. Well, we're, we're certainly not where the hog guys are. Um, by the way, Matt, you know this, but just for those who don't watch this, We've been at about 17 to 22%. It flips around of of trade being cash negotiated, dressed and/or live, and then you add in negotiated grids another 5%. So we're roughly, I'll throw out a number of 25%. We've been at 25% cash negotiated for about 10 to 12 years. Now it varies up and down, but there's this perception that somehow it fell off a cliff and never came back. Well, it fell, but it, it didn't go to 1% like hogs, it didn't go to 10% or maintained there may have once or twice, but it's really been in that, you know, 20 to 25% negotiated going on. Now, one more comment I wanna make about that before we leave it. You can see I get a little carried away on these things, but man, this is all I do, so
Track 1:Just like you said, you, you care.
squadcaster-0535_4_10-19-2023_140625:So one other thing I want to point out before we lead that, that concept. So first of all, you know the point being people are still using these markets even though they might be, some might characterize'em as thin, some might not. Just depends on your point. They still trust'em enough that that's their first trust. Let me make another point though, too.'cause I hear this a lot and I, I, it, I shudder when I hear it because I also spend a lot of time with, with cattle feeders, you know, understanding what they're doing, working with their data. This is a lot of what I do and I hear this comment that we're only negotiating whatever the number 22% of the cattle in the us. That's absolutely wrong. Every single animal that's transacted that I know about is negotiated every single one of'em. That's a hundred percent, not 22. Why do I say that? Well, because every single relationship that's out there, Matt has been negotiated and is renegotiated frequently. I just talked to a sizeable cattle feeder just last week, told me we've already completely renegotiated our pricing relationship with APAC twice in 2023. Uh, had to, had to go through a full spectrum of assessment and analysis. Uh, not every single transaction's negotiated absolutely, but the relationship and the nature of the trade is, uh, you know, and components of it, uh, remain sort of, uh, fixed for a while. The premiums say for, uh, for an all natural. But other parts of it change every week. The choice select spread is changing every single week in all of these formula agreements I know about. Because you have to, it's, it's changing with the market Now. They're not renegotiating that, but it, you know, the, the, a lot of'em also say, well, these contracts are rigid. They're really not. There's parts of'em that are evolving up and down with the market. Obviously the base price is, uh, I got a little off base there, a little carried away, but, but wanna just kind of point, you know, put some things in perspective that, uh, bottom line we're, we're still negotiating most things and in 25, 20 2% being negotiated in a cash trade, I don't know, doesn't, doesn't seem to me to be a, a red flag most of the time.
Track 1:Well, I think there are always some fluctuations there, depending on the market, depending on the supply of cattle, depending on, you know, we, we saw between a fire, a pandemic and everything else that happened there in a couple year period from 20, what, 18, 19 to 2021. We saw kinds of times when we saw wild fluctuation in one week. We may have seen much lower than that 17% low that you were talking about. But then usually yeah, we, we make up for it and on the average we're, we're pretty close to that. You'd mentioned the hog producers and, and the that what about a percent of those hogs are traded in the cash market today. And I don't know anything about their formulas or their contracts or, or their pricing structure at all. And I honestly don't associate a lot with today's hog producers. The hog producers I hear from today calf producers that got outta hogs. And they are always the first ones to say, do not under any circumstance do what we did. do you address that? I mean, obviously the folks that are producing pork today have figured out how to work within that system and be profitable long term. but it's the folks that got out that say, don't let happen in your industry. What happened to mine?
