74&W Exclusives: Andrew Griffith

74&W Exclusives

You’re clearly passionate about the beef industry and agriculture in general. Where does that love of farming come from—were you raised on a farm?
Yeah. We had some beef cattle and tobacco and sweet corn, so that’s what we grew up doing, and we were hired labor for other farms around. It’s always kind of been in the blood, wanting to be in the farming world. So that’s what I went to school for. And after three different degrees, I came back to Tennessee, which is where I’m originally from, and took this position.

You’re a livestock economist and also an educator. What kind of teaching do you do?
Well, I have an extension appointment. So it’s not a formal teaching appointment in college. My audience is producers. I travel the state of Tennessee, and have the opportunity to go to other states in some instances, and educate producers that are actually out there trying to make a living in the livestock business.

And besides being an educator and a market expert, you’re actually a farmer, aren’t you?
That’s correct. I took this position so I could work in the livestock industry and still have a steady paycheck and benefits. But sometimes that’s not enough risk for me, so I decided I need to farm. That way I have a lot more skin in the game. And with regard to my educational program at the University of Tennessee, it’s one thing to be teaching it and it’s another thing to be doing it if you’re telling people how to do it and things they ought to consider.

What kind of a farming setup do you have?
Oh, I just run a small operation. I try to run a couple loads of stocker cattle a year. And then I raise a few acres of soybeans. The operation is still growing. It started out with 90 owned acres and now I’m renting another 200 acres. Then there’s another property that I’m trying to get in shape to have cattle and crop production on, as well. So it’s a really, really small operation. It’s about all I can handle with the day job.

You said you try to run “a couple loads of stocker cattle a year.” What does that equate to in terms of a herd size for you?
It’ll be close to 120 or 130 head.

Do you do it all by yourself?
For the most part. There’s a little bit of family help. But for the most part, it’s me, and then paid labor.

That’s pretty good for a mostly one-man operation, especially since you’ve got the day job. Since you’ve already touched on this, let’s get some terminology cleared up for readers who aren’t familiar with this industry. You said you run “stocker” cattle. Can you explain the difference between stocker cattle, feeder cattle and finished/live cattle?
So stocker would be cattle that are still on grass and growing. Feeder cattle would be cattle that are ready to go into the feedlot and start their finishing phase, at which point they would be on feed anywhere from 120 to 180 days, in most instances. Finished cattle/live cattle would be animals that are ready to be harvested. They're in the feedlot. They're ready to go to a slaughter facility and be harvested and in a very short time, they can be on your plate.

In terms of commodity futures, there are separate contracts for feeder cattle and live cattle. Is it possible to buy futures on stocker cattle?
No. Besides the live cattle, which would be the finished cattle, you just have the feeder cattle which, by definition in the CME contract, is 700- to 900-pound steers. So in reality, that price represents an 800-pound steer. And in general, that would be about the average weight of feeder cattle going into the feedlot.

The contract is only for steers? No heifers? Seems a little sexist.
Well, although the contract represents a steer, you can hedge heifers on it the same way, but realizing that an 800-pound heifer does not receive the same profits as an 800-pound steer. Heifers tend to be less efficient with feed, so it takes more feed to put on a pound of gain. And because of that, they're going to have a little bit lower price. But as heifers get heavier, the discount relative to the steer is less because there’s less time for weight to be put on, so there’s less time for feed efficiency to occur. So there’s a heavier discount on four-weight heifers to four-weight steers than there is on eight-weight heifers to eight-weight steers. Then when you get up to finished cattle, most of the time there’s not a price difference between a steer and a heifer, because they're both beef. You know, they're both going to be slaughtered the same way and they're both going to turn into beef. The only difference would be in how much each one of them weighs. But on a per-pound basis, they're going to receive the same price in both cases. I mean, there’s some other discrepancies in there based off of how they're expected to graze or something like that, but in general we would be talking about them being the same price.

