Dairy cow-boy here. High cost is the first barrier to entry - you either marry it or you inherit it. Second barrier is the green rules - we need DDT and we can't use it, because shut up. Everything in the post captures every challenge downstream from the producer.
What are the economics of the dairy business? I would appreciate an extended comment-where your costs are, and how you turn a profit. The dairy business is a brutally tough business. I knew a guy from central Illinois that was in it. He sold his herd and farm and went into the insurance business.
Ag is no different from any business - land, labor and capital. Major challenge is that land is not portable and there is very little you can do to change it (broken, wet). Best land is fertile and close to market (one acre of good, near city produces $100k/acre of asparagus, twice a year - 100 acres of arid east of Denver produces/feeds one cow, sale price is $2k every two years). Dairy historically done on marginal land - you grow forage, then feed to cow and then sell her milk. Each step requires large outlay of capital for necessary equipment (reasonable tractor is $250k). And, you're in the commodity business - everything is fungible and has a short shelf-life. Labor? The up/down of milking blows out your knees, you are a long way from the hospital when you slice yourself. And cows need to be milked twice/day, every day. I watched my father (kids were gone, so no free labor) go 20 years without a day off.
Boomers, of which I am one, are semi-hedonistic consumers of quality, and we're willing to pay a high price if we perceive value because of quality. As we begin to die off, that will change.
Just one part of the puzzle, but a big contributor to the demand side.
Almost impossible to run a USDA slaughterhouse. When we ranched several decades ago there was a period where the nearest commercial butcher was in the next state.
Also at that time Grass Fed beef were going to feed lots. Maybe no longer.
My prior comment described attempts to sell our cattle to a friend's restaurant business in the 1990s. My dad always said you had to be able to weather 4 bad years to make it to one good one, the combination of the drought and the economy from 2008 to 20015 or so bankrupted our operation.
The economics of ranching is a huge topic. I guess:
1) Price Takers, ranchers are subject to market forces and have no ability to impact the price of their product or inputs
2) Public Land Ranching - there is no economic advantage to individual ranchers who use public land, as their overall capital cost is the same (so all their costs are the same, see also #1 and #3 below).
3) Capital Cost - I recall in about 2005 western states ranches sold for about $5,000 - $7,500 per Animal Unit (so a 500 cow ranch would cost $2.5M+) and a ranch like that would cash flow 6% if managed well at those land prices, but you could make 8-10% in land appreciation / Capital Gain. Ranchers will tell you they are land speculators that are playing cowboy
4) Ranch product is also factor of production, so if Beef Steers are selling high, well then replacement heifers are expensive also.
5) Costs tend to also run with the market, so if your replacement heifers in #4 above are expensive then feeding them over the winter is also.
At any rate there is your problem, real estate is even higher now, so, what, a guy is going to cash flow 4% these days? And hope he doesn't go broke before he cashes out his Capital Gain to some non-rancher hedge fund or whoever is going to end up with all these ranches?
Cattle inventories have been trending down for years without any significant retrenchment, and this is because ranches are too expensive IMO. Guys are making money importing and feeding cattle, but not ranching them domestically.
Great post and while I agree 100% that production has seen immense headwinds, consumption is also on fire. Be it used Porsche 911's, Swiss watches, Oasis concert tickets or influencers posting their Tomahawk Ribeyes on Instagram, there's a Conspicuous Consumption Class providing a persistent bid to a plethora of luxury items. Maybe, just like the excesses of the Roaring Twenties were arguably a product of the Great War and Spanish Influenza sparking a YOLO mindset, Covid is having the same prolonged effect.
Apparently though,, Cattle prices aren't dot plotted by the Fed....
Your point about cold storage infrastructure (#6) is spot on - most people drastically underestimate the energy intensity and capital requirements. What makes Lineage interesting is they're not just providing warehousing, they're building an integrated network that creates efficiency through scale and technology. The fragmentation you describe throughout the supply chain is exactly what makes cold storage consolidation valuable. When slaughterhouses are scattered and butchers are limited by regulation, having a national cold storage network that can optimize routing and inventory becomes critcal. The comparison to data center electricity costs is apt - both businesses are essentially selling refrigerated/climate-controlled real estate with massive energy inputs. The REIT structure lets them monetize that infrastructure advantage.
"Again, deregulation and intense competition are the answers." - why are so many states banning synthetic meat? Especially as it practically doesn't even exist.
You mess with my meat, in particular my bacon and my steak- you will have in my mind taken it all a step too far.
Dairy cow-boy here. High cost is the first barrier to entry - you either marry it or you inherit it. Second barrier is the green rules - we need DDT and we can't use it, because shut up. Everything in the post captures every challenge downstream from the producer.
