WEBVTT - Why America's Cattle Ranchers Keep Getting Squeezed 0:00:02.720 --> 0:00:16.360 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.640 --> 0:00:21.560 Hello and welcome to another episode of the All Thoughts podcast. 0:00:21.680 --> 0:00:23.000 I'm Tracy Alloway. 0:00:22.720 --> 0:00:24.400 And I'm Joe. Why isn't thal Joe? 0:00:24.640 --> 0:00:27.320 What do you eat more of eggs or beef? 0:00:28.080 --> 0:00:28.280 You know? 0:00:28.360 --> 0:00:30.560 I was just thinking I want to eat more beef 0:00:30.600 --> 0:00:33.960 in my life. I probably you eat more eggs ultimately, 0:00:34.680 --> 0:00:37.559 but like, beef is just so good. Beef is the 0:00:37.600 --> 0:00:39.960 best food there is in the entire world. I truly 0:00:40.360 --> 0:00:44.120 believe that. And every time I eat beef, I think about, 0:00:44.200 --> 0:00:46.320 why don't I eat this all the time. It's so good, 0:00:46.320 --> 0:00:48.960 It's so satisfying and all these nutrients. I don't have 0:00:49.040 --> 0:00:52.080 this impulse to snack and eat garbage afterwards. I want 0:00:52.120 --> 0:00:53.000 to eat more beef. 0:00:53.360 --> 0:00:55.560 I'm pretty sure I eat more beef than eggs at 0:00:55.560 --> 0:00:58.000 this point. I will have the occasional omelet and I 0:00:58.120 --> 0:01:01.080 mix a lot of eggs into like Asian noodle dishes 0:01:01.080 --> 0:01:02.960 and things like that, but not. 0:01:03.040 --> 0:01:05.679 That I aspire to live. They to have the Tracy 0:01:05.680 --> 0:01:06.400 Alloy diet. 0:01:06.800 --> 0:01:11.160 Okay, Well, speaking of beef except expensive these Yes, this 0:01:11.400 --> 0:01:14.480 is exactly it. So I'm sure everyone listening to this 0:01:14.520 --> 0:01:17.720 podcast at this point has heard about rising beef prices 0:01:18.000 --> 0:01:20.720 in the US. There are a lot of headlines flying 0:01:20.920 --> 0:01:24.679 around constantly in recent days about this. So, for instance, 0:01:25.080 --> 0:01:29.160 we're recording this on October thirtieth, and earlier this week, 0:01:29.480 --> 0:01:32.760 President Trump was tweeting about how he wants beef prices 0:01:32.800 --> 0:01:36.399 to be lower. He's also been talking about buying beef 0:01:36.800 --> 0:01:40.440 from Argentina. It is very much in the news. There's 0:01:40.440 --> 0:01:43.080 also the whole soybean drama with China. 0:01:43.200 --> 0:01:45.360 Yeah, there is a I think it's funny because in 0:01:45.400 --> 0:01:49.320 that Trump post he said cattle rancher should appreciate how 0:01:49.320 --> 0:01:52.559 good things are going because high beef prices, but bring 0:01:52.600 --> 0:01:55.600 them down. There's just a lot, and I've said this 0:01:55.760 --> 0:01:59.320 before on the show, which is that I think the 0:01:59.440 --> 0:02:02.680 ultimate marker of civilization is the amount of beef or 0:02:02.720 --> 0:02:05.040 protein that you can buy with an hour's work, that 0:02:05.080 --> 0:02:07.320 the median person or the average person can buy with 0:02:07.360 --> 0:02:10.000 an hour's work. And I think when it's going backwards, 0:02:10.000 --> 0:02:13.680 we should be very disturbed. So setting aside, I'm very fortunate. 0:02:13.720 --> 0:02:15.400 I could probably afford to these as much beef as 0:02:15.400 --> 0:02:17.520 I want. But the price of ground beef, I'm looking 0:02:17.520 --> 0:02:19.839 it up on the terminal now it's like tripled since 0:02:20.200 --> 0:02:23.360 ten that there's like four dollars around the pandemic. Now 0:02:23.360 --> 0:02:26.240 it's of over six dollars. I think these are extremely 0:02:26.360 --> 0:02:27.160 serious issues. 0:02:27.440 --> 0:02:28.880 I will say I don't think we need to be 0:02:29.040 --> 0:02:32.880 quite as obsessed with protein Americans especially, we already eat 0:02:32.919 --> 0:02:34.880 a lot of protein. Say eat more fiber. 0:02:35.160 --> 0:02:37.239 I'm not saying we need to be obsessed. Actually, I 0:02:37.280 --> 0:02:39.120 do think the protein craze may be a little out 0:02:39.120 --> 0:02:41.000 of hand. I just think this is like a very 0:02:41.040 --> 0:02:44.359 good measure of the advance of sort of a wealthy 0:02:44.480 --> 0:02:47.200 society that protein gets more affordable. 