squadcaster-0535_4_10-19-2023_140625:Yeah, well the hog industry, you know, whether you want to be like it or not, like it isn't, isn't so much the question as why are they where they are? And, um, where they are is they are more vertically aligned and maybe, and, and certainly more vertically integrated. By far than the cattle industry is. Um, we've, we've got, oh, I'm, I'm, don't hold me to the exact number, but it's, it's between 30 and 40% of, of slaughter hogs owned by the packer that slaughtered'em, bef, you know, is, is, is owned by that packery in the, in the feeding or regiment. Um, and so, so that integration is certainly not where we are with chickens, but, or, or turkeys. But it's integrated vertically with ownership of the packer. but then there's still a sizeable segment, you know, that's, that's not vertically integrated with the packer, but has some sort of a market relationship with a packer some kind of contractual relation. And so that contractual relation, some of those are cost of production or, you know, ledger type things that, that reference cost of production in their system. But some of them are very similar to ours, to our, our ones in cattle, some of them are still, a large number of hogs are traded between the, the producer or the grower and the, and the packer with a formula, with a grid with a base price being that negotiated. Now they're, they're different looking overall, you know, like I say, across the whole spectrum. But they still have a lot of trade that occurs very similar. Um, I think some of the, you know, I think any industry where someone's no longer in that industry, but we're in it one time and they're out of it because whatever reason it didn't match with their comparative advantage or. Or with what they wanted to do. By the way, I, you know, I grew up on a, on a hog farm. I we're not doing it anymore. It's okay. We're okay with that you know, um, we had cattle too. We're not doing that anymore either. And I'm okay with that. But, you know, I, um, our system that we were using 30 years ago wouldn't fit today. And, and we didn't wanna change to, to go to the, to what was needed. And so, you know, I, I can say, well, you know, we should still be able to take hogs and sell'em at the Omaha stockyard like we did in the seventies. And gosh, everybody was happy and, you know, it wasn't actually all that great. Uh, I'll tell you, every Christmas. This is no kidding. Every Christmas day we loaded hogs out in the hog lot and we took them to Omaha because we knew the day after Christmas market would be up.'cause nobody else in God's earth was willing to load hogs on Christmas day, but us now, I, I'm okay with that. I rem I have fond memories of it. you know, but you know what that, anyway, little off track, but, uh,
Track 1:father clearly knew demand fundamentals as well. You, you, you learned that side of the, uh, of the, uh, supply demand curve.
squadcaster-0535_4_10-19-2023_140625:dad, dad was very strategic with a lot of things. But, but he always knew that, you know, you want to top the market that week. You, you take'em in on the 26th or on the 25th, and they're ready on the 26th. They're the, they're those starter hogs, right.
Track 1:Yeah. Yeah. There you go.
squadcaster-0535_4_10-19-2023_140625:Uh, anyway, point, point being, yeah. I understand that there's some sentiment that the hog industry, you know, lost some of what it used to have. Yeah. It's not the same as it used to be, but neither is the cattle industry and those changes that occur. You know, like I say, the, you know, going way back, the closing of the stockyard markets, the, and now the, you know, the, the, evolution of, of grid pricing and value-based pricing, those, those have transformed this industry. Um, and I, boy, I hope as a consumer, we never go back to where we were 20 years ago in the fed cattle industry. Or I'll have a highly varied, uncertain product and it certainly won't eat as well, and I won't have as strong a demand
Track 1:I.
squadcaster-0535_4_10-19-2023_140625:as I have now because I'm getting beef that's incredible quality. And the reason is because we figured out, How to pay people and get price signals from the consumer to the cow calf producer all the way through the system. Now we're not perfect yet. They're cloudy sometimes. Sometimes they, you know, they may not get the signal exactly right, but they're darn sure better than they've ever been in my career. Um, and, and I remember, uh, famous Maddox, Jack Maddox up in Nebraska 30 years ago when we were doing the Beef Demand Index for the first time and, and working with the Beef Council and Beef Board on that. And, uh, you know, he said, we, what we need to do is, is not be like the chicken industry, but we need to. We need to act like the chicken industry and we need to figure out a way to get the signal. At that time, chicken was, was kicking our tails. We need to figure out a way to get the signal from the consumer to the producer, but not through a vertically integrated system.'cause that wasn't gonna work. Uh, didn't make sense and nobody really wanted it but it was getting, you know, get the signals. Gosh, I think we've got the signals better now, like I say, than we've ever had. So, you know, the hog industry's doing the same thing. Now, I'm not saying everybody's making more money because of it, but I will say this, I, I'd rather have a lot more opportunity there for all of us, for all of you really. I say us, uh, but all of you to be able to make more money and the way you're gonna make more money is when there's more consumers willing to buy the product because it's what they want. So
