Beef Cattle Production – Capacity, Feed Supply &
Nutrition Trends – 26 May 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Sean Montgomery (SM)
Beef Cattle Nutritionist at Corn Belt Livestock Services
Agenda:
1. Beef cattle feed supply and demand dynamics
2. Additives, antibiotics reduction innovation and trends
3. Production bottlenecks and capacity
4. H2 2021 growth outlook
Contents
Q: Could you start with an overview of the US animal nutrition industry, including some of the main risks to
beef cattle production?
3
Q: How has the producer-packer relationship evolved over the years? Why can’t producers pass some of the
higher input costs on to packers who are making record profits?
Q: To confirm, has this disparity between feed costs and cattle pricing been a legacy issue throughout the
industry?
Q: Could you break down the demand-supply environment for beef? How does that play into producers’
ability to manage some of these higher input costs?
Q: How much flexibility is there for producers to manage some of these higher feed costs?
Q: What are the most common substitutes when rearranging the animals’ diets? Which by-product would
you typically divert to?
Q: Does using by-products impact the quality of the cattle meat? To what extent are packers willing to
purchase cattle raised on by-products? Is there even a way to determine the animal’s diet was changed?
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Q: Which quality grades are most popular among consumers, across highest quality vs mid-tier vs someone
on a strict budget?
Q: Why do you think the cattle are still fed the grade choice when most of the animal will be used for
hamburger, rather than steak?
Q: Could you discuss the producers’ lack of flexibility domestically and how that changes internationally?
Are the packers still in control across various global markets?
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Q: Why don’t producers push towards the natural model, given the challenges with packers holding much of
the control? This would allow producers to assert more control over the higher premium they receive for
cattle – despite higher production costs – and also open up an ex-US market, given the EU trade barriers on
implanted beef. Wouldn’t it make sense for producers to open up their production capabilities and offerings?8
Q: What are some methods to extend the shelf life of cattle? You noted that if producers try to hold out to get
a better price from packers, they’ll simply wait until the cattle is huge and less desirable. What remedies
could a producer use? Is it just feeding the cattle less?
9
Q: What different types of chemicals are used on animals in a more stringent environment where regulatory
bodies employ stricter controls on antibiotics or additives that have been used historically? Are there any
that might face a significant longer-term risk of being limited by regulatory actions or deemed unacceptable?9
Q: How would you characterise the pressure from consumer animal rights groups on this industry and the
intensiveness of its production practices?
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Q: How are small or medium-sized ranches implementing their own health programmes and treatments?
Beef is a much more fragmented industry than poultry or swine, as you noted. What are the long-term
product implications of this range of approaches to managing beef diets? I know it depends on the region,
but this could even be a group of producers in the same region having differences in their own local diets. 11
Q: Which aspect of the beef production process do you think is most suitable or ready for innovation?
12
Beef Cattle Production – Capacity, Feed Supply &
Nutrition Trends
Transcription begins at 00:00:01 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Beef Cattle Production – Capacity, Feed Supply &
Nutrition Trends. I am Nyree Hinton, and I will be facilitating today’s Interview with Sean Montgomery, Beef
Cattle Nutritionist at Corn Belt Livestock Services.
Sean, before we start today’s Interview, please state I agree or I disagree to the following statement: You
understand the definition of material non-public information and agree not to disclose any such information,
or any other information which is confidential, during this Interview.
SM: I agree.
NH: Thanks, Sean. Could we start with a brief overview of your background and the various roles you’ve held
in the industry?
SM: Yes, I’d be happy to. It’s nice to be able to visit with everyone this morning. I guess real quick, I’m
originally from Kansas. I live in Nebraska. I went to Kansas City University, where I earned a Master’s degree
and a PhD in ruminant nutrition with a beef cattle emphasis. I earned my PhD in 2005 and I was hired right
out of graduate school with an independent consulting firm, Corn Belt Livestock Services and I am still with
them today. We consult for beef cattle producers, both cow-calf stockers and feedlot producers throughout the
United States, as well as internationally. I’ve worked in North Africa, South America and Turkey as well.
Personally, I live in Nebraska but, again, work as far west as Utah, as far east as Illinois, and I’m also an
adjunct professor with Kansas State University as well, which I enjoy because it allows me to get off the road
and actually spend some time doing the research as well as advising graduate students. I have one foot in
industry and one foot in academia, and so it’s very enjoyable.
[00:02:28]
Q: Could you start with an overview of the US animal nutrition industry, including some of the main risks to
beef cattle production?
SM: Right now, there are a couple of risks, again, that I see every day working with our clients. Number one is,
obviously, markets, markets dictate everything, what we do. Right now, packers are making record profits,
they’re making approximately over USD 1,200 a head for every animal they buy and the feedlot producers,
right now, we’re trading cattle about USD 1.20 a pound so we’re losing money on the production side, where
the packers are making a record level of profits. One of the reasons we’re losing money is because feed costs.