0:02:47.560 --> 0:02:49.680 I'm going to get you a cow share for Christmas. 0:02:49.840 --> 0:02:50.160 Thank you? 0:02:50.400 --> 0:02:52.480 All right, Well, I am happy to say we do, 0:02:52.560 --> 0:02:54.440 in fact have the perfect guest. We're going to be 0:02:54.440 --> 0:02:57.160 speaking with Bill Bullard. He is the CEO of our 0:02:57.280 --> 0:03:00.200 calf USA. So Bill, thank you so much, Thanks for 0:03:00.200 --> 0:03:00.640 coming on. 0:03:00.520 --> 0:03:02.480 All thoughts, glad to be here. Thank you. 0:03:03.160 --> 0:03:05.960 Thank you also for actually looking the part of a 0:03:06.000 --> 0:03:07.560 cattle rancher. We really appreciate it. 0:03:07.639 --> 0:03:10.120 No one can deny that we're talking to the perfect guest. 0:03:10.400 --> 0:03:13.560 All right, So why don't we start really simple? What 0:03:13.720 --> 0:03:17.680 have you observed about beef prices just in the past 0:03:18.000 --> 0:03:18.760 few months or so. 0:03:19.639 --> 0:03:23.799 Well, we've seen beef prices increasing as you've indicated, and 0:03:23.880 --> 0:03:28.320 we see cattle pricing also increasing as you indicated. So 0:03:28.400 --> 0:03:31.600 we now have a positive relationship between the price of 0:03:31.639 --> 0:03:33.880 beef and the price of cattle, and we are a 0:03:33.919 --> 0:03:37.720 competitive industry. We do not rely on government price supports. 0:03:37.800 --> 0:03:41.440 Were the single largest segment of American agriculture. That cattle 0:03:41.520 --> 0:03:44.720 industy generates about one hundred billion dollars a year in 0:03:44.760 --> 0:03:50.600 cash receipts, so it's it's larger than any other commodity corn, wheat, cotton, dairy, 0:03:51.200 --> 0:03:54.720 and we rely on competitive market forces. But we have 0:03:54.880 --> 0:03:59.480 not had competitive market forces until very recently. And that's 0:03:59.680 --> 0:04:01.880 where we need to get into the history of why 0:04:01.920 --> 0:04:03.000 beef prices are high. 0:04:03.360 --> 0:04:05.360 Can I ask very quickly, you said there's now a 0:04:05.400 --> 0:04:08.880 positive relationship between cattle prices and beef prices. Is that 0:04:09.040 --> 0:04:10.280 not always the case? 0:04:10.840 --> 0:04:14.760 That certainly has not been the case, especially since twenty fifteen. 0:04:15.320 --> 0:04:19.480 We saw an inverse relationship. We saw beef prices heading 0:04:19.560 --> 0:04:24.000 skyward beginning in twenty and seventeen, and while beef prices 0:04:24.000 --> 0:04:27.880 were increasing, cattle prices were falling. And this is really 0:04:27.920 --> 0:04:31.960 odd in an industry where the only ingredient in beef 0:04:32.120 --> 0:04:35.680 is cattle, so you would expect there to be a harmonious, 0:04:35.680 --> 0:04:40.719 synchronous relationship, a positive relationship between beef prices and cattle prices. 0:04:41.160 --> 0:04:43.160 One of the things I discovered on the terminal back 0:04:43.240 --> 0:04:45.560 during the pandemic, I learned all these things. We actually 0:04:45.560 --> 0:04:49.599 have an index on the terminal, the Hedger's edge beef 0:04:49.880 --> 0:04:54.719 packer margin, which I imagine to some extent reflects that spread, 0:04:55.040 --> 0:04:58.560 and we do see it rise generally up really through 0:04:58.600 --> 0:05:01.880 twenty twenty one, actually started to compress quite a bit. 0:05:01.960 --> 0:05:05.360 But just actually why is that? Like, what explains why 0:05:05.400 --> 0:05:07.960 these things can move in different directions? What is the 0:05:08.040 --> 0:05:11.400 added factor in the price of beef that is not 0:05:11.520 --> 0:05:12.360 the price of cattle. 0:05:12.680 --> 0:05:15.120 So let's go back to just over a generation. We'll 0:05:15.160 --> 0:05:17.599 go back to nineteen eighty. Great at the time, we 0:05:17.640 --> 0:05:21.320 had one point three million beef cattle farmers and ranchers 0:05:21.360 --> 0:05:24.240 in the United States. We got about thirty seven million 0:05:24.360 --> 0:05:28.000 cows in our mother cow herd. Beef Prices that consumers 0:05:28.040 --> 0:05:30.760 paid were about two dollars and forty cents per pound. 