Herd Mentality

As cattlemen gather round the bright glow of record prices, there is a marked divide about what it will take to keep demand strong. One camp is staking the future on hamburgers, the other on premium bone-in rib eyes.

Steve Whitmire believes beef's future is tied to quality. He's convinced it's beef's high-end cuts and a reputation for consistent quality that will keep U.S. product on plates for years to come.

The North Carolina producer's seedstock operation, Ridgefield Farm, is based at Brasstown, where he raises Angus and Braunvieh cattle. His bulls are sold with the agreement that he buys back calves at a premium, which he feeds out and carries into the marketplace as an "all natural" product. He feeds out about 1,800 head annually, giving him the unique perspective of having an operation that goes from conception to consumption.

Whitmire has developed one-on-one connections with top chefs and buyers across the country through his branded business, Brasstown Beef, started about eight years ago. He supplies Whole Foods, Buckhead Beef and eight Sysco companies across the Southeast. Listed on the menus of many top-tier restaurants and clubs, Whitmire's beef has been cooked at the Beard Foundation -- the holy grail for professional chefs -- twice in the past year.

His relentless drive to market the best beef possible combines the best of genetics and technology, going so far as to ultrasound animals to determine which he'll harvest each week.

"This is about controlling genetics on the front end, pasturing and feeding for uniform flavor, and then predicting the optimum harvest point for a given animal," he explained.

Whitmire credited the American Angus Association for promoting the use of genetic markers to help breeders develop a consistent, highly desirable product. He believes every breed association today should be focused on finding and identifying seedstock animals carrying traits that may make their progeny's meat tough, and getting them out of sire groups.

MARKET SHIFTS

Two things have Whitmire worried about beef's future. First, he was told by a chef in a high-end restaurant that his product was getting too pricey. Wholesale pricing for his tenderloins is at $19.95 per pound; ground beef, $5.10; rib eyes, $13.50. Whitmire said he has had an increased cost of about $500 per calf he buys; it has been a challenge to recover this at his wholesale price, even with feed costs down by about a third.

But there is something Whitmire sees as worse than price resistance, and that's a bad eating experience. The cattleman experienced this firsthand in a Kansas steak house, where the $40 bone-in rib eye he ordered was so tough he couldn't cut it. He wondered how many other people had a similar experience and whether next time he would order chicken. He gave up on the rib eye and asked for a pork chop.

"Our reputation, our market in the world, is tied to quality. If we walk away from that, we might not ever get it back," he said.

Whitmire believes talk of moving the industry toward more of a "commodity" beef program, aimed at developing cattle strictly for the ground beef market, could be a major misstep.

"My concern is the big picture," he explained. "Are we going to end up in a ground beef world five years from now? And if we become a ground beef commodity producer, how can we compete with countries like Australia, Brasil, Uruguay or Paraguay in terms of cost of production."

Whitmire said the road to keeping markets isn't likely to ever again be a huge supply of beef or turning more of the market to ground beef. "It's a fallacy for people to not be breeding and selecting for high-quality beef right now," he stressed.

"We have to get those animals out of the herd that won't provide us with a consistent, high-quality product. Our export markets make up about 30% of U.S. beef sales, and we have to maintain a high level of quality to keep that. The world perception now is that we have the best beef in the world. You don't walk away from that, you capitalize on it."

THE EXPANSION QUESTION

Many producers in the cattle industry seem fixated on herd expansion, but Whitmire is not expecting an explosion of rebuilding. Neither is Bill Mies, an animal science professor at Texas A&M University. He expects a slight increase in U.S. cow inventory by 2025 and says he believes the feedlot sector is still overbuilt by about 25%, so he expects more consolidations. The new normal for the beef industry is likely to be slower rebuilding phases and smaller herds.

"Those cattlemen in Texas who went through the drought are just now getting their financial feet under them," Mies said. "Many are paying down debt they took on to stay in business, and with record prices for cows and heifers, the idea of restocking is a lot to take on."

Mies added there are challenges that didn't exist during rebuilding phases in the past. Urban sprawl, land prices, water rights and government restrictions are all part of the equation now. Also, many aging ranchers who left during the downturn aren't coming back. That means continued high prices are likely to hold for the foreseeable future, which is good news for producers but perhaps not for long-term markets and demand.

"I don't want beef to become the lobster business of meat," Mies said. "We can't survive being a once-a-year kind of product."

A Rabobank report by economist Don Close, "Ground Beef Nation," proposes that producers rethink quality and find ways to designate which animals are of lower genetic potential and best suited for ground meat.

"You can pick those high-genetic-potential calves,

the ones who will produce the top loin and rib meat cuts, and feed those animals traditionally," Close reported. For the one-third to one-half of the calf crop he estimates doesn't have the "genetic potential" to produce quality cuts, he said they can be fed more forage-based, lower-energy rations to keep costs down and finish at a lower weight for Select and low Choice grades.

GROWING ON QUALITY

Back at the farm, interest doesn't seem to be waning when it comes to quality, and no one is talking hamburgers. Superior Livestock's business continues to outpace expectations, and the cattle they sell in preconditioning programs, natural and gap slots, are doing especially well.

"I've heard that the use of preconditioning programs is down," Joe Lichtie said. "But sitting on the auction block writing prices and buyer numbers down, I can tell you those cattle in the programs have the most competition and activity." Lichtie is vice president of Superior, based in Fort Worth, Texas. He said they are up 100,000 head in sales compared to a year ago. The company markets more than 2 million head annually, about half of the increased sales from new customers.

TIME TO HEAL

Linda Galayda, head of Jordens Cattle Co./7-7 Ranch, is one of those new customers. And she isn't looking for shortcuts. She quips that using the video auction company to sell calves was "a Superior decision."

Galayda described sale prices for her commercial Brangus calves as "exceeding expectations" this year. In fact, it's fair to say a lot of things about 2014 have exceeded expectations, given how much the ranch was struggling to survive just two years ago.

Drought hit the Elkhart, Texas, operation hard. Typically running about 500 cows, they cut the herd to 300. They are back to 350 cows this year. They work on a 90-day calving schedule, starting December and finishing by the end of February.

Galayda came home to ranch after a career in fashion marketing in New York City. She put what she knew about sales into marketing cattle, keeping detailed records on every animal and building a list of bull cooperators who would buy her calves. One of her regular buyers was Matt Anderson, who she later learned was a rep for Superior. This year, she sold her calf crop in one day using the video service and shipped them out August 19 broken into 3 loads -- 625-pound steers, 525-pound steers and 535-pound heifers. She pulled the top 50 heifers for her rebuilding program.

Galayda remains cautious about rebuilding too fast. She has 2,500 acres of pasture and said the rule of thumb is one cow for every 5 acres. But it will be some time before she's back to that level. "We're certainly in good spirits this year; we've had nice rains and ground moisture, and pastures are good. But the land is still healing."

For Galayda, the focus is not just a number but quality. "Animal welfare is very important to me. It's not just about getting a live one on the ground. We vaccinate, work on genetics, keep extremely detailed records, all because that's what it takes to do the job right and to produce a healthy quality animal. If you do that, you should get paid for it." Galayda said she feels she has been rewarded for the extra effort this year.

Even in these good times, Galayda is still looking over her shoulder for any sign that drought is creeping back in.

"I can't begin to tell you the emotional stress you live under to save the herd. We were hauling water, bringing in hay from Mississippi. We worked hard to make sure we gave our cows the best we could afford. You spend every dime, and all your reserve, to get through something like that. I'm thankful for some good times and some good prices now. But I'll never forget how quickly it can all be gone."

(VM/CZ)

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