They backed off a little on corn here, we had a corn report come out yesterday and corn, as far as a five-year
average, our plantings are ahead of schedule. I think Iowa is 97% planted by now, which is good, but that
doesn’t really help the near buy here because our corn prices have spiked. We started, basically, USD 3.50 a
bushel and now we’re at USD 6.50-7 a bushel right now, so our feed costs have virtually doubled.
While our feed costs have doubled, the price of beef has not, as far as what the packers are paying the feedlot
producers for their animals. Our costs, again, really, really have increased lately. That’s one thing right now,
that’s probably the main concern is these feed costs. The other concern is labour. Working in the cattle
industry, it’s very labour-intensive, cattle eat seven days a week, people have to work seven days a week. With
economics and the way things are, especially with the COVID relief bill and the administration is paying
Private and confidential 3
people to stay home, people are actually making as much, if not more, staying at home than working in the
feed yard. I would say labour would be the second issue. Markets, that entails beef prices and feed costs, as
well as labour.
[00:05:17]
Q: How has the producer-packer relationship evolved over the years? Why can’t producers pass some of the
higher input costs on to packers who are making record profits?
SM: Years ago, some of the larger feedlots down in the southern plains entered into agreements with some of
the packers in the southern plains too. It’s like we’ve got 100,000 head of cattle here on feed and if you give us,
they call it a formula pricing, and it’s a formula price, so say it’s based on the choice cut-out price for that given
week or whatever, and so it’s a formula price and that feedlot has entered an agreement into that packer that
they’ll provide them cattle based on the formula price. Nobody really knows what those formula prices are.
That’s one of the things that USDA now is going to hopefully investigate, what are these super-secret pricing
arrangements that you have with some of these packers. Roughly, about two-thirds of the cattle now are priced
that way, two-thirds of the cattle are typically sold on a formula basis. Where I live in Nebraska and Iowa and
Illinois, it’s like the last frontier of negotiated cash price, and with negotiated cash prices, that’s where it’s
based off the future prices. I think I just checked this morning, I think we’re at about USD 1.16 on live cattle
and we’re trading a little above that, on the cash side, we’re about USD 1.20, USD 1.19, somewhere in there.
It’s only Wednesday, I haven’t heard of many cattle being sold this week to the packers on a negotiated cash
price. The problem that we run into is with negotiated cash, it’s driven off the futures price so if the futures go
down, typically, the cash will go down and versely if the futures go up, the cash will go up. A lot of that is
demand-driven, and you’ve got your speculators, the Chicago Board of Trade, that are trading on those future
prices, betting on whether they’re going to go up or down. It’s like trading stocks, so the feedlot has no control
over that.
The problem we run into is if the packer comes in and says, “I know your break-even is USD 1.25 on this pen of
cattle,” because the feed cost went up and the purchase price of the steer and all that good stuff when they
went on feed. If the packer comes in and says, “Yes, your break-even is USD 1.25 but we’re only going to give
you USD 1.15,” and then the feedlot says, “No, we’re not going to sell this week.” Then the packer comes back
the following week, same story. Your break-even is now USD 1.30 because you’ve got these cattle on feed an
extra week and they’re heavy and they’re eating more feed and as animals mature, they slow down and gain so
they’re not near as efficient and the packer says, “Yes, we’ll only give you USD 1.15 this week,” and if the
feedlot says, “No, we’re going to pass.” You can only get away with that so long until now, our animals are so
big that the packer comes in and says, “We’re going to have to discount your carcasses because they’re over
1,000 pounds or whatever, 1,050, whatever the heavyweight discount is.” They’ll just crucify the feedlot on the
price of cattle because the cattle are over-finished, they’re just going to be too fat and they’re going to be too
heavy and that’s a lot of trim loss for that packer. There are heavyweight discounts and there are yield grade 4s
and 5s which is the measure of fatness, and if we get them overly fat, that’s all trim loss, it ends up on the
fabrication floor in the plant. It’s a losing game. There’s an optimum endpoint to where we should be able to
sell cattle, and if the price isn’t there, it doesn’t help us to hold cattle over because, like I said, it’s a losing
game. The packers are in control. Basically, there are three major packers, Tyson, JBS and National Beef, I’m
sorry, and Cargill, there are four major packers and they pretty much control the whole industry. Yes, we have
some small packers, some regional packers, but when it comes to it, the four major packers, pretty much they
buy the majority of the cattle.
[00:10:28]
Q: To confirm, has this disparity between feed costs and cattle pricing been a legacy issue throughout the
industry? If so, why wasn’t it addressed years ago, given this isn’t the first cycle of higher commodity prices?
