Vertical Alliances Said Part
Of Future For Beef Industry

By Colleen Schreiber

VERNON — "For us to succeed, we can't operate totally as individuals. We're going to have to operate together."

That was a recurring theme in the keynote address given by Jim McAdams, assistant general manager of Spade Ranches Inc., Lubbock, at a recent field day on the Waggoner Ranch.

McAdams, who has been with the Spade since 1992, was asked to share his thoughts about the future of the beef industry.

In planning for the future, McAdams said, the first step is to understand the past.

"I've been called a dinosaur," he told fellow ranchers. "I've been told that I'm part of the beef industry's problem because I love the past. That's partly true. I do love the past, I glory in it, and we’ve had a glorious past. We have a lot to be proud of. Our forefathers were independent-minded; they were courageous; they were true pioneers and we can learn a lot from what they went through."

He described the days of his forefathers as "the good ol' days but the hard ol' times."

McAdams recalled as a kid the hours spent in the saddle riding pastures and checking for wormy calves.

"I just got in on the tail end of that. It was hard, tedious work, and I don't think any of us want to go back. Can you imagine what it was like farming when we didn’t have all this equipment?" he asked.

"Things have sure changed," he continued. "I don’t know if it's for the better, but that doesn't matter; it's changed.

"One of my favorite sayings is, 'if we always do what we’ve always done, we’ll always get what we’ve always gotten.' That might not be quite accurate, because it might be that we’ll get less and less," McAdams remarked.

Cattlemen of the future, he said, will have to make changes just as their forefathers adapted to change in order to survive.

"We have problems with government regulations, politicians, environmentalists, etc. Our forefathers had real problems. They had problems with Indians, and they were willing to give up some independence in exchange for some security," McAdams pointed out. "I think that’s going to be a key for our success in the future. We’re going to have to sit down and analyze what we’re willing to give up and for what."

He shared his thoughts on some of the changes he expects in the future. First and foremost, McAdams predicted that ranchers will have less independence than they've had in the past.

"This doesn’t necessarily have to be a bad thing," he told listeners. "Our forefathers wanted law and order to come in, and when the government didn’t come and help, they banded together and formed cooperative outfits like Texas and Southwestern Cattle Raisers. It was formed to combat the rustling.

"I think we can learn from that and I think we will have to do more of that in the future. It's going to behoove you to be active," he stressed.

McAdams also predicted more vertical integration in the cattle business, but not like the vertical integration seen in the poultry and pork industries. Rather, he called it "vertical alliances."

He added that he expects the production sector of the industry to be more segmented in the future.

"We will always have those people who produce cattle as a sideline. Then we’ll have some of those who will join these alliances and somehow align themselves in the system that allows them to benefit up and down the chain."

He briefly discussed one such alliance that Spade Ranches and several others across the country are involved in. Ranchers' Renaissance, he said, was the brainchild of Throckmorton rancher Rob Brown.

"In the depths of the drouth of 1996, when corn prices were at their high and cattle prices were at their low, Rob started calling some friends. He said that we needed to get together, that there had to be a better way.

"So a selected group of ranchers and feeders got together. We invited some end users and a packer and we brainstormed about what we could do. About all we could decide on was that we had to do something and we had to agree that we needed to work together to solve problems and overcome obstacles. We agreed that we needed to look for allies and not enemies, and we needed to find the opportunities instead of focusing on the obstacles," McAdams told listeners.

"We haven’t totally succeeded; it’s an ongoing process with constant fine-tuning. It takes a lot of conscientious effort to work through one of these things, because too often in the past we’ve been antagonistic."

Ranchers’ Renaissance, he noted, doesn't worry about the cash price but rather focuses on boxed beef prices.

"We're trying to get our product closer to the end user," he explained.

This too, McAdams said, is something he expects to see more of in the future. He based that assumption on Cattle Fax reports which indicate that today only three percent of poultry is traded cash. Pork, he noted, is not that bad, but certainly heading in that direction.

The cash market, however, is still reported because it's used as a benchmark. The whole issue of price discovery is a contentious one and has struck great debate between cash sellers and those who sell on some kind of prearranged formula. McAdams acknowledged the importance of price discovery and with that the importance of discovering price, an issue that, in general, continues to stump the beef industry today.

The speaker also said he expects that producers in the future will be required to give up some of their management ability, particularly in regard to genetics.

"We’ll be producing toward specifications," he remarked. Those specifications will be dictated ultimately by the end user and then backed up the chain to the retailer, processor, packer, feeder, etc.