0:05:31.320 --> 0:05:34.000 At that time, we had the four largest packers in 0:05:34.040 --> 0:05:38.000 the industry, controlling thirty six percent of the industry. So 0:05:38.360 --> 0:05:41.440 if we think about how the beef industry works, it's 0:05:41.480 --> 0:05:45.120 the consumer beef dollar that has to be allocated along 0:05:45.200 --> 0:05:48.720 the entire supply chain. So back in nineteen eighty, every 0:05:48.720 --> 0:05:52.599 time a consumer spent a dollar on beef, that dollar 0:05:52.760 --> 0:05:57.120 was allocated by competitive market forces, and over sixty cents 0:05:57.120 --> 0:06:00.000 of that dollar went back to the live cattle producer, 0:06:00.360 --> 0:06:03.719 the farmer and rancher and the cattle feeder, and less 0:06:03.720 --> 0:06:06.800 than forty cents went back to the processing part of 0:06:06.839 --> 0:06:10.200 the beef industry, and that's to the retailer and the packer. 0:06:10.560 --> 0:06:14.320 So the producer was receiving the majority shared which made 0:06:14.360 --> 0:06:18.040 sense because they kept that animal for fifteen to eighteen 0:06:18.080 --> 0:06:21.120 months before it was slaughtered and converted to beef, and 0:06:21.160 --> 0:06:23.720 the beef packer only kept the animal for about seven 0:06:23.800 --> 0:06:26.760 days and the retailer kept it for the shortest amount 0:06:26.760 --> 0:06:29.480 of period possible. So but the point was is that 0:06:29.520 --> 0:06:32.120 when consumers were paying two dollars and forty cents per 0:06:32.160 --> 0:06:35.320 pound for beef, sixty cents of that dollar was going 0:06:35.360 --> 0:06:39.359 back to the producer and only less than forty cents 0:06:39.400 --> 0:06:42.200 was going back to the processor and the retailer. Now 0:06:42.360 --> 0:06:45.320 jump ahead. Today, we've wiped out over half of all 0:06:45.400 --> 0:06:49.360 the beef cattle operations in business. Just over a generation ago, 0:06:49.480 --> 0:06:52.520 we've lost fifty two percent of them. We've wiped out 0:06:52.560 --> 0:06:56.080 twenty five percent of our Mother Kyle beef herd, and 0:06:56.120 --> 0:07:00.760 the four largest packers controlled today about eighty percent of 0:07:00.800 --> 0:07:05.080 the marketplace. And consumers in twenty twenty four paid about 0:07:05.160 --> 0:07:07.839 eight dollars in twenty three cents per pound for beef, 0:07:08.200 --> 0:07:10.800 and now in twenty twenty one, just a couple of 0:07:10.840 --> 0:07:15.240 years ago, the allocation that the competitive market was making 0:07:15.280 --> 0:07:18.400 in the marketplace was completely tipped on its head. In 0:07:18.400 --> 0:07:22.320 twenty twenty one, the packer and the retailer received over 0:07:22.480 --> 0:07:25.760 sixty cents of every consumer beef dollar, and the producer 0:07:25.880 --> 0:07:30.400 received less than forty cents. So here's the question, how 0:07:30.400 --> 0:07:33.840 would a competitive market could that have happened? How could 0:07:33.840 --> 0:07:39.360 a competitive forces in the marketplace completely reversed the competitive 0:07:39.360 --> 0:07:43.040 allocation of the consumer beef dollar within the entire beef 0:07:43.080 --> 0:07:46.040 supply chain. The answer to that question is it can't. 0:07:46.680 --> 0:07:50.280 If our market was competitive, that could never have happened. 0:07:50.680 --> 0:07:54.480 That raises the concerns that we've been struggling with for 0:07:54.520 --> 0:07:56.880 the past several decades. Our industry is in a state 0:07:56.920 --> 0:07:59.960 of crisis and it has been and what has happened 0:08:00.200 --> 0:08:05.280 is is because of industry concentration and consolidation, the ability 0:08:05.320 --> 0:08:09.480 of the multinational meat packers and retailers to exert buying 0:08:09.680 --> 0:08:13.080 power upstream in the supply chain, and the fact that 0:08:13.120 --> 0:08:15.960 we've entered free trade agreements that have allowed the meat 0:08:15.960 --> 0:08:20.000 packers and retailers to access beef from around the world 0:08:20.440 --> 0:08:24.640 and displace domestic production. Because the beef that we import 0:08:24.960 --> 0:08:30.800 from Argentina, Brazil, Uruguay, Nicaragua, Costa Rica, Australia, New Zealand, 0:08:30.920 --> 0:08:34.720 Canada and Mexico, it's a perfect substitute for domestic product. 