What are the economics of the dairy business? I would appreciate an extended comment-where your costs are, and how you turn a profit. The dairy business is a brutally tough business. I knew a guy from central Illinois that was in it. He sold his herd and farm and went into the insurance business.
Ag is no different from any business - land, labor and capital. Major challenge is that land is not portable and there is very little you can do to change it (broken, wet). Best land is fertile and close to market (one acre of good, near city produces $100k/acre of asparagus, twice a year - 100 acres of arid east of Denver produces/feeds one cow, sale price is $2k every two years). Dairy historically done on marginal land - you grow forage, then feed to cow and then sell her milk. Each step requires large outlay of capital for necessary equipment (reasonable tractor is $250k). And, you're in the commodity business - everything is fungible and has a short shelf-life. Labor? The up/down of milking blows out your knees, you are a long way from the hospital when you slice yourself. And cows need to be milked twice/day, every day. I watched my father (kids were gone, so no free labor) go 20 years without a day off.
Government ruins everything it touches which is a big reason we off-shored manufacturing, especially to our communist enemies.
Boomers, of which I am one, are semi-hedonistic consumers of quality, and we're willing to pay a high price if we perceive value because of quality. As we begin to die off, that will change.
Just one part of the puzzle, but a big contributor to the demand side.
Dollars to donuts? That is about even money, with the tiny dollars we have after the Wuhan pandemic.
Almost impossible to run a USDA slaughterhouse. When we ranched several decades ago there was a period where the nearest commercial butcher was in the next state.
Also at that time Grass Fed beef were going to feed lots. Maybe no longer.
Would appreciate it a lot if you had an extended comment about what it was like to be a rancher and the economics of it.
My prior comment described attempts to sell our cattle to a friend's restaurant business in the 1990s. My dad always said you had to be able to weather 4 bad years to make it to one good one, the combination of the drought and the economy from 2008 to 20015 or so bankrupted our operation.
The economics of ranching is a huge topic. I guess:
1) Price Takers, ranchers are subject to market forces and have no ability to impact the price of their product or inputs
2) Public Land Ranching - there is no economic advantage to individual ranchers who use public land, as their overall capital cost is the same (so all their costs are the same, see also #1 and #3 below).
3) Capital Cost - I recall in about 2005 western states ranches sold for about $5,000 - $7,500 per Animal Unit (so a 500 cow ranch would cost $2.5M+) and a ranch like that would cash flow 6% if managed well at those land prices, but you could make 8-10% in land appreciation / Capital Gain. Ranchers will tell you they are land speculators that are playing cowboy
4) Ranch product is also factor of production, so if Beef Steers are selling high, well then replacement heifers are expensive also.
5) Costs tend to also run with the market, so if your replacement heifers in #4 above are expensive then feeding them over the winter is also.
At any rate there is your problem, real estate is even higher now, so, what, a guy is going to cash flow 4% these days? And hope he doesn't go broke before he cashes out his Capital Gain to some non-rancher hedge fund or whoever is going to end up with all these ranches?
Cattle inventories have been trending down for years without any significant retrenchment, and this is because ranches are too expensive IMO. Guys are making money importing and feeding cattle, but not ranching them domestically.
Go ahead and try to pry this cheeseburger from my cold, dead hands.
Great post and while I agree 100% that production has seen immense headwinds, consumption is also on fire. Be it used Porsche 911's, Swiss watches, Oasis concert tickets or influencers posting their Tomahawk Ribeyes on Instagram, there's a Conspicuous Consumption Class providing a persistent bid to a plethora of luxury items. Maybe, just like the excesses of the Roaring Twenties were arguably a product of the Great War and Spanish Influenza sparking a YOLO mindset, Covid is having the same prolonged effect.
Apparently though,, Cattle prices aren't dot plotted by the Fed....
Your point about cold storage infrastructure (#6) is spot on - most people drastically underestimate the energy intensity and capital requirements. What makes Lineage interesting is they're not just providing warehousing, they're building an integrated network that creates efficiency through scale and technology. The fragmentation you describe throughout the supply chain is exactly what makes cold storage consolidation valuable. When slaughterhouses are scattered and butchers are limited by regulation, having a national cold storage network that can optimize routing and inventory becomes critcal. The comparison to data center electricity costs is apt - both businesses are essentially selling refrigerated/climate-controlled real estate with massive energy inputs. The REIT structure lets them monetize that infrastructure advantage.
"Again, deregulation and intense competition are the answers." - why are so many states banning synthetic meat? Especially as it practically doesn't even exist.
That is dumb and is political.
Well if you had several Covid shots you probably have either impaired or lost your kidneys
Beef is not recommended for kidney suffers
Was that the reason for the shots??
Wrong boogeyman. It's the ticks that are probably being spread by vegans. https://www.sciencealert.com/a-disease-that-makes-you-allergic-to-meat-and-dairy-is-spreading-around-the-world