And isn’t it generally true that the price of feeder cattle, because they're kept in feedlots and fed mostly on corn, is driven in large part by corn prices?
Well, I would say they're not as highly correlated as they once were. Corn is still the basis on which most rations are formulated in the feedlot. Corn is going to be the primary feedstuff. But we’re utilizing a lot of other feedstuffs to meet those needs. And so if you think about how much the ethanol industry has grown since that original mandate for ethanol, the corn got pulled from feeding livestock into the ethanol. But then they have a biproduct, distiller’s grain, that then goes back into feeding cattle. And so corn would generally be an energy source. But after it’s gone through the ethanol production process, it then becomes more of a protein source. And so we use a bunch of different feedstuffs. A lot of rations in feedlots are mixed rations of different things, whether that be corn, distiller’s grain, soybean meal, cottonseed meal, soybean hulls, a mixture of some type of hay. I mean, you can run the gauntlet on that. So they're not as highly correlated as they once were. But if we see corn prices go up, we would expect to see feeder cattle prices go down. And vice versa.

Even though our focus in on commodities, and there are no commodities contracts for stocker cattle, let’s talk a little more about that, since it’s a part of the industry a lot of people don’t know about. It’s also the part that you’re involved in personally. How does it work: Do you breed the cattle and sell them when they’re ready for the feedlot?
No, I don’t breed cattle. I end up buying cattle that are 500-550 pounds or so. And I try to grow those to a little over 800 pounds, at which time they would then be sold and go into a feedlot.

On a value basis, we’re almost always a net exporter because in this country we produce a very high-quality beef.

What draws you to the stocker business?
The great thing about the stocker business is it’s seasonal. And stocker cattle, as long as you can get them straightened out and healthy, really all you have to do after that is just make sure they stay on the farm that they're supposed to be on. Because the key is them eating grass and them gaining weight. So they can be a little hands-off after you get them straightened out and make sure they're no longer at risk to get sick or die on you.

You recently published a paper about the size of the American beef industry. Your projection was that the US will end up producing 26.65 billion pounds of beef in 2019, which is about 33 million head of cattle. That’s a staggering number. Is it a record?
In beef cow numbers, we’re definitely not at all-time highs. But for us to be close to 27 billion pounds of beef being produced, I’m not going to say it’s an all-time high, but it’s a lot of beef for the quantity of people that we have in this country. If you go back in the history of the cattle business, we used to have a whole lot more beef cattle than what we have now. So we’re nowhere near record levels on that. Nor are we near record levels on cattle slaughter, because of how many animals there are. But we grow animals a lot bigger now. The genetics in these animals make them a lot larger. We finish the cattle in the feedlot at 1400-1500 pounds. Some of them go bigger than that. When you think about a 1400-pound animal and the quantity of beef that comes out of that 1400 pounds of live weight, there’s just a lot of meat there. I mean, we’re harvesting 600,00 head of animals a week. Well, we only have 320 million people in this country. And when you have an 800-900-pound carcass times 600,000, even though that’s not all beef because there’s still bone in there, it becomes a wild number.

And yet when it comes to the import/export ratio, it would seem that while the US is still a net exporter, it’s not by very much.
Well, on a value basis, we’re almost always a net exporter. Because in this country, we produce a very high-quality beef. And when I say “high-quality,” that generally is relating to the intermuscular fat, so the marbling that’s in the animal. It makes for a good eating experience. It has the flavor, tenderness, that type of thing. So we produce a high-quality, very safe product. Some of those products that we produce have a higher value by going to the export market. And at the same time, we’re importing what I’m going to say is lower-quality beef. I mean, it’s a safe product, a good product. There’s nothing wrong with the product that we’re bringing in. it’s just a lower-quality beef. It’s a “leaner” beef, is maybe a more appropriate term. And primarily the beef that we import is for grinding. You know, this country has a propensity for ground beef, whether that be in the form of hamburgers or in spaghetti or whatever. People really, really like it. So that’s why we export some products and then bring in a lower-valued product. That’s really what it comes down to on the import/export side.