0:08:35.120 --> 0:08:38.520 So the more we import, the less we have the 0:08:38.559 --> 0:08:43.559 ability and capacity to maintain domestic production of this very 0:08:43.559 --> 0:08:47.160 important protein source, which is beef. And so what we 0:08:47.240 --> 0:08:51.440 see today is a dysfunctional marketplace. As I described before, 0:08:51.800 --> 0:08:55.199 since twenty seventeen, we saw beef prices going up that 0:08:55.320 --> 0:08:58.120 consumers were paying in the retail store. We saw cattle 0:08:58.120 --> 0:09:01.920 prices going down. SENSU shows that just in the five 0:09:02.000 --> 0:09:05.760 year period from twenty seventeen to twenty twenty two, we 0:09:05.840 --> 0:09:09.880 lost one hundred and six thousand beef cattle operations, farmers 0:09:09.880 --> 0:09:12.920 and ranchers exited the industry during that period. And the 0:09:13.000 --> 0:09:16.160 reason that that's happened is because they've suffered long term 0:09:16.320 --> 0:09:20.480 lack of profitability. It's because their market is dysfunctional. It's 0:09:20.520 --> 0:09:25.040 because imports have displaced our domestic production and our opportunity 0:09:25.120 --> 0:09:29.480 to expand. And now we've hit a huge market shock, 0:09:29.520 --> 0:09:32.000 an economic shock to the market, and that was the 0:09:32.120 --> 0:09:35.560 latest drought that occurred in the latter part of twenty twenty. 0:09:35.720 --> 0:09:37.520 This is what I was going to ask, so just 0:09:37.559 --> 0:09:40.960 to we're going to talk more about industry consolidation, for sure, 0:09:41.080 --> 0:09:44.200 and you know, I'm looking, for instance, at a headline 0:09:44.240 --> 0:09:47.480 right now about Walmart tightening its grip on the beef 0:09:47.520 --> 0:09:50.560 market by setting up a new plant. But just to 0:09:50.559 --> 0:09:53.840 play devil's advocate for a second, how much of this 0:09:53.920 --> 0:09:58.400 is just down to pure input costs like grain going up, 0:09:58.640 --> 0:10:01.679 or you know, the drought that you just mentioned, or labor. 0:10:01.360 --> 0:10:03.679 Costs at least, especially the move that we've seen over 0:10:03.720 --> 0:10:07.000 the last year, which I'm sure which cannot obviously be 0:10:07.080 --> 0:10:10.000 explained by multi decade trends. 0:10:10.440 --> 0:10:13.199 So what we've seen is our cattle supplies that tightened 0:10:13.200 --> 0:10:15.920 to the lowest levels than seventy five years. So we 0:10:15.960 --> 0:10:20.200 have extremely tight supply situation, but we have incredibly strong 0:10:20.320 --> 0:10:24.480 beef demand. Consumers willingness to pay for beef appears unbounded 0:10:24.800 --> 0:10:28.240 as prices of increase, consumers that still cleared the grocery 0:10:28.240 --> 0:10:32.440 store shelves with the product. And so the latest drought 0:10:32.480 --> 0:10:38.160 that occurred had accelerated the ongoing liquidation of our US 0:10:38.280 --> 0:10:41.880 beef cattle inventory. And that's why our supplies are so tight. 0:10:42.320 --> 0:10:45.840 And yet you've got incredible consumer demand for beef, and 0:10:45.960 --> 0:10:49.240 so we have seen a spike in prices because of 0:10:49.280 --> 0:10:52.559 that strong demand. Consumers continue to be willing to pay 0:10:52.960 --> 0:10:56.080 more for beef. But that is not how our market 0:10:56.120 --> 0:10:58.480 has been functioning for the past decade. 0:10:58.760 --> 0:11:01.760 Let's say the rain code, there's no drought, et cetera. 0:11:02.040 --> 0:11:05.040 What are we talking about for a timeline again, setting 0:11:05.040 --> 0:11:07.720 aside the structural things, what do we talk about for 0:11:07.920 --> 0:11:12.439 a realistic timeline for getting back to where we think like, oh, 0:11:12.480 --> 0:11:15.320 we are comfortable with the level of cattle stock that 0:11:15.360 --> 0:11:18.120 we are happy with the level of cattle stock that 0:11:18.160 --> 0:11:19.079 we have in this country. 