Track 1:Yeah, there's no doubt about it. I mean, so many times we as producers, um, look through our rose colored glasses. Way back when, whenever that was. And remember the good parts of it. And the fact of the matter is, yeah, whether you go to the eighties when you started that work on, on quantitating or, or characterizing beef demand so that we could finally stop the bleeding from 1995 or six forward. Or whether you go back to that time when, you know entities like US, premium beef, even some that didn't make it, ranchers, Renaissance, future Beef, all these things. That was the goal of those. Now there were a lot of other tertiary goals. Number one had to be profit, right? We, we had a severe problem in our industry that nobody wanted our product and we also had an even bigger problem that we couldn't incentivize anybody to make what that consumer did want if, if we could even figure it out. Um, we did that thanks to some of the work that. You did in some of the work that private industry did and cattle feeders and, you know, so many others did for the last few decades. Now here we are asking whether we need to just throw the baby out with the bath water. Well, in my opinion, absolutely not. Are there tweaks? Yeah, probably so. I, I hope, and I think even the folks that created those systems say, yeah, we can make this better and we are going to make it better, but we just, we've gotta make sure and, and look at the future, not the past. I think what Einstein said, we can't solve the problems of today with the same thinking that created them. And, and sometimes I think that's what we in agriculture tend to do. I'm gonna back up just a second. As you were talking about L M R, um, And the fact that when it was created, there was somewhere around 60%, I think you said, of the fed cattle trade that was in the cash market, negotiated cash market. What was, because the packer processor also has to mandatory report the sales of box beef, what would that have been at that time and what is it today or had that already made the big move to far out pricing and contracts and, and formulas or, or was it in, in transition as well?
squadcaster-0535_4_10-19-2023_140625:so it's hard to characterize box beef a as a, as a single item because
Track 1:that's true. Yep. Yep,
squadcaster-0535_4_10-19-2023_140625:it's obviously a, a spectrum of items and, and it's even not just only box product. There are components of beef that have been formula priced for a long, long time because, uh, think it's a low. It's a small item. It's, it's low value, but high volume and you just wanna move it. And um, you know, so some process products, some of those kind of things. Okay. So that's always been the case. Think, think more though. You know, let, let's move to the, to the broader segment of, of the value products, the stakes, the roast, the, the ground. Um, a lot of change has occurred there in the last, uh, eight or nine years. Uh, so, so I, I wanna be real careful'cause there's a lot of evolution that's occurring and value added going on at the wholesale market that where we used to have a wholesale trade and don't today. And if you go back not too far, far back, before that we were selling carcasses. We don't do that hardly at all. Then we started, you know, the evolution of the I B P. And Bob Peterson is famous. Let's cut these into boxes. And that was a, that was an innovation. It seems silly today, but that was truly innovative. Quit shipping carcasses and start shipping primals or sub primals. Um, then boxes. And today we're into not only, you know, fabricated Cryovac packaged packages, but there's, we're even making beef patties in some of these plants where, you know, we're, we're, we're adding value and doing things for a host of reasons that the retailer didn't, doesn't want to do anymore. Retailers don't wanna be butchers anymore for the most part. They may do some, but anyway, we've moved a lot of this and shifted it back to the packer. So, so part of that, Matt, is part of your question. I mean,'cause when you change the product, you're also gonna change the way you not only pro produce it or process it, but how you merchandise it. Those go together. As, as we've, as we, we've evolved. So it's not, it doesn't mirror exactly, but to give you the short answer to your story, there was more cash negotiated box beef trade going on when we were trading carcasses for sure, when we were trading generic boxes for sure. As we started to get specs more refined over time, and a lot of that started to happen earlier than 10 years ago, but it, it became more prominent in the last five to 10. Uh, now we start getting specs and as soon as you start getting specs to fit the customer, you naturally move to formula pricing forward sales, because the spec is what that customer wanted and you have committed to it. And the spec might, it might be as simple as a trim, but it's oftentimes more complicated. It might be a. You know, it could be something like even a natural or a, never, ever, it could be a, you know, something that's had non-hormone treated. It could be, it, it, it, it could be a different way that your, uh, packaging and cutting that product, you know, to, to match that customer's preference. What it, it, what's interesting Matt, to me, is I go and look at the packers of what they were selling beef, like I say, even just 10 years ago to today. And now they have a whole proliferation of brands. They, a single packer might have 25 brands that you and I would see in the grocery store, but we wouldn't even know it was a Packer brand unless somebody told us those weren't there that, that long ago that theirs was fairly new. and, and so, you know, you, you look at that and you say, well, that, that, yeah, obviously you're not gonna sell. Fabricated spec product with brands and specialty things that you've put through your supply chain in a, in a cash negotiated trade. It, it doesn't. You will do some, but that's not gonna be your main, main line.
