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The Beef Supply Chain in the United States : Status, Development And

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The Beef Supply Chain in the United States : Status, Development And Special study The beef supply chain in the United States Status, development and perspectives Braunschweig, October 2006 Diploma thesis Daniel Brüggemann Acknowledgements The author wishes to thank the many people who generously provided information, further contacts and aid in compiling this study. These include Kerry Smith and Justin Ransom, USDA Agriculture Marketing Service; John Lawrence, Iowa State University; Ted Schroeder and Rodney Jones, Kansas State University; Damona Doye and Clem Ward, Oklahoma State University; and Claus Deblitz, German Federal Agricultural Research Centre. Furthermore I want to thank the German Academic Exchange Service for financial support via scholarship. Appreciation is also extended to the persons and families who provided me with warm hospitality and a feel for the American lifestyle. Contents I Contents 1 Introduction 1 1.1 Situation 1 1.2 Objectives 2 1.3 Approach and implementation 2 2 Overview about the U.S. beef supply chain 5 2.1 The U.S. beef industry in a world-wide context 5 2.2 Structure of the supply chain 7 2.3 The cattle inventory 9 2.4 Important issues and challenges 13 3 Production on farm-level 17 3.1 Introduction 17 3.2 Cow-calf operation 18 3.2.1 Introduction 18 3.2.2 Regional distribution 18 3.2.3 Structure 21 3.2.4 Production systems 22 3.2.5 Profitability 25 3.2.6 Conclusions 31 3.3 Stocker cattle operations 32 3.3.1 Introduction 32 3.3.2 Regional distribution 32 3.3.3 Production systems 34 3.3.4 Profitability 37 3.3.5 Conclusions 41 3.4 Finishing operations 42 3.4.1 Introduction 42 3.4.2 Development of Inventory 42 3.4.3 Regional distribution 45 3.4.4 Structure 47 3.4.5 Production systems 49 3.4.6 Profitability 53 3.4.7 Conclusions 59 4 Marketing of cattle 61 4.1 Introduction 61 4.2 Live cattle movement and transportation 61 Contents II 4.3 Market channels and transaction types 64 4.3.1 Spot markets 65 4.3.2 Non-Spot markets 67 4.4 Pricing systems 71 4.5 Conclusions 75 5 Slaughtering and processing 77 5.1 Introduction 77 5.2 Regional Distribution 78 5.3 Structure 80 5.4 Final products 85 5.5 Profitability 87 5.6 Conclusions 89 6 Domestic distribution and consumption 90 6.1 Overview about wholesale, retail, and foodservice 90 6.2 Consumption of beef 94 6.3 Conclusions 97 7 International trade of beef 98 7.1 Introduction 98 7.2 Beef imports 99 7.3 Beef exports 101 7.4 The impact of BSE on the U.S. beef trade 103 7.5 Conclusions 105 8 Future perspectives 107 9 Discussion 111 10 Summary 113 11 Abstract 116 12 References 117 13 List of interview partners 129 Annex I - II List of abbreviations III List of abbreviations AMA Alternative Marketing Arrangements AMS Agricultural Marketing Service AMS Agriculture Marketing Service APHIS Animal and Plant Health Inspection Service AU Animal unit avg. average BEO-FC Bovine edible offal, fresh or chilled BEO-FRZ Bovine edible offal, frozen except livers and tongues BG Backgrounding BL-FRZ Bovine livers, frozen BLS Bureau of Labor Statistics BM-FC Meat of bovine animals, fresh or chilled BM-FRZ Meat of bovine animals, frozen BM-SDM Bovine meat salted, dried or smoked BSE Bovine Spongiform Enzephalopathy BT-FRZ Bovine tongues, frozen CO Colorado COF Cattle on feed COOL Country of origin labelling CRB Crop Reporting Board CW Carcass weight CWE Carcass weight equivalent DL Drylot DWG Daily weight gain eKS east Kansas ERS Economic Research Service EU European Union EU-25 European Union – 25 member states EUR Euro FAL Federal Agriculture Research Centre FAPRI Food and Agricultural Policy Research Institute FAS Foreign Agricultural Service FI Federally Inspected FMD Food and Mouth Disease FSIS Food Safety and Inspection Service List of abbreviations IV FTC Federal Trade Commission FY Fisical Year GIPSA Grain Inspection, Packers and Stockyards Administration kg kilogram KS Kansas KSU Kansas State University LMPR Livestock Mandatory Price Reporting LW Live weight MGA Melengesterol Acetate NAICS North American Industry Classification System NASS National Agriculture Statistic Service NFI Non-Federally Inspected NK Nebraska OECD Organisation for Economic Cooperation and Development OSU Oklahoma State University SG Summer grazing TBA Trenbalone Acetate TX Texas U.S. United States USA United States of America USDA United States Department of Agriculture USDJ United States Department of Justice USEPA United States Environmental Protection Agency wKS west Kansas WWG Winter-wheat-grazing List of figures V List of figures Fig. 2.1: Overview of the beef supply chain from farm to final consumer (MUTH et al. (2005) modified)....................................... 8 Fig. 2.2: Development of the U.S. cattle inventory on January 1 (own illustration based on USDA NASS (2006a)). ......................... 