Private and confidential 4
SM: The last time corn prices got this high I believe was around 2008 when we had all the flooding in the
Midwest. We would see the same kind of trend. It’s like my cost of gains are so much higher, I’m not going to
sell these cattle at a loss, so they’d try to hold onto these cattle and then they end up selling them heavier and
they’d end up selling them for less money because of all the discounts because they’re over-finished and
they’re too heavy and too fat and whatnot. It’s the packer consolidation, I think that’s what it is. The packer
consolidation, when you have three or four major packers controlling the industry, it’s just less competition
out there for these cattle. I know people have tried to enter into branded beef programmes, natural
programmes, different types of programmes to try to get a premium for the cattle. The packers, they pretty
much set the price. They’re making USD 1,200 a head and our cattle feeders are losing USD 200 a head right
now. This is unsustainable unless something changes.
[00:12:09]
Q: Could you break down the demand-supply environment for beef? How does that play into producers’
ability to manage some of these higher input costs?
SM: Demand for beef is good. That’s why the packers keep raising the price. A couple of years ago, hamburger
was USD 2 a pound, now it’s USD 4, USD 5, USD 6 a pound. A steak, just a rib-eye in the local grocery store
used to be USD 5 a pound, now it’s USD 10 a pound. The consumers are paying this, which surprises me. I
thought there’d be some pushback, but the consumers are paying this. I don’t know if it’s a leftover because the
last administration, we had more job openings than people to fill them so more people were gainfully
employed and they just had more money to be able to spend this higher amount for beef. I don’t know.
Demand for beef is good, it’s not the demand side, it’s the economics on the production side. Increased feed
costs, increased cost of gain, less revenue for the feed yard, less profit, but more demand on the processing
side, more demand for the product, the packers are able to increase these box beef prices and increase their
profits while the feedlot is losing money. That’s the big concern. How long can this go on?
[00:14:04]
Q: How much flexibility is there for producers to manage some of these higher feed costs?
SM: That’s where I come in as a consultant nutritionist. We basically break down protein is protein, starch is
starch, carbohydrate is carbohydrate, fibre is fibre. Now, it’s just like, how do we formulate these diets on a
best-cost scenario, not typically a least-cost because least-cost can be least efficient also. It depends on what
part of the country or what part of the world I’m working in. I look at ingredients, okay, this is a source of
protein, that’s a source of cheaper protein, this is a source of carbohydrate, that’s a source of cheaper
carbohydrate, this is a source of roughage or fibre, this is a cheaper source of roughage or fibre, and then it’s
my job to put all those ingredients together and still maintain animal efficiency. I guess what we’re doing, as
corn prices have increased, we’ve shifted a lot more to feeding corn by-products, wet distillers’ grains, wet corn
gluten feed, wheat midds, soybean hulls, anything we can to get some supplemental energy at a discounted
price to corn, to help keep feed costs in line. You have to remember corn is king so as corn increases, as your
source of energy, it’s also dragging these other alternative sources of energy up with it. They’ve still got to be
priced cheaper than corn, otherwise, these ethanol plants or wet mills that produce wet corn gluten feed or
flour mills that produce wheat midds, they can’t sell it if it’s more than corn. As corn goes up though, they will
increase their price and we might get it but 10-15% less expensive than corn. As corn goes up, it takes
everything with it.
Private and confidential 5
[00:16:15]
Q: What are the most common substitutes when rearranging the animals’ diets? Which by-product would you
typically divert to?
SM: Again, it depends on where I’m at. If I’m working in the corn belt, obviously, corn makes ethanol and we
have a lot of ethanol plants in the corn belt. Nebraska, Iowa, Illinois, Minnesota, South Dakota, in that area
where they grow a lot of corn, that’s where the ethanol plants are. In that area, it’s wet distillers’ grains. Corn is
approximately, say, two-thirds starch. They ferment virtually all the starch to ethanol. They use yeast to
ferment the starch to ethanol, so it concentrates everything else in that corn kernel three times. If we remove
two-thirds of the starch, we increase the protein from, say, 10% to 30%, it’s a threefold increase. We increase
oil from, say, 4% to 12%. Some of these ethanol plants, they’ve started using technology to centrifugate some of
that oil out of there to go to the biodiesel market, so instead of maybe 12%, what we’d call a full-fat product, we
get maybe 8% back, but that’s still 2% more oil than the corn that it originated from. One pound of fat contains
approximately the energy of two-and-a-quarter pounds of corn. We get a higher-protein product back, we get a
higher-energy product back, but that’s alright, and we can buy it cheaper than corn, about 90% of the price of
corn. We figure it has about 112% the feed value of corn.
That works in the Midwest. When I get west of the Rockies, they don’t have much corn out there so we feed a
lot more wheat and wheat midds and stuff like that, and that’s going to be priced discount to corn. They grow a
lot of wheat out west. It’s really regional-specific what ingredients we can feed. Up in Idaho, they feed potato
waste because Idaho grows a lot of potatoes. Potatoes are a good form of starch, and they’ll have culled
potatoes, potatoes that don’t necessarily fit because the french fry processing line or whatever kicks them out
or whatever because they’re not the right size, we’ll take those and feed those to cattle. Cattle are remarkable. I
know everyone bashes on the livestock industry but cattle are the greenest animal we have because they can
take fibre and waste products, like culled potatoes or distillers’ grains or wet corn gluten feed, all these by-
products in the food production industry or the ethanol production industry and they can make meat, milk out
of it. Then we take the manure and apply it back to the land to grow corn. It’s a very green cycle, to speak of.