So the dollar value of what we’re exporting is greater, but pound-wise it maybe comes closer to a balance?
Yeah. And in most years, [pound-wise] we are going to be a net importer of beef. Now, in 2018 we were a net exporter. Prior to 2018, most of those years would have been net import. And this year, we’re probably going to end up being a net importer. That’s on a quantity basis. But on a value basis, we’re still going to be a net exporter, just because of how much more valuable the meat is that we’re shipping out as opposed to what we’re bringing in.

What are some of the different factors that go into the price of live cattle?
Well, like with any market, the basis is going to be supply and demand.

Let’s look at the demand side first, then. What are the main drivers of the demand for beef products?
Well, you can just think about when the people in this country look for high-quality beef to eat. There’s really two main times. The first is the grilling season, starting with Memorial Day in May and carrying through part of the summer, when people want to throw steaks on the grill. That’s a strong seasonal demand. And then as we get closer to the holidays, some people eat ham for Christmas and other people eat beef. And so there tends to be a really, really strong seasonal demand for beef during the holiday season. Now, that’s an oversimplification because when you get into the winter months, the demand shifts from high-quality steak to more of your end cuts such as roast. You know, a round roast or chuck roast. So the demand for individual cuts of beef changes throughout the year.

This has to be one of the most complex markets there is.

What about the supply side—is there a seasonal aspect to that?
Yes. We have a country where most of the calves are born in the springtime of the year. And so that means most of them are weaned off of the cow, or “removed from their dam,” in the fall time period. Some of those calves will go straight into the feedlot. Some will end up in a stocker operation. And that’s how we disperse some of that supply throughout the year. I mean, there’s cows having calves year-round, but the biggest part of those calves hits the ground in the spring and then we have another group that hits the ground in the fall. So February through early April and then maybe September through mid-November would be the key times when animals are being born. But then we spread out that supply by leaving some cattle on grass longer before they enter the feedlot. So we manage supply. 

It’s interesting that the industry has developed that method of spreading out the supply to overcome that seasonal aspect.
This has to be one of the most complex markets that there is. I’m not saying that to suggest, “Hey, I’m in this business so I’m a genius or something.” But we’re out here taking care of animals that turn into hundreds of different products. Because ground beef is not the same as a filet mignon is not the same as a chuck roast or a New York strip. All of those have their own specific demand. And they also have their own supply, and that supply is based off of animals. You know, how many animals do you have coming? So as we’re looking at these live cattle and thinking about how these prices are determined, well, it’s literally determined by the demand for each of those individual products and the supply of each of those individual products.

Even leather, right?
Right. When you think about a hide, hides have a value. And right now we’ve seen hide values struggle. If they bounced back to where we have seen them within the past three or four years, we would easily see a $3-4-per-hundredweight jump in live cattle prices. And that’s a big deal. I mean, $3 times a 1400-pound animal becomes a big number in a hurry.

Also on the supply side, you have weather as a factor influencing price, right?
Yeah. That’s a great example. Last winter was one of the toughest ones that cattle feeders have gone through. Even in the South, it was terribly wet. When you have terribly wet feedlot conditions, animals don’t perform. It’s just like you and I as human beings. If we’re in a harsh environment, we end up having to eat more but we don’t put on weight. Our natural instinct says “Eat, eat, eat,” but yet we’re not getting anywhere. Now, you and I, we’re not out there to gain weight. We’re trying to stay at whatever weight we are, and we’re happy with that. But in the cattle business, you’re trying to put weight on these animals, and that’s muscle weight. It’s not fat. You’re trying to put on muscle weight. An animal only has an ability to eat so much every day. And the more of that that has to go to maintenance through harsh environments will result in it being more expensive to feed cattle and results in poor performance in those cattle so they don’t grow as big, and so therefore we have less product to sell. [That hard winter] actually helped support prices later into the year this year, because there was not as much beef on the market as what we would have expected had we not had such a harsh winter. The same can be said about extreme heat. We can have trouble getting cows bred. If you’ve got a spring-calving herd and you’re trying to breed cows in June and July, procreation is not necessarily on the top of the list for the cow or the bull when it’s 95 degrees and the humidity is extremely high. This farming thing ain’t for everybody, I can tell you that.