9 Fig. 2.3: Composition of the cattle inventory, average of the years 2004 to 2006 (own illustration based on USDA NASS (2006a)). ................................................................ 12 Fig. 3.1: Production stages on farm-level (own illustration). ...................... 17 Fig. 3.2: U.S. cow-calf sector structure (own illustration based on FEUZ and UMBERGER (2003)). ................................................. 21 Fig. 3.3: Percent of beef calves born by month (USDA APHIS 1998). ....... 24 Fig. 3.4: Average price for Kansas steers and heifers of 227 to 272 kg from 1992 to 2006 (own illustration based on KSU (2006)).......... 26 Fig. 3.5: Seasonal price index for Kansas steers of 227 to 272 kg (own illustration based on KSU (2006)). ...................................... 26 Fig. 3.6: Costs per bred cow by farm size (own illustration based on SHORT (2001)). ................................. 28 Fig. 3.7: Cow-calf cash returns from 1980 to 2005 (own illustration based on CATTLE-FAX (2006))................................................... 29 Fig. 3.8: Cash and non-cash cost, returns and profitability of cow-calf operations – situation 2005 ff. (DEBLITZ et al. (2006))................ 30 Fig. 3.9: Prevalent systems of stocker cattle operations (own illustration).......................................................................... 34 Fig. 3.10: Seasonal price development in average of the years 2001 to 2005 (own illustration based on KSU (2006)).................. 37 Fig. 3.11: Cost composition of a typical stocker cattle operation (own illustration based on PEEL (2006)). .................................... 38 Fig. 3.12: Profit and Loss of stocker cattle operations (non-cash costs are not included) from 1980 to 2005 (CATTLE-FAX 2006). ......... 40 List of figures VI Fig. 3.13: Development of U.S. and top 5 regions COF inventory on January 1 by year (own illustration based on USDA NASS (2006a)). ..................................................................................... 44 Fig. 3.14: Cattle on feed inventory and in average of the years 2003 to 2005 by month (own illustration based on USDA NASS (2006a)). ................................................................ 44 Fig. 3.15: Structure of US finishing operations in average of the years 2003 to 2005 (own illustration based on USDA NASS (2006a)). ................................................................ 47 Fig. 3.16: Cross-section of feed bunk and apron (HARNER and MURPHY 1998). .................................................. 50 Fig. 3.17: Cross-section of a mound (HARNER and MURPHY 1998). ......... 50 Fig. 3.18: Top-view of single-row feedlot design (LPES 2006). ................... 50 Fig. 3.19: Fed cattle profit and loss, 2005 projected (own illustration based on CATTLE-FAX (2006))................................................... 55 Fig. 3.20: Feeder prices, fed cattle prices by month and profit of steers depending on the month of placement (own illustration based on KSU (2006); JONES (2005)). ............. 56 Fig. 3.21: Average daily weight gain, cost of gain by month and profit of steers depending on the month of placement (own illustration based on KSU (2006)). ...................................... 56 Fig. 3.22: Cash and non-cash cost, returns and profitability of beef finishing – situation 2005 ff. (DEBLITZ et al. 2006).............. 58 Fig. 4.1: Different market channels for cattle in the U.S. (own illustration).......................................................................... 65 Fig. 4.2: Relationship between marbling, maturity, and carcass quality grade (USDA AMS 2001). ................................................ 73 Fig. 5.1: Different slaughter categories (own illustration based on USDA NASS (2006b)). ........................................................... 77 Fig. 5.2: Development of plant numbers and slaughtered cattle in the top four states (own illustration based on USDA Livestock slaughter summary of the years 1976, 1986, 1996, 2006) ........... 79 List of figures VII Fig. 5.3: Development of the share in plants and slaughtered cattle in the top four states (own illustration based on USDA Livestock slaughter summary of the years 1976, 1986, 1996, 2006). ...................................................................... 79 Fig. 5.4: Structure of FI slaughter plants in U.S. (own illustration based on USDA NASS (2006b)). ....................... 80 Fig. 5.5: Scale economies cattle slaughter (MACDONALD 2003).............. 81 Fig. 5.6: Herfindahl-Hirshman Index in selected years (own illustration based on USDA GIPSA (2006b)). ...................... 83 Fig. 5.7: Primal cuts and their percentage share (own illustration based on KBC (2006) and CANFAX (2006))................................ 85 Fig. 5.8: Farm-to-wholesale price spread
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