0:11:19.640 --> 0:11:24.240 Right, so we currently produce about three billion pounds less 0:11:24.480 --> 0:11:28.400 beef than what is consumed in America. So large segment 0:11:28.440 --> 0:11:32.880 of American agriculture actually underproduces for the domestic market. And 0:11:33.160 --> 0:11:37.000 because of the long biological cycle of cattle, it takes 0:11:37.080 --> 0:11:40.640 about three years to decide to hold back cattle to 0:11:40.720 --> 0:11:42.760 breed and then to have a calf, and then to 0:11:42.840 --> 0:11:45.840 raise that calf to slaughter weight over a period of 0:11:45.880 --> 0:11:48.760 fifteen to eighteen months. And so in order for our 0:11:48.800 --> 0:11:53.000 industry to begin an expansion phase, we would need a 0:11:53.120 --> 0:11:57.120 price point that incentivizes producers to make the investment to 0:11:57.160 --> 0:12:01.800 build a herd, and unfortunately that price point occurred back 0:12:01.840 --> 0:12:05.440 around twenty twenty three. We should be in an aggressive 0:12:05.520 --> 0:12:10.959 expansion phase now, except that instead of domestic consumers relying 0:12:11.040 --> 0:12:15.800 on US producers, we've increased the volume of beef imports 0:12:15.840 --> 0:12:19.679 to record volumes in twenty twenty four. That's displacing our 0:12:19.679 --> 0:12:24.480 domestic production. And that increase of imports is not distinguished 0:12:24.480 --> 0:12:27.560 in the marketplace. Consumers can't tell if the beef they're 0:12:27.559 --> 0:12:30.360 buying is four and beef for domestic beef, and so 0:12:30.520 --> 0:12:32.680 that puts the power and control in the hands of 0:12:32.720 --> 0:12:35.640 the packers and the importers the retailers and not in 0:12:35.640 --> 0:12:38.760 the hands of producers. So your question was how much 0:12:38.760 --> 0:12:41.520 of this had to do with increase in input costs. Well, 0:12:41.559 --> 0:12:46.080 the increase in input costs reduces the margin that US 0:12:46.160 --> 0:12:49.640 cattle producers receive at any given price point, and we've 0:12:49.640 --> 0:12:53.320 seen increased production costs certainly. But the point is is 0:12:53.360 --> 0:12:56.280 that cattle producers do not set the price of beef. 0:12:56.679 --> 0:12:59.120 The price of beef is set by the packers and 0:12:59.160 --> 0:13:02.720 the retailers who sell to the consumer. The producer is 0:13:02.760 --> 0:13:05.960 a price taker in this market and has been for decades. 0:13:06.400 --> 0:13:09.600 They have cattle, they offer them for sale, they accept 0:13:09.640 --> 0:13:12.720 or reject a bid by the packer, and they're producing 0:13:12.760 --> 0:13:16.120 a perishable product. So when an animal is ready for slaughter, 0:13:16.240 --> 0:13:19.480 ready to be fabricated into a beef product, the producer 0:13:19.480 --> 0:13:22.320 who fed that cattle has a two to three week 0:13:22.440 --> 0:13:25.920 window in which to market the animal. Otherwise it degrades 0:13:25.960 --> 0:13:29.320 in quality, it adds fat instead of muscle, and as 0:13:29.320 --> 0:13:33.720 a result, the producer has very limited bargaining power and 0:13:33.800 --> 0:13:36.760 a highly concentrated market as we have now, And when 0:13:36.760 --> 0:13:39.880 they're selling into a market that's controlled where four packers 0:13:39.920 --> 0:13:43.440 control eighty percent of the market, they are victims of 0:13:43.600 --> 0:13:47.480 the abuse of market power that emanates inherently from such 0:13:47.520 --> 0:13:52.160 a highly concentrated marketing structure. So the increase production costs 0:13:52.520 --> 0:13:56.400 reduce the profitability of producers, but it doesn't affect the 0:13:56.440 --> 0:13:59.600 producer's ability to market cattle. That would be the demand 0:13:59.640 --> 0:14:02.760 for life cattle, and the demand from my live cattle 0:14:02.920 --> 0:14:06.880 is offset and undercut by increased volumes of import. 0:14:23.160 --> 0:14:28.600 What's the relationship between beef availability and the dairy industry? 