Track 1:Well, and to take it a step further or a step back, you're not going to go source the cattle that will make those qualifying cuts that go into that brand in the cash market either. And so as they have seen more of their product, And a lot of that has been driven by the retailer. Correct. It. It hasn't necessarily been the Packers saying this is how we wanna do the business. It's been Walmart and Kroger getting bigger and bigger and bigger and saying, we wanna make sure that we know both volume and price what we have coming for the next, used to be few months, then it became six months and now maybe we're talking a year out. So just like me if I'm going to contract a load of cubes, the feed mill that I'm contracting those cubes with is gonna go contract the dried distillers grain or whatever's going into it. And I think that's what a lot of times packers are margin operators, not that I'm sitting here defending them, but they're margin operators and they're gonna go figure out, okay, now how do we build the system to make sure we got cattle that can supply this retailer for whatever program it is that we've agreed to do.
squadcaster-0535_4_10-19-2023_140625:Yeah. And, and you're exactly right Matt. And the last thing you want to do as someone supplying a downstream customer is to stock out. You gotta make sure you can produce, provide it because that customer is using it in their storefront, whether it's a grocery store using, on featuring, or whether it's a retailer, I mean a food service, using it as part of, you know, part of their Key, key, uh, staple in their restaurant. They need to have what you've, you've promised you're gonna have, uh, because customers like, and consumers like reliability and having, you know, known supplies. We saw that during covid, right? Things just got all upside down. And what a what, a what, a what a mess for everybody. Uh, and, and so there's, there's a, there's, there's real value and stability, predictability and, and continuity of product flow. And you, you've gotta be able to do that. So that's why you source it. You, you don't just wait for it to show up and then try to market it. You source it as you're marketing it. And, and they go together. They're very, they're very, uh, coordinated is the best way to say it. They're not integrated'cause there's not vertical ownership, but they're coordinated with each other and have to be.
Track 1:Yeah, and I, I've said before and, and Joe Goggins and I talked about this a couple weeks ago. Um, the irony of the whole discussion of making sure we don't end up like the hog guys is the best defense against vertical integration may be exactly that vertical coordination and communicating through dollars, through agreements if it has to be, but somehow saying Company A needs this, they tell company B to go out and find it. Company B creates a model that asks producers to make this for them if they want, and if they want to get the premiums that they're willing to pay, and we go on down the road. And, and that's, that is a lot different. That is not the Yellowstone or Bonanza or whatever uh, interpretation of the cattle business that we like to sometimes hold on to. But it's probably the one thing that keeps us, quote unquote independent cattle producers, is figuring out ways that we can participate in that and still make our own decisions in terms of production and management and things like that to still meet that goal.
squadcaster-0535_4_10-19-2023_140625:absolutely correct. And if you think about the cattle industry, one of the reasons I've, I've never really been concerned with, are we or are we not gonna vertically integrate it? Just in the last few years, look what we've done actually, the packers have gotten rid of their vertical integration into cattle feeding. They don't want it. And, and we can go into a lot of reasons why, but it comes down to capital needed.