A lot of these cattle producers are losing money. But if you think about the small producers, it’s more a way of life than it is a business to them.

Weather can also affect feed prices, an important part of the supply chain, right?
Right. In 2014, we saw extreme drought that pretty much covered all of the Midwest. We saw corn go up to $8. We saw soybeans go up to $15, $16, $17. In the cattle business, you're producing [something] that ends up in a bunch of products, but then you're also trying to buy feed resources from another farmer who is dealing with the same type of environmental issues that you're dealing with. When it’s bad for one of you, a lot of times it ends up bad for both of you. From the standpoint of trying to get things purchased, it’s extremely expensive—and then the value of your product still might not be worth anything. You can have $8 corn, but if you only make 50 or 60 bushels to the acre, you're not going to make any money. Now, if you happen to be the guy that made 150 bushels, then that might not have been the 200 bushels or the 220 bushels you were expecting, because of drought, but you still got $8, which means you might still make money.

“This farming thing ain’t for everybody,” as you just said. You wrote a paper recently analyzing the economics for small producers and concluded that, when you factor in fixed and variable costs of cattle production, the average small farmer is losing $275 per head. Is that really true?
Well, I would be willing to say that most small cattle producers are losing money. I don’t know that I’m going to fix that number per head on it, just because things are constantly changing. But this is not a hugely profitable business. Now, when I do a budget like that, I account for people’s labor. I account for their land costs. And a lot of people would not account for those things in their budget, because they’re like, “Well, I’m working for myself and that’s my land. I own it.” And so some of them may actually have a return to their labor and their management and their land. But as an economist, you don’t look at it as a return to labor, management and land. For my operation, I essentially come down to a number that’s a return to my management. And to me, that return to my management is my profit. Because I’m going to account for labor and I’m going to account for what I could rent my ground for. Because if I could rent it for enough, then why wouldn’t I just let somebody else farm it and just collect a guaranteed check every year? So, yeah. For the most part, a lot of these cattle producers are losing money. But if you think about the small producers, it’s more a way of life than it is a business to them. So they have off-farm jobs that supplement their operations. And there’s nothing wrong with that. That’s perfectly fine if that’s what they enjoy, and they can go on about their business. But I’m the kind of guy that wants to be profitable. Instead of working twice for less money, I could take up the sport of golf or something.

This farming thing, it ain’t for everybody, I can tell you that.

Let’s talk a little more about futures contracts in this industry. In our interview with Tom Seng about oil, he told us that the vast, vast majority of futures contracts in that industry are traded by speculators, not hedgers. That’s not true for the cattle sector, is it?
Actually, that’s the same here. The speculators are who provide enough liquidity for hedgers to actually be able to do something. There’s a lot of speculators. There’s a lot of computers or algorithmic trading in cattle. I mean, cattle doesn’t have the same volume as something like corn or oil or soybeans. Oil has a lot of liquidity and it has high volumes of trading. Corn and soybeans have really high volumes of trading relative to feeder cattle and live cattle. But it still takes those speculators to provide enough liquidity into the market. And by “liquidity,” I’m just talking about enough people trading so that you can actually get a trade made. It takes that volume of trading to make sure somebody like me who sees an opportunity to hedge a profit in a load of feeder cattle can assume a position and hold that position.

“Somebody like you,” as you say. Who is typically trying to hedge on these prices? Is it the local farmers with a couple hundred cows? Are they out buying futures to try to hedge prices?
I work with producers every day that are using the futures market to hedge. But the feedlots are definitely going to be using the futures market, both to buy feeder cattle and to sell finished or live cattle. So if you think about the two contracts that we’ve already talked about, and you look at a feedlot, well, they’ve got the purchase of the feeder cattle, they’ve got purchase of corn, and then they’ve got the sale of the live cattle. So if they can go lock in a positive margin when they're bringing cattle into the feed yard, they're going to do that. There’s feedlots out there right now that have probably already bought contracts for feeder cattle for next spring and maybe even into next summer.