0:14:28.680 --> 0:14:31.520 Dairy cows? So the reason I bring it up, Joe's 0:14:31.560 --> 0:14:33.560 going to get sick of me mentioning this, But I've 0:14:33.560 --> 0:14:37.080 been reading this like seventy year old book on small 0:14:37.080 --> 0:14:37.840 scale farming. 0:14:38.000 --> 0:14:40.040 I hate when people are always bringing up books that 0:14:40.080 --> 0:14:40.840 they I know it. 0:14:42.480 --> 0:14:45.880 Bringing up and you know, there's a chapter in it 0:14:45.960 --> 0:14:48.440 about whether or not you want to go into cattle 0:14:48.520 --> 0:14:51.920 ranching for beef or if you want to raise dairy cows. 0:14:52.400 --> 0:14:54.640 And one of the things that you learn from this 0:14:54.880 --> 0:14:58.560 is that every dairy cow usually becomes a beef cow 0:14:58.760 --> 0:15:03.080 at some point once it's milk production starts to dry up, 0:15:03.360 --> 0:15:06.960 it usually gets sold for slaughter. So what's the relationship 0:15:07.040 --> 0:15:09.000 or the interaction like there. 0:15:09.520 --> 0:15:13.720 Well, historically, what you described is true. As the dairy 0:15:13.760 --> 0:15:19.160 animals have exceeded their production lifespan, they are marketed as 0:15:19.280 --> 0:15:23.520 call animals into the beef supply chain. And it's a 0:15:23.640 --> 0:15:26.760 very lean meat product that is mixed with the higher 0:15:26.880 --> 0:15:30.400 quality trim that we obtain over our grain fed animals 0:15:30.400 --> 0:15:33.080 that are fed in feed lots or is exclusively for beef. 0:15:33.520 --> 0:15:36.960 So there wasn't much competition between the beef industry and 0:15:37.400 --> 0:15:41.160 the dairy industry. But here recently, as we've increased our 0:15:41.200 --> 0:15:46.480 technology and genetic abilities, we have begun to raise more 0:15:46.760 --> 0:15:50.840 male dairy animals and are bringing them into feed lots 0:15:50.960 --> 0:15:54.120 and feeding those animals, and they are now beginning to 0:15:54.280 --> 0:15:57.760 compete with the beef cattle farmer and rancher in the marketplace. 0:15:57.800 --> 0:16:01.320 And this is a relatively recent phenomena that's been occurring 0:16:01.360 --> 0:16:02.080 in our industry. 0:16:02.240 --> 0:16:03.320 Wait, why is that happening? 0:16:03.520 --> 0:16:07.680 Yes, well, it's happening because there's the profit opportunity to 0:16:07.800 --> 0:16:11.200 sell dairy cattles into the beef supply chain, and of 0:16:11.200 --> 0:16:14.440 course that will compete directly with our America's farmers and 0:16:14.560 --> 0:16:17.560 ranchers who not only will have to now compete with 0:16:17.680 --> 0:16:22.560 this increase in the dairy beef sector. But they're already 0:16:22.680 --> 0:16:27.840 dealing with this undifferentiated, cheaper, important flood that has been 0:16:27.920 --> 0:16:31.160 negatively affecting their profitability in this industry. 0:16:31.360 --> 0:16:34.200 Say a little bit more about Okay, kettle prices have 0:16:34.360 --> 0:16:38.320 gone up, and so in theory that, as you said, 0:16:38.360 --> 0:16:42.600 in theory, that should incent more investment, et cetera. By this, 0:16:43.040 --> 0:16:45.280 talk a little bit more about some of the input 0:16:45.360 --> 0:16:49.080 costs that a cattle rancher faces. I've been making these 0:16:49.120 --> 0:16:51.360 decisions to expand their stock. 0:16:51.920 --> 0:16:54.840 So one of the first factors is the availability of 0:16:54.880 --> 0:16:58.320 sufficient land to raise the animal, because in the beef 0:16:58.400 --> 0:17:02.520 cattle industry, the animal is primarily raised on grass. After 0:17:02.560 --> 0:17:06.080 a calf is born and it suckles the mother for 0:17:06.119 --> 0:17:09.800 about four to six months on grass and before it 0:17:09.880 --> 0:17:12.919 is moved downstream in the supply chain to become a 0:17:13.000 --> 0:17:16.200 yearly in animal and ultimately delivered to a feed lot 0:17:16.240 --> 0:17:19.320 where it's fed until it's slaughter weight. And so the 0:17:19.359 --> 0:17:23.920 input costs include the fuel with which to run an operation. 