[00:19:50]
Q: Does using by-products impact the quality of the cattle meat? To what extent are packers willing to
purchase cattle raised on by-products? Is there even a way to determine the animal’s diet was changed?
SM: When the ethanol boom really hit, and I’d just finished graduate school, it was about 2005, and the Bush
administration put all these incentives to make all this ethanol, so all these ethanol plants started springing up
in the corn belt. The people in southern plains, because we ship corn down to Texas, they don’t grow much
corn down there. They grow corn, but it’s all under irrigation or whatnot. We literally ship corn from the Corn
Belt down to Texas. I know there was some pushback from the southern plains because we had all this cheap
feed up here. When these ethanol plants started up, they were in the business of making ethanol and they
didn’t know what to do with this by-product that was coming out the back end of that plant and we just started
taking it, and it was free, literally, we could get that stuff free for the freight. That’s not the case any more, they
caught on pretty quick. There was some pushback where the southern plains were saying, “You guys are going
to ruin quality grade by feeding all this fat and fibre and not corn.” The University of Nebraska, Kansas State
University, they started doing research on meat quality and everything and there was virtually no difference.
The one difference was post-harvest because the distillers’ grains are based on corn so the fat is corn oil. Corn
oil is a polyunsaturated fatty acid, it’s 18 carbons, two double bonds, it’s called linoleic acid, that’s the
predominant oil in corn. Any time we have a predominantly polyunsaturated fatty acid as part of the diet,
cattle, they do a good job of bio-hydrogenating some of those fatty acids because the rumen is just a big
fermentation vat and the bacteria will stick hydrogens, they want to get rid of hydrogen in that rumen and so
they’ll stick it on in those double bonds and they’ll saturate a lot of that fat.
Some of it still gets to the duodenum, the small intestine, and then absorbed as linoleic acid, polyunsaturated
fat. The one thing that they saw in the meat case is that beef that came out of that type of diet or that were fed
that kind of diet tended to have maybe a little bit less shelf life, but we can overcome that by feeding vitamin E,
Private and confidential 6
some of these antioxidants, we can overcome that, so virtually, there’s no difference. Right now, we have as
high choice grade in cattle as we ever have. Over 80% of our cattle are grade in choice right now. I want to say
15 years ago, that was not the case. If you just look across the industry, we have not hurt quality grade. If
anything, we’ve improved it because we’re feeding our cattle longer now just because of the genetics and
whatnot, so we can take them to heavier weights. Then, also, too, according to the NRC, once an animal
reaches 28.5% body fat, they grade choice, so as long as we can get them up to 28.5% body fat, whether that’s
with distillers’ grains, gluten feed, corn, it doesn’t matter, they’ll grade choice. It takes energy to get there
though, you can’t do that on hay. I’m not saying you can get there on hay, it just takes energy, but whether the
energy comes from starch or fat, corn vs distillers’ or whatever, we can get it done. I would say that the quality
grade has not decreased by feeding some of these by-products, and that’s been proven in the university data as
well.
[00:24:35]
Q: Which quality grades are most popular among consumers, across highest quality vs mid-tier vs someone on
a strict budget?
SM: Hamburger is still our most popular product. I would say hamburger. Everybody likes to sit down and
have a nice steak but I work in the beef industry and I can’t afford to have a nice steak every night, but one
pound of hamburger can feed four people. If hamburger is USD 4 a pound, that’s USD 1 a serving so a family
of four can eat for USD 1. I would say hamburger is still our number one product as far as tonnage, but the
choice in the prime steaks, the choice-select spread drives the price of beef so the select meat goes into the
hamburger, goes to the grind and the choice and prime go for steaks. Hamburger is going to be the number
one product, even though we still feed to try to get quality grade, we still feed the cattle the grade choice even
though most of that carcass goes for hamburger. It doesn’t make sense to me. You’d almost think we’d have a
two-tier-type system. This pen of cattle is going to be fed for hamburger because maybe they’re not as good
genetics because genetics dictate quality grade as well as nutrition, obviously, but maybe this pen of cattle
because of their type of genetics, they’re going to go for hamburger and we’re going to feed this pen of cattle
for choice and prime. We’re not there yet. They just take the whole animal and they cut the steaks and then
they take the other lower-quality cuts and grind them for hamburger.
[00:26:47]
Q: Why do you think the cattle are still fed the grade choice when most of the animal will be used for
hamburger, rather than steak? Wouldn’t it make sense to operate in a much leaner, more efficient model?