McAdams shared his excitement in what appears to be a positive shift in beef demand.

"I think we're on the threshold of turning this around. We’re already seeing signs of it. I predict beef demand will improve," he said. "It will improve, because the industry is going to continue to produce more convenient products and more consistent products."

Therein lies the importance of product specification.

"I predict that we producers won’t be able to enjoy the margins that we had 20 and 30 years ago," he added, "but we shouldn’t begrudge the others in the chain their margins, because only when they’re making money are they going to come back and want our raw product, and we need to make sure that it's our raw product they want.

"That's why I think many of us will be producing to specifications," he continued. "We’re seeing more packers and retailers trying to add more value to these products and we’re starting to see the benefits."

Next to an improvement in demand, he said, technological advancements are another big positive for the beef industry.

"There are a lot of exciting things that will make our job easier. We’re on the threshold of having carcass EPDs for tenderness," McAdams pointed out. "We’re also on the threshold of being able to map the tenderness gene."

He talked about advances being made regarding individual identification.

"Did you know that every animal's eyeball is unique? I predict that in the future some of us will still be roping and dragging and branding, but not at the branding fire — at the computer scanner. We’ll scan that calf’s eyeball. The computer will take a picture of it and it will give it a number, and every time that calf goes by a scanner we’ll be able to monitor that animal. We'll have the technology in the packing plant to follow it all the way to the box as well. That’s when we’ll start to get true value.

"A lot of us will be shocked at what the true value is," he continued, "and we’ll have to change our management practices and our genetics to meet those changes. Just like our forefathers had to give up some independence versus some security, we’re going to have to do that, too."

Everyone, he pointed out, will benefit in the long run when inefficiencies are removed.

"Think how much money we will save when we're not duplicating implants, shots, and all those management practices. Think how much better we would be if we could manage inventory flow."

But, McAdams added, "we can’t do it alone. We’re going to have to do it by working with others."

Along with the ongoing discussions over these vertical alliances often come discussions over the future of auction markets and how they will fit into the whole scheme of things. McAdams said he believes there is tremendous opportunity for auction markets. Auction markets, he said, need to pattern themselves after full service auto centers to become full service beef centers.

"Where else are small producers going to have access to things like these scanners?" he asks. "I’ll predict you’ll send your calves there to have them scanned. If you don’t have enough cattle and you want to send them to the feedlot, they’ll co-mingle them and we’ll have the technology to keep records on them. They can serve as a facilitator for those small operators and even the large operators who just don’t want to mess with it," he explained.

McAdams switched gears then and focused more on the land itself.

"I believe this is the best cow-calf country in the U.S. It’s got one major problem, and that’s too much brush in lots of cases."

Instead of focusing on the negatives of brush, he encouraged listeners to find the positive attributes of brush.

"We have lots of opportunities out here with this brush," he remarked. "One such opportunity is with recreation, and I'm not just talking about hunting. Land is a scarce resource and we have a growing demand. People want to use the land."

He encouraged listeners to be open-minded and turn what could be considered an obstacle into an opportunity.

"We’re always griping about the environmental pressures, and they’ll get worse before they’ll get better.

"But this could be a cash cow for us," he continued. "We need to encourage people to come out and use our land, whether it be for hunting or just the solitude. It will have a two-fold benefit. It will help our pocketbook and it will help increase awareness among the general population that we are the best stewards of the land."

He told listeners that it's up to them to show the public that brush is not just the ranchers' problem.

"I predict that if we play our cards right we will get government assistance for brush control," McAdams said, "and it will be because it's society’s problem. We all know what heavy infestations of brush do to the rangeland, to the water. We need to document this, and show that society as a whole benefits from brush control. I think this is a doable deal."

McAdams encouraged listeners to thoroughly think things through and to spend the necessary time tending to bookwork.

"The most valuable time we can spend is on our books," he insisted. "I realize that no one has been able to successfully run a ranch sitting behind a desk all the time, but in the future you won’t be able to successfully run a ranch by spending all your time horseback or in a pickup."

In conclusion, McAdams reiterated the importance of learning from our forefathers.

"We have to be open-minded and progressive, but cautious, because a little bit of knowledge is a dangerous thing, and it can lead to disaster. I think that we need to be thinking about what we are willing to give up, but for what. I think we need to look for partners and not enemies.

"I want to make sure that I’m still around in the business that I chose," he continued, "If I have to own a McDonald’s franchise, if my ranch has to give up some independence and partner with some kind of franchise in exchange for some prosperity, I’m willing to do it."