0:17:24.160 --> 0:17:27.720 It includes the veterinary expenses for keeping your animals healthy. 0:17:27.760 --> 0:17:32.639 It includes the land costs of maintaining sufficient forage supplies 0:17:32.680 --> 0:17:36.000 with the animal. It includes the cost of equipment to 0:17:36.119 --> 0:17:39.840 put up hay and grain with which to feed those cattle, 0:17:40.359 --> 0:17:44.159 and in many instances it includes labor. However, most of 0:17:44.200 --> 0:17:46.880 the family farm and ranches here in the United States 0:17:46.920 --> 0:17:50.639 are just that their family farms and ranches attempting to 0:17:50.720 --> 0:17:55.560 raise cattle, and there's experiencing increase input costs. You know, 0:17:55.600 --> 0:17:59.080 we could talk about fertilizer costs too as well, but 0:17:59.320 --> 0:18:03.119 ultimately the costs have increased due to inflation, and that 0:18:03.359 --> 0:18:06.760 squeezes the margin that they receive at whatever price point 0:18:06.800 --> 0:18:08.919 that they're experiencing in the marketplace. 0:18:09.240 --> 0:18:12.879 In terms of industry consolidation, the fact that there are basically, 0:18:13.080 --> 0:18:17.600 you know, four gatekeepers to beef processing in the US. 0:18:17.720 --> 0:18:19.520 How did we actually get here? 0:18:20.040 --> 0:18:23.280 Well, we got here because we were lax in enforcing 0:18:23.400 --> 0:18:27.240 our US anti trust laws, the Sherman Act of eighteen ninety, 0:18:27.320 --> 0:18:30.960 the Clayton Act, I think of about nineteen fourteen. 0:18:30.720 --> 0:18:34.480 Sherman Act, Clayton Act, those acts. Sorry, the last time 0:18:34.520 --> 0:18:37.679 we spoke about eggs in a big series about chicken, 0:18:38.080 --> 0:18:40.440 we talked a lot about antitrust, right. 0:18:40.720 --> 0:18:43.359 Well, and that's a huge problem. In fact, it's no 0:18:43.520 --> 0:18:47.760 coincidence that as beef prices are increasing, we just saw 0:18:47.800 --> 0:18:51.320 a settlement in a national class action suit in which 0:18:51.359 --> 0:18:55.359 two of the largest packers, Tyson and Cargill, have purportedly 0:18:55.560 --> 0:18:59.960 agreed to settle the consumer's complaints about beef price fixed 0:19:00.560 --> 0:19:02.320 to the tune of about eighty seven and a half 0:19:02.440 --> 0:19:06.159 million dollars. So what we have in our industry is 0:19:06.200 --> 0:19:10.880 a decades long lack of enforcement of antitrust laws that 0:19:10.960 --> 0:19:14.199 allowed the meat packers back in the nineteen eighties to 0:19:14.359 --> 0:19:17.439 engage in what was called merger Mania. We saw an 0:19:17.480 --> 0:19:22.680 unprecedented amount of mergers and acquisitions in the beef cattle industry, 0:19:23.160 --> 0:19:25.919 and it was through that process and no enforcement of 0:19:25.920 --> 0:19:28.719 anti trust laws, that the meat packers were able to 0:19:28.960 --> 0:19:33.320 achieve this extremely high level of concentration. And in addition 0:19:33.359 --> 0:19:37.160 to that, Congress realized over one hundred years ago that 0:19:37.320 --> 0:19:42.919 independent livestock producers were really vulnerable to the monopsony power, 0:19:43.080 --> 0:19:46.520 the buying power of the concentrated meat packers. So they 0:19:46.560 --> 0:19:49.159 passed what was called the Packers and Stockyards Act in 0:19:49.240 --> 0:19:52.760 nineteen twenty one, and this was to ensure that the 0:19:52.760 --> 0:19:57.119 meat packers not only could they not engage in antitrust 0:19:57.200 --> 0:20:01.920 activities such as monopolization and price fixing. But this Act 0:20:02.040 --> 0:20:06.320 also said they couldn't engage in practices of procuring livestock 0:20:06.359 --> 0:20:11.119 from producers that was pactly unfair. And so this important 0:20:11.160 --> 0:20:15.919 act actually helped to bolster the United States' ability to 0:20:16.040 --> 0:20:20.199 ensure antitrust violations were not incurring in the marketplace, and 0:20:20.200 --> 0:20:23.800 it gave the independent producer recourse in the event that 0:20:23.840 --> 0:20:27.840 they were treated unfairly or deceptively by the concentrated market. 