SM: Yes, you would think. I’d have to go back and look. If an animal weighs 1,400 pounds when it’s sold out of
the feedlot and it dresses at, say, 63% and then that carcass is, say, 850 pounds, that’s not all going to be steak,
even though that animal might grade choice, they’re going to cut those steaks out of there but you still have the
roasts and the brisket and all that stuff. You’ve got all those other parts, so the steaks, actually, are the smallest
part of that animal. That’s going to be the loin, predominantly the loin. There are some flat irons steaks that
they can get out of the quads and stuff like that, but you’ve still got the shoulder and that big old hindquarter
to deal with. Even though you have an animal that grades choice or better, they cut the steak out of that animal
and then they’re going to go ahead and grind a lot of that or cut some of that for roasts because people still like
their pot roasts and everything else.
[00:28:17]
Q: Could you discuss the producers’ lack of flexibility domestically and how that changes internationally? Are
the packers still in control across various global markets?
Private and confidential 7
SM: As a country, we’re at the mercy, as our trade markets and these trade agreements. The European Union,
they will not take implanted beef, they will not take beef that are fed beta agonists, and these are all growth-
promoting technologies that are proven safe. I know there’s a lot going on with these COVID vaccines and
everything else, but those are experimental. These technologies we’re using, these are proven technologies,
they’ve been around for years and years and years. We use those in some of our production systems, like a
conventional production system, we will implant those cattle because it gets us a 20% improvement in average
daily gain and a 10% improvement in feed efficiency. There is less hormone in a three-ounce serving of beef
than one blade of grass in a football field, that’s how little it is. There’s more hormone in birth control pills and
in soybeans and alfalfa sprouts than there is in implanted beef. That’s a non-starter with us. These are just
trade barriers that these countries use in order to dictate price of cattle and whatnot as far as their imports
prices are concerned.
With that being said, these packers, if they’re going to target the EU for export, yes, they’re not going to buy
cattle that were fed beta agonists or were implanted, and that’s where the natural market comes in. That’s
domestic too, some people, they go to Whole Foods, they want to eat all-natural beef. I don’t have a problem
with that, it’s just all-natural beef is going to cost more because we don’t have the ability to use those
technologies that increase feed efficiency so the cost of production goes up. If people want all-natural beef,
that’s fine, but some people can’t afford it. The packers, yes, they can dictate how producers feed their cattle or
what technologies they use. I work with all-natural cattle also. I work with a specific packer, Meyer’s Natural
Angus. There are a couple of clients that feed specifically for them and we do not use implants, we do not use
beta agonists, we do not use antibiotics or anything. That’s a case where the packers dictate how you can feed
the cattle, but you entered into an agreement with that packer, you entered into an agreement ahead of time
because you know your production costs are going to be higher than your neighbour.
[00:31:57]
Q: Why don’t producers push towards the natural model, given the challenges with packers holding much of
the control? This would allow producers to assert more control over the higher premium they receive for cattle
– despite higher production costs – and also open up an ex-US market, given the EU trade barriers on
implanted beef. Wouldn’t it make sense for producers to open up their production capabilities and offerings?
SM: Some have. Like I mentioned, Meyer’s Natural Angus, and I don’t know how much product they export
and how much product they sell to Whole Foods, I don’t know. I’m on the production side, I’m not on the
marketing side. Some producers have gone grass-fed, all-natural, trying to get a premium on the cattle, but it’s
still based off of conventional beef price. If you’re going to enter into that agreement, you need to make sure,
okay, it’s going to cost me USD 20 a hundredweight to get to the same endpoint as my neighbour so I’m going
to need to have at least USD 25 a hundredweight premium to pay for this. Also, too, there’s just not as big of a
demand for those natural cattle just because of the price difference. That beef is expensive. I know some
producers have gotten together and they’ve said, “We’ll build our own packing plant,” but the problem is the
economy of scale. When you’re competing against Tyson and Cargill and JBS, because the biggest protein
supplier in the world is JBS, their economies of scale, they can just starve you. Literally, they can drive the
price of beef down to where you just can’t compete. Everything is still based off that futures price and that cash
beef price, that’s what still drives everything. If the price of beef goes down and your cost of production is USD
20 higher than your neighbour, you’re still at a loss. It’s been tried. There have been some successful branding
programmes, Agri Beef has a successful brand. They actually own their own packing plant too. The problem
with our industry, I think it’s a blessing, but it’s also going to be a problem, we’re so independent. We’re not
integrated like the poultry and the swine industry where the packers control pretty much everything from
womb to tomb.