Track 1:Yeah.
squadcaster-0535_4_10-19-2023_140625:Where you want to place that capital PA Packers own inventory for a very short time period. They have a lot of cash flow that's going on both in and out, right? But it's a very short window compared to the six month feeding horizon that cattle are on feed in a feedlot. And packers aren't really designed in a business setting to be doing both of those very well. They, they, they, they're dumping the cattle feeding component and they don't want it. And if you remember years ago, there was a, there was a vertical integrator who actually is a big oil company here in Kansas who tried to go all the way cow calf through, uh, they gave up, they said, this is, this doesn't make any sense at all. try to manage all of the different capital timing and, and, and needs of this industry. It. It didn't work. So I, I guess my point is, I'm not saying nobody can integrate in this thing. Some small players are you, you know, there's some producer owned packer pla packing plants and new ones are going in. All that thing, they, there can be some vertical ownership activities and they could be successful. But as far as a full industry wanting to vertically integrate Walmart owned cow calf, I just, why, why would they want to It's, it's not what they do.
Track 1:And my cow calf producers who are listening in are laughing, as you say, the poor cattle feeder that had to own this animal for six months before he got paid. They're going, yeah. What about us who, who have a cow for six years before she's paid for herself? Um, and, and not to mention the. Just the one turn on that calf between time, you breed'em, gestation length, wean'em at 6, 8, 9 months, and background'em, et cetera, et cetera. So yeah, it's a long game. It is a long game.
squadcaster-0535_4_10-19-2023_140625:That, that model, Matt, it's a great one and it's a wonderful one. It's the legacy of this industry, but it doesn't fit venture capitalist mindsets. They don't want that, you know, they stock stockholders don't want that and, and thank goodness ranchers are willing and able to do it.
Track 1:So here's dollar question for you today. Why are they still willing? Why? Why do we still banging away at a business model that any quote unquote businessman would say, absolutely not. I'm out. How is it that we keep doing it, and how will we keep doing it?
squadcaster-0535_4_10-19-2023_140625:Yeah, well you can answer that better than I can, obviously
Track 1:some days I can't, don't, don't give me any truth. Serum
squadcaster-0535_4_10-19-2023_140625:I'll tell you from an outsider, you know, looking in and, and watching and seeing, um, one reason anybody chooses what they do for a living is because of their, you know, innate passion for doing it. I mean, I don't care what you do, whether you're, you know, an n b a basketball player or whether you're, uh, a male carrier. And by the way, I think the male carrier's job is more essential than the N B A basketball player,
Track 1:I would agree.
squadcaster-0535_4_10-19-2023_140625:makes more even though I know who makes more. But, uh, you know, and markets are supposed to be efficient. But anyway, um, you know, it's that you have a passion for it. And I, and I'll say I, when my mail carrier comes up to my door and, and she came up there night at six o'clock at night, she was still delivering the mail. And I said, you are coming up to my house. My, my mailbox is like a quarter mile away from my house and up a hill, and it's not an easy thing to navigate. And here she is, she comes up and she hands it to me on the porch. I said, oh, oh, you, you are late. Like mail comes at two, not at 6:00 PM and you're bringing it to my house. She said, yeah, I didn't want you to have to go down and get it. You probably wouldn't even know it would've been there. And so, you know, I wanna make sure you get it. And I just sat there and I said, you're amazing. And why? Because she's passionate about it. Right. She cared. She, her job is to leave it at the box and get the heck outta there. She said the truck was late. So I'm just trying to get to everybody before, before the day's over. And she didn't need to do that. you know, that's passion. She loves it. Um Right. And she wants her customers happy and. Whatever. I don't know. I I was appreciated. She did it and I'm talking about it now. Right. But, um, that's partly it. I mean, look, if you go around and talk to, to, to cattle producers, cow calf producers, that is their life. That's not just their business and their occupation, it's their life. I'm, I'm still farming. I don't know why I, I still farm a little bit in Nebraska. Honest to God, I don't know why as an economist it's a stupid thing to do. But you know what? I'm proud of it. I love to do it. And, uh, you know, I'll do it as long as God will let me, I guess, physically, because financially he's already told me not to do it. So, so part of it's that and that passion and that, that's part of why I've stayed, why I've stayed as a researcher and allied and, and have what I feel are so many friends like you in this industry is because. I, I see that passion and I go, those are the kind of people I wanna be around those are the kind of people I get excited to be around. And because that's a character thing and, and that's about, you know, we're gonna figure out how to make it work because it's what we are. Um, so part of it's that it's helpful that a lot of this land is paid for. It's hard to start a sizable, you know, this a sizable cow-calf operation. Yeah. I can run 10 or 20 cows, but to, to to build that takes a while. It's, it's hard. And, you know, so it helps that a lot of this land is, is either owned or it's, you know, b l m land that's next to the ranch, whatever. It helps. It's harder, it's harder to launch because there is a lot of capital tied up. There's more today than there was 50 years ago, just because of appreciation and values. And some of that's, you know, I always say a lot of cow calf producers are very wealthy, but they drive and, and act like they're very poor because they, they, they don't spend their money. They, it's in their ranch and they're cows. Um, so I don't know. That's my take. Now you tell me why you do it,