0:20:28.080 --> 0:20:31.080 The problem is just like our anti trust laws that 0:20:31.520 --> 0:20:34.360 collected dust on the shelf, so to to the Packers 0:20:34.359 --> 0:20:37.600 and Stockyards Act, and yet today the US Department of 0:20:37.640 --> 0:20:42.040 Agriculture has not propagated the rules necessary in order to 0:20:42.119 --> 0:20:45.960 implement and enforce this over one hundred year old Packers 0:20:45.960 --> 0:20:49.960 and Stockyards Act that was intended to protect independent livestock 0:20:50.040 --> 0:20:53.480 producers from the abuse of market power of the dominant 0:20:53.480 --> 0:20:54.160 beef packers. 0:20:54.640 --> 0:20:57.639 Do the children of ranchers want to become ranchers? There 0:20:57.680 --> 0:20:59.800 was a popular country song that came out in twenty 0:20:59.840 --> 0:21:02.840 two three by Cody Johnson called Dirt Cheap, and the 0:21:03.000 --> 0:21:05.880 entire premise of the song is about this dad. There's 0:21:05.920 --> 0:21:08.840 real estate developer offers them all this land and he's 0:21:08.880 --> 0:21:10.680 about to take the money and then he gets sad 0:21:10.720 --> 0:21:12.919 thinking about his kids will never be running around on 0:21:12.960 --> 0:21:15.040 this And when I hear the song, I got a 0:21:15.080 --> 0:21:16.960 little cynical. I was like, yeah, but that daughter is 0:21:17.000 --> 0:21:19.040 going to sell the land when she gets older, so 0:21:19.080 --> 0:21:21.440 it's this like she's going to move to a big city. 0:21:21.560 --> 0:21:24.360 But are there issues in your industry of like the 0:21:24.400 --> 0:21:27.120 next generation of ranchers, Like, no, I want to sell 0:21:27.160 --> 0:21:28.920 this land to a data center. I want to sell 0:21:28.960 --> 0:21:31.960 this land to a housing subdivision so that I can 0:21:32.000 --> 0:21:33.919 like go work in finance in New York City. 0:21:34.800 --> 0:21:38.439 When you have an industry like ours that has lost 0:21:38.600 --> 0:21:42.280 over half its participants in the course of just over 0:21:42.320 --> 0:21:46.600 a generation. Yeah, it's not unsurprising that the average age 0:21:46.640 --> 0:21:49.520 of the US farm and rancher is now somewheres north 0:21:49.600 --> 0:21:53.040 of fifty eight years of age. And we hear anecdotal 0:21:53.080 --> 0:21:56.600 information all the time about ranch families who have struggled 0:21:57.080 --> 0:22:00.639 under an economic cost price squeeze for decades their children 0:22:00.720 --> 0:22:04.280 have watched, They've encouraged their children to do something else 0:22:04.400 --> 0:22:07.040 other than to ranch. And that's a huge problem that 0:22:07.080 --> 0:22:10.720 we have because part of this expansion phase will require 0:22:10.880 --> 0:22:14.600 us to attract new interests to attract aspiring cattle farmers 0:22:14.600 --> 0:22:18.040 and ranchers into the industry. That's not happening. And even 0:22:18.080 --> 0:22:20.520 though I said that the price point was sufficient to 0:22:20.680 --> 0:22:24.840 incentivize the expansion over a year ago, we're not expanding 0:22:25.000 --> 0:22:29.000 and we're not expanding because our cattle producers has recently 0:22:29.080 --> 0:22:33.040 witnessed a complete collapse in cattle prices. When we were 0:22:33.160 --> 0:22:35.560 about where we're at today, and that was just as 0:22:35.600 --> 0:22:39.000 recently as twenty fourteen and fifteen. At that time, we 0:22:39.040 --> 0:22:42.080 had the highest nominal cattle prices in the history of 0:22:42.080 --> 0:22:45.600 our industry, and beef consumers were then paying the highest 0:22:45.640 --> 0:22:50.359 nominal beef prices in history. And every analyst, government and 0:22:50.440 --> 0:22:53.119 private alike, said, the cattle producer is going to receive 0:22:53.160 --> 0:22:56.240 another three years of very strong prices because of that 0:22:56.359 --> 0:22:58.359 long biological cycle of cattle. 0:22:58.560 --> 0:23:02.000 This is this strange me as a very important data point, 0:23:02.359 --> 0:23:07.159 the fact that the rancher has been trained essentially to 0:23:07.359 --> 0:23:10.880