We still have those big sprawling ranches where we run cows and those calves, they go to a sale barn and then
they go to maybe a backgrounder, say, the Flint Hills of Kansas, and they’re grazed until they’re 700 pounds
and then they come into the feedlot. That calf has already changed hands at least three times in its lifetime and
each segment is independent. That’s really good from my standpoint because we are not consolidated like the
poultry and swine industries so we still have some independence. The problem is all our fractions, we sit there
and every segment tries to make money off the next segment. The cow-calf producer tries to make money by
Private and confidential 8
selling that calf to that backgrounder to go to pasture, and then that backgrounder, he tries to make money
selling that calf, or that yearling to the feedlot. It’s a blessing and a curse, all at the same time. We just can’t get
together as an industry. It’d be nice if we just said, “No, we’re not taking that price,” but the problem is the
cattle just keep getting bigger and bigger and bigger. They’re a perishable product. It’s not like going out and
harvesting corn and putting it into then bin and then just storing it for a year until you get the price you want
and then you sell it. That’s the problem we have. Our industry is highly segmented and it’s like herding cats,
trying to get everybody on the same consensus to stand up against these packers. There are successful natural
programmes and grass-fed programmes, these niche markets, but it’s a small percent of the overall cattle
market, in my opinion.
[00:37:31]
Q: What are some methods to extend the shelf life of cattle? You noted that if producers try to hold out to get a
better price from packers, they’ll simply wait until the cattle is huge and less desirable. What remedies could a
producer use? Is it just feeding the cattle less?
SM: That’s a great question. I’ll give you a recent example of this, COVID-19. We had plants shut down.
Nebraska, Iowa, even Illinois, Tyson shut their plants down. We had plant shutdowns all across the country
because of COVID-19 and the line workers were calling in sick and also too, or if they tested positive because
they would test these line workers coming into these plants, they would test them, they would use infrared
temperature guns. If somebody was running a fever, they’d test them, if they tested positive for COVID, they’d
shut the plant down. It was bad. I had clients where we had cattle on feed for, say, 180 days, they were on what
we call the show list, this pen of cattle is for sale and packers would drive through the feed yard and they’d bid
on that pen of cattle based on that week’s price. We had cattle that were on feed for 180 days, gaining to their
maximum genetic potential, and then you’d have a plant shut down and now all these packers are out of the
market. We don’t know when they’re going to come back online. What did we do? We fed cattle that were
gaining to their genetic potential, 3.5-4 pounds a day, ready for sale, and we put them on what’s called a
maintenance diet.
It broke my heart to do that but we literally put them on a maintenance diet, and using that energy equation,
we can calculate maintenance requirements for that animal and then we’ll feed just to maintain that animal.
We don’t want to lose weight but we don’t want them to gain weight either because when the packers do come
online, because they’ve done this, they say, “Your cattle were 1,400 pounds a month ago, now they’re 1,700
pounds. We’re going to have a lot of heavyweight carcasses and they’re overly conditioned, they’re overly fat so
we’re going to have a lot of trim loss,” because nobody wants to eat a steak with two inches of fat on it, so that
fat is trim. So, “I know the price is USD 1.20 this week but we’ll give you USD 1.10.” They’ve done that in the
past. We learned. I had clients we put cattle on a maintenance diet just to maintain them, and it broke my
heart to do it because those cattle are still eating, say, USD 2 worth of feed a day but now they’re not gaining a
pound, so you can just see what that does to your cost of gain. If we were to say, “Okay, we’re going to still keep
these cattle gaining,” they would have taken a heavy discount on those heavy, heavy over-fat cattle. It was a
no-win situation.
[00:41:10]
Q: What different types of chemicals are used on animals in a more stringent environment where regulatory
bodies employ stricter controls on antibiotics or additives that have been used historically? Are there any that
might face a significant longer-term risk of being limited by regulatory actions or deemed unacceptable?
SM: When it comes to antibiotics, we have different classes of antibiotics. We have ionophore antibiotics,
there’s no human interaction or anything like that, there’s no resistance to these ionophore-type antibiotics.
All they do is they don’t work systemically in animals. We feed those to manipulate the rumen fermentation
patterns by the bacteria in the rumen because, you remember, that animal, that ruminant, is just one big
walking fermentation vat. That rumen, everyone says cows have four stomachs. Technically, they have one
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stomach, it’s just divided into four compartments, and those first two compartments, the reticular rumen, it’s
obviously referred to, or commonly referred to, the reticular rumen, those two compartments are the
fermentation centre. They contain billions upon billions upon billions of bacteria and protozoa. By certain
compounds, like ionophores, we can manipulate, we can decrease methane production which drives carbon,
now instead of being lost as methane, we can drive it into, say, propionate, which is a volatile fatty acid that
when absorbed goes to the liver and, believe it or not, cattle can produce glucose out of that. We call that
gluconeogenesis. We feed these ionophores to increase the efficiency of ruminal fermentation, and by doing
that, we get more value out of our feed, so the cattle are more efficient because we have less carbon loss due to
predominantly methane production. They work in the rumen. Rumensin is Elanco’s product, it’s been around,
it was approved by FDA in 1976, and then we have Bovatec, which is Zoetis’s product, we have Cattlyst, which
is also Zoetis’s product. Those are ionophores. They do not work in the animal, they work in the rumen. Safe,
no issues from human transmission or anything, or human contamination or anything, been around forever.