Track 1:your first description about the people. And the passion is all that I can go back to. And I've tried time and time and time again. I have kids that are age, I've got one that's a junior at K State. I've got two in high school, another one in junior high. And, and a little one that's thinks she's gonna run everything in the world, not just the ranch when she's older. But I, I'm at that point, I feel like I'm a young guy when I go to a beef industry meeting, but I'm nearly 50 years old and I've got kids that are not that far away from making career decisions and I'm sitting here going, I'm scared to death that they might want to get into the beef industry. And that's crazy. But I know why they do. Whether it is in production or whether it is in, as you're doing some service that you provide to the people who are in production because they've been around these folks and they see this. Work ethic, and they see this salt of the earth, you know, independent, yet collaborative community that is the beef industry. And that's why they want to be part of it. They go to Weber Hall or they go to, uh, K L A convention or they go to wherever and they, they see people that care just like we started this podcast because they care and they care what they do and they care that much. And otherwise, yeah. As an ag economist, if you truly looked at it through that lens and that lens only, I don't know how you adjust for The value of passion and, and legacy and this belief that we've got to continue doing it because grandma and great grandma and great-great grandma have done it all these generations. Otherwise, I don't, I don't know how you, how you do continue. I, Again, I go back to Joe and my conversation two weeks ago. There are some thoughts out there that as we see farming, uh, conservation, wildlife development, all these things get mega dollars coming into them from the federal government and to a certain extent. Some of these folks that are, investing in land for other reasons, not necessarily production ag, but that's a competitive force that we as cow calf and yearling producers, grass type operators in the beef industry are up against, every day. And I've always felt like we are proud to say that we don't take government support in the beef industry, but guess what? We are today taking more than we did 10 years ago. And there are some in our industry that are saying there's no other way how, either, either the, the, the big time farming subsidies through crop insurance and other things have to go away, or the grass folks are gonna have to participate. What, what are your thoughts on that debate?
squadcaster-0535_4_10-19-2023_140625:Uh, it's a slippery slope, Matt. Um, You know, and, and I don't want to, I I, it's, it's difficult to go down to individual situations.'cause every individual situation we got it, you know, has unique characteristics about it, et cetera, et cetera. So, I'll, I'll talk from a broader perspective what I get concerned with, with any industry and, and, you know, I'm a crop guy and, and so I understand the crop insurance thing and I don't like it. And, and, and all of the nuances that go with that. And I, I never have. But I also have to participate because if I don't, I can't, I can't compete with my neighbors. My neighbors the same way. They can't compete with me. We're not competing with each other. We're competing with Brazil. But, but at the same time, they'll own me if, if they do it and I don't. and, and I don't wanna be there. You know, I really don't, I, because what it did is it just increases land prices, increases rents, you know, it, it, it creates artificial, risk management things that, that, that I, that I don't really need. I, I would rather, you know, as a, as a, the, the part of me that is an entrepreneur, I like risk. I like to pursue risk. I like to take it on because I calculate it, I evaluate it, I assess it, I decide how much of it I wanna self-insure and how much of it I wanna, know, pay somebody else to take on. And, and I've got a lot of tools to do that. You know, futures markets, and there, there's private insurance. Anyway, we can go on. But I get really concerned about industries that become reliant upon government subsidies and support systems to the point where it becomes Necessary for that industry to operate and to be successful. Because now it means you're at the whim and you're at the beholding of what next political party or whim comes up. And suddenly you spend more time and energy lobbying for you, piece of the government handout than you do trying to advance the industry. You become a weaker industry, in my opinion, from a broad perspective. Again, and I, you know, I talk about that from an industry level.'cause,'cause again, I realize, you know, there's individuals in certain places, you know, maybe acts of nature and things, you know, need some, some safety nets. I, I don't know, I'm not smart enough really to, to, to be able to, to articulate that one. But, but if you start to make an industry, completely dependent upon and reliant upon those subsidy programs, I, you, you've lost some of your competitive global edge and, and, and I, I don't know. To, to me, it, it takes away some of the, the, the innovation that, that is forced to be there when you're facing risk and knowing it, evaluating it, and if the risk isn't even there. It's, it's a different industry.