Then we have chlortetracycline, that’s a feed-grade antibiotic, it’s also a Zoetis animal health product.
Chlortetracycline, I can’t say when that was approved but I want to say it was probably in the ’70s. It’s
approved for respiratory disease, so typically, when cattle are stressed, calves, they come into a feedlot, it’s like
sending a kindergarten or an elementary school child to college, it can be a stressful environment for them.
Obviously, stress, you get a cortisol release and it inhibits the immune system and then bad things can happen.
If we do have animals that are showing signs of respiratory disease, we can put chlortetracycline in the feed
but we don’t feed it all the time. There’s a misnomer that we feed antibiotics every day. The only antibiotic
that’s typically fed every day would be the ionophores, which just work on the rumen, like I said, they improve
the rumen’s fermentation. We need a prescription for that. The other antibiotic that’s commonly fed is for liver
abscesses and that’s Elanco’s product, tylosin phosphate, it goes under the brand name of Tylan. It’s been
shown to decrease liver abscesses in feedlot cattle. The way I use that product is diet-dependent. Liver
abscesses, predominantly found in high, high, high grain diets. What happens is we have cattle over-consume
grain, we get a big starch load and that rumen starch is rapidly fermented, more so than roughage or fibre, so
starch is rapidly fermented. We get a low pH in that rumen because of all the organic acids that are being
produced. That low pH can cause what’s called an ulcer on the rumen epithelium or the rumen wall, it’s called
rumenitis.
There’s a specific bacteria in the rumen, it’s actually a good bacteria in the rumen, it’s a lactate utiliser, it’s
called fusobacterium necrophorum, but that bacteria will go through that ulceration in that rumen wall caused
by the low pH and hitch a ride in the portal blood and go to the liver, so now it colonises the liver and it causes
abscesses. That’s on a high-grain diet. In high-grain diets, we’ll typically feed Tylan at up to 90mg a head a day
to help prevent that because that does work systemic, it will kill fusobacterium necrophorum and help
decrease those liver abscesses. Again, getting back to these diets where we feed a lot of these corn by-products
in place of corn, we’re getting our energy from protein and fibre and, in the case of distillers’, fat. Protein, fibre
or fat, less energy is coming from starch, we don’t have those starch overloads, we don’t have those low rumen
pHs, we don’t have the acidosis challenges, hence, we don’t have the liver abscess challenge. Again, that’s
regional-specific on how I use that product. We try to use these products judiciously, so we don’t use them
and, in fact, as of 1 January 2017, the Veterinary Feed Directive became law so now all these antibiotics, they
have to go through a veterinarian now. Not the ionophores, the ionophores, as a nutritionist, I can prescribe
those, but the chlortetracycline and the Tylan, they have to go through a veterinarian now. A veterinarian will
write a prescription just like a doctor would for that feedlot. We are being regulated, it’s not just willy-nilly,
throw so much in this day to that pen and whatnot, we are being monitored by the FDA.
[00:49:29]
Q: How would you characterise the pressure from consumer animal rights groups on this industry and the
intensiveness of its production practices?
SM: That’s a great question. Living in Nebraska, we only have two million in this state and the cattle industry
is the largest industry in the state of Nebraska, so we really don’t get a whole lot here in the northern plains or
the Midwest. When you get out to the metropolitan centres, yes, people are concerned about where their food
comes from. Only less than 2% of the population produces the food for the rest of us in one-third of the world,
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if you think about that. So many people now are disconnected from where their food comes from. As an
industry, we do try to do a good job and are very open. I can’t speak for pork and poultry production but from
a beef cattle standpoint, we are very open about our production systems. We haven’t come under as much
scrutiny as the pork and poultry industry has, but it’s obviously always on the radar. The state of Colorado,
they’re going to have a ballot initiative next election on whether they can have animal agriculture or not.
Literally, that is going to be a ballot initiative. We’re not as bad as Colorado but there’s a segment of the
population that just wants animal agriculture to go away. As a beef cattle nutritionist, I don’t care if somebody
is a vegetarian or not, that’s their prerogative, but when the government says, “Animal agriculture produces so
much,” and they overestimate that greenhouse emission by the way. It’s not 16%, it’s closer to, last value I
heard from USJ was maybe 6%, so it’s not as large a contributor as what the government or some of these
green groups want to tell you.
Here’s the deal, we outlaw cattle production to decrease greenhouse gas emissions, how many elk, deer,
buffalo, caribou, antelope, those are all ruminants, how many of those animals does the government own?
We’re always under pressure. In our industry, we have what’s called the Beef Quality Assurance programme,
and a lot of the packers have dictated that if we’re going to buy cattle from you, that feedlot has to be BQA
certified. it’s sponsored by the National Cattlemen’s Beef Association. I personally think it’s a good thing. All it
does is, you go online and it takes about two hours to go through the programme. I’ve gone through it where
we’ve actually had in-person training and that’s where I got BQA certified. It allows that packer to go ahead
when they’re marketing that product to the consumers to say, “This product comes from BQA-certified, Beef
Quality Assurance-certified producers.” There are those kinds of programmes. You can’t please everybody, but
I’d say for the most part the beef cattle industry hasn’t come under as much scrutiny as the pork and the
poultry industry. Again, I think it’s because we’re so segmented. We still have that calf on that cow with that
mountain stream out in that green pasture. That animal spends the majority of its life on a foraged diet before
coming into the feed yard.
[00:53:56]
Q: How are small or medium-sized ranches implementing their own health programmes and treatments? Beef
is a much more fragmented industry than poultry or swine, as you noted. What are the long-term product
implications of this range of approaches to managing beef diets? I know it depends on the region, but this
could even be a group of producers in the same region having differences in their own local diets.
SM: If you’re talking feed additives, we’re under FDA legislation. We have to feed according to labels. If
somebody doesn’t, they’re breaking the law, and if they’re in violation, they can be fined or shut down. The
veterinarians do the same thing, when they write a prescription, whether it’s a feed additive, like Tylan or
aureomycin or tetracycline or an injectable, to treat an animal with an antibiotic, that veterinarian, he’s got to
be according to label. Of course, with injectables, they can do some off-label stuff as long as they document
that, but with feed additives, we’re strictly adhered to that label claim and the directions. I can’t say that there
are people feeding one feed additive one way and one feed additive another because we’re all held to that label
standard. As far as diets as concerned, sure, regional differences, some people have different ingredients and
access to different forms of protein and energies than other people but the nutrient requirements of cattle are
still the same. It doesn’t matter if an animal is being fed in Alabama or in Nebraska, those nutrient
requirements are the same, it’s just how do we get there.
As far as quality of beef is concerned, energy drives everything. It doesn’t matter if the energy is coming from
corn or corn distillers’ grains, as long as we exceed the energy requirements for maintenance, that excess
energy is going to go for growth and that growth is going to consist of muscle early on and then fat later on. As
an animal matures, they start to fatten, so as long as we have high energy going into that animal in excess of
maintenance requirements, it should not affect beef quality. I’m trying to think. Like I said, there might be
some small nuanced differences but, like I said, we have cattle grading 80% choice now. Cattle in the northern
plains where they’re fed less corn actually grade better than the cattle in the southern plains. A lot of that is
going to be genetic. We displace a lot of corn up in the northern plains, Nebraska, Iowa, South Dakota, and the
cattle are grading better than they are in the southern plains where they don’t have access to all these distillers’
grains that we’re feeding, but a lot of that is going to be genetics, I don’t want to say that, you feed cattle
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distillers’, they’re going to grade better than if you feed them corn. I’m not saying that’s the case at all, we just
have bigger frame black-hided cattle up here, we have more northern-type cattle, more English-type cattle
because they can handle the winters better in the northern plains vs the south. Those cattle just tend to grade
better because we have more Angus-type genetics.
[00:58:28]
Q: Which aspect of the beef production process do you think is most suitable or ready for innovation?
SM: That’s a great question. It all starts with the cow. I’m not a reproductive physiologist, but if you look at
heifers, when we’re developing heifers, 60-70% pregnancy rates are fairly common. If we could increase
reproductive efficiency of that heifer, I think that’s one area to start. Then the other area, obviously, with these
high feed costs would be in the feedlot production area, trying to develop some technologies to improve feed
efficiency further than what we already have. We’ve got tremendous tools that have withstood the test of time
and they’re safe and effective, whether it’s the ionophores, you get a 3% improvement in feed efficiency by
feeding an ionophore, you get a 10% improvement in feed efficiency by using an implant. Then we also get
another 3% improvement in feed efficiency over the entire feeding period by feeding a beta agonist that lasts
30 days. Right there, what is that? We’ve improved feed efficiency by 16% just using those three items or those
three forms of technology. They’re all additive because they all work differently. Ionophores work in the
rumen, implants work with endocrinology and the beta agonists work on the muscle cell, so they’re all
additive. The problem is though with some of these technologies is just getting through the FDA. Merck
Animal Health, for instance, they had a tremendous product called zilpaterol, Zilmax was the brand name,
zilpaterol hydrochloride, it was a beta agonist, and in 20 days, the last 20 days of the feeding period, it put 30
pounds of muscle on a carcass, 30 pounds of muscle. The problem was the FDA, they did not recall that
product, but Merck voluntarily recalled that product because of packer pushback. Again, it gets all back to the
packer. The packers didn’t want that product so cattle feeders quit feeding it, so the packers dictate this whole
thing.
[01:01:40]
NH: We’ll end today’s Interview. Let me close by saying thank you, Sean, for your input. It was an excellent
Interview with tons to break down. Thank you, clients, for joining Third Bridge Forum’s Interview today. If
you would like to speak to Sean in a private call or meeting, please let your relationship manager know.
Transcription ends at 01:00:57 of the recorded material
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