Track 1:Yeah. It, it takes the capitalism out of it.
squadcaster-0535_4_10-19-2023_140625:It, it, it really does.
Track 1:It Sure, sure. Reduces it. Yeah. And, and that's the struggle that I see going forth. as we see continued loss of forage and grassland into crop production. I know why that acres were in grass was because they could not sustainably raise corn and beans and whatever crop we were talking about. Now, sure, we have improved hybrids and maybe they can grow on some land that doesn't get the moisture that, you know, whatever the case may be. But the biggest reason why those acres are being terminated from fescue or Broome, or hopefully not native grass, but, and going into the farming is, is crop insurance. It's a guaranteed outcome. And it's, it's higher than what they can make per acre on cattle. And, and that's, that's something that, um, that. Really, really concerns me is this different playing field as it was called two weeks ago on that discussion that we're on. I don't, I don't like saying, well, we've gotta get a subsidy, not that that's the way, but we've gotta get something from Uncle Sam to thank us for staying in the cattle business.'cause I think that's the wrong move. But I don't know that we have enough beef producers to be able to lobby against any crop subsidies or crop insurance programs and things like that. I I, I have heard enough though, from some farmers who say, you know what, just like you said, we have to take part in it. But we could put the genie back in the bottle, we wouldn't have meant it, uh, because of exactly what you talked about. Whether that happens or not is, is another story.
squadcaster-0535_4_10-19-2023_140625:I if you can figure out a way to turn that train around and, and get it ahead in the right path, uh, more power to you. I, you know, it, I have to be careful too'cause I'm a state employee, right? I'm paid by your tax dollars. So I'm the, I'm the worst offender of all this So, so I'll be perfectly candid with you there and Frank and, and I have to look at the mirror and say, you know, am I, am I earning my keep for the taxpayer of the state every day? And I do that, uh, seriously. And some days I wonder if I am or not. I'm pretty sure I'm not on some days
Track 1:Well from one taxpayer and one beef producer, and that's all you get to talk to directly here. There's a lot more that are listening. But from one of us, I'm gonna say thank you and that absolutely you are, I mean, your work, your vision in a time. We're talking just coming outta the eighties farm crisis. The absolute doldrums from a beef industry standpoint of the early and mid nineties in terms of prices and demand. And yet you had the vision and you had folks that you believed in and trusted in and you wanted to work with, and you had the passion to help move, whether it be the Beef Demand Index or some of these, you alliances and some of these ways that we could talk amongst ourselves within the beef industry. And then, Put dollars toward the things that we figured out once we got a little more consumer focused and, and you believed it in a time when it was not cool to believe that there were dollars. You know, I've heard John sticker, and I've quoted him many a time, the only new dollar that comes into the beef industry is from the consumer. The rest of the time, all of us cowboys are just trading it around. you figured that out and others figured that out and believed that what you were saying was true. And, and we've captured, we've captured billions of those new dollars. Now we just have to make sure that we figure out the sensible way of spreading those new dollars throughout the industry and keep us all incentivized to innovate and, and produce the product that our consumers are wanting.
squadcaster-0535_4_10-19-2023_140625:That, that was a perfect description of, of how the industry can improve in advance when it, pursues things that are On the horizon and starting to show up as opportunities for, for, for advancing more profitability, more opportunities, doing things to take control and own your, your destiny and, and this industry. I, I've been so excited to watch it do that. And guys like you and others who, who were willing to take those initiatives, take those risks, pursue those things that you could see were the pathways to, to, to advance and, and those that. Chose not to do that need, need to, to, you know, not get in your way. Not, not preclude it, not somehow be a barrier to it, but it is where all innovation takes place. Back to your comment, it's capitalism and, and the industry figured out how to do that. I mean, we were by the side trying to help provide data, information to do it, but we are more cheerleaders than we ever were players. And the players are you guys, and you guys made it happen. And it's been an incredible transition. So keep it up. I mean, you know, you're not done. And whether it's you or, or your sons or daughter, you know, somebody, you know, the next generation's ready too. And some of them will come in and I hope I know some of'em will, and they'll, they'll help drag you and I to.
Track 1:We hope, we hope. Well, I, I appreciate that. But, but you're right. Whether it's a cheerleader, whether it is, an analyst, whether it is an economist, it, it takes all of us. And, and it, it took everybody through that time, uh, to get us on the right path. And I think we've just gotta, like you said, continue.
squadcaster-0535_4_10-19-2023_140625:Yeah.
Track 1:Well, thank you so much for your time being on here. Like I said before, thank you for all your work to, to help us, whether it be just like you said, a cheerleader, but, but we know much more. I mean, it takes that kind of information. It takes those kinds of decision tools, uh, that are available to all of us. And, uh, I should plug here and we'll put it in the notes. Ag Manager info, is that right? I always forget that the, uh, suffix there. But, uh, you know, just a wealth of information coming from Kansas State University Ag Econ Department, and we appreciate all the work that you have done and that you will continue to.
squadcaster-0535_4_10-19-2023_140625:Yeah, let me just say that, uh, on behalf of Kansas State University, I don't represent the university, but, but I, I've certainly am, have, have been honored to, to, to be part of this industry for, for so long and, and get to work with folks like you. We are, we are here to help. We are here to, to, you know, not everybody always agrees with what we say or, or what our conclusions are. And, and that's fine. We, we respect that we. We, we wanna hear the, the various opinions and thoughts and ideas. I learn way more from the folks I talk to than I ever teach. So I'm, I'm always open and, and we're, we're always ready for business and always ready to try to tackle the next thing and, and, and got a lot going on. Uh, but it, in sincerely, it's a privilege to be part of this thing in Kansas State. It's been the best place in the world that I could ever imagine to, to do what I do. So, uh, you know, 38 years later, I'm in my 38th year now, uh, I I don't know how much longer I keep going, but it, it has been a, a tremendous amount of fun. And it's because it's such a fun and vibrant industry to, to work with. And I'll tell you, every single day is a new, a new set of things showing up. And it's like, yeah, I think we can do something there. So, uh, pri privilege and I, I enjoyed spending some time with you today and, and, and hope it was useful for you and, and your listeners.
Track 1:You bet certainly was. So thanks a bunch, Dr. Schroeder.
squadcaster-0535_4_10-19-2023_140625:Thank you.
Thanks again for listening to practically ranching brought to you by Dale banks, Angus. Wait efficiency, gain marbling yield. The industry always wants more. But those extra few pounds or percent often come with increases in labor feed and other inputs. For decades, our family has focused on optimal animal performance. With labor saving foundation traits like foot soundness, fertility, longevity, sound, utters, and docility. Now this system's approach to genetic selection may not produce the bull. With the most of a given trait or EPD. But we think it results in hundreds that find that sweet spot between sensible inputs and optimal outputs. We'll sell 150 yearling and coming two year old bulls at our annual practical profitable genetics bull sale. Saturday, November 18th. The bulls will be freezed, branded fertility, tested, vaccinated, poured, and ready for immediate turnout. We're excited to have some new sire groups by balanced trait, sires, such as to Tehama Patriarch, Yon Top Cut, HF Safe Sound and Sitz Reslient. Plus we'll have the time tested sire groups by deer valley growth fund Connealy cool and other bulls that you've seen in our program. Bull sale catalogs will be available in late October. Just contact us@dalebanks.com to request yours. Videos will be out on the bulls and mid-November the bulls will be walked through the sale ring for live bidding on November 18th. Or you can register on the cci.live to bid online. Thanks for your interest. We hope to see you at the sale.