That makes sense. But what about the small farmers?
A lot of the small farmers are not using futures and options because they don’t have the ability to. The feeder cattle contract is a 50,000-pound contract. So if you take 800-pound animals, it’s going to take 62 to 63 head – actually it’s 62.5 head – to fulfill a 50,000-pound contract. And most of these small farmers don’t have the ability to do that. But anybody that has large numbers of head, they may be using the futures market to hedge.

What about hedging of corn and soybeans?
There are producers that [hedge] it, but probably where you see the majority of corn and bean hedging is at local elevators, when people forward-contract corn and soybeans at an elevator. They maybe get a cash price. Well, on the other end of that, the guy that’s buying that is hedging that on the futures market so that they don’t lose money between the time that contract’s written and when they actually take delivery of the product.

A lot of the small farmers are not using futures and options because they don’t have the ability to.

Are you using these financial products in your operation?
I personally do use futures and options. They're not right to use all the time, but you can find the right tool at the right time to protect your investment. 

And do you educate farmers about these financial tools?
Yeah, I try to do a little bit of it. The crop economist here at UT and I, we’ve tried to work with several different producers and educate them on how to use these products. But the biggest issue is that there’s so many different ways that they can be used and paired together, and people don’t always understand that you have to kind of be fluid in how you use them. You can’t use the same strategy all the time because sometimes that strategy is not appropriate for the specific market. I’ll get a phone call from a producer saying, “Hey, is this a good time [to hedge]?” And then I’ll go through some of the better alternatives for pricing cattle at that point. Then they’ll talk with their broker, whoever is actually enacting the contract for them. From those two conversations, they can make an educated decision on what they should do, if they should pull the trigger on entering a position or if they can hold off. And if they do decide to enter a position, what position that should be.

There’s been a lot of talk lately about these new beef alternatives. Have you gone out and tried an Impossible Whopper yet?
I have not tried an Impossible Whopper. I’ve got a freezer full of beef. 

Have you tried Beyond Burger or any of those?
I have not. No, sir.

Sounds like you’re not in any hurry to do so.
I mean, don’t get me wrong. I would never say a bad word about these products. I mean, if they have soy-based products in them, I can't. It goes back to that supply and demand thing. If people are demanding it, by golly, somebody’s going to produce it and they're going to try to make money with it. 

And as you said, you grow soybeans yourself.
Yeah. So if it’s got soy in it, it’s helping me on the other end. 

Still, if suddenly the country took a real drastic turn towards these “alternative meats,” as they're being called, that would have a pretty devastating effect on cattle producers, wouldn’t it?
You know, I guess the biggest problem is that they consider them alternative meats. They're not a meat at all, by definition. If they want to say it’s an alternative to meat, well, yeah, but eating broccoli is an alternative to meat. So it’s not an alternative meat. And then people want to say it’s a fake meat. Well, it’s not meat at all. If it’s not made from meat, then it’s not meat, by definition.

So your biggest concern is what it’s being called, not that it exists?
There’s nothing wrong with the product. You know, we’ve been inventing food products for years. I mean, who would have ever thought the Twinkie would have taken off? I’m not going to go as far as to say it won't negatively influence the beef sector. But I don’t think it’s going to have as big of a negative influence on the beef sector as a lot of people envision at this time.

If you’re trying to imitate a product that doesn’t need [to be imitated], that doesn’t seem natural to me.

And why is that?
Because I think they're actually two different products. Just like I was talking about all the different products we can get out of one single carcass of a cow, this is just another product. I mean, the section that most of this is in is the ground beef aisle. It’s not like we have mastered a steak that’s affordable. And sure, there’s a lot of people out there that are willing to try an alternative product to eat, and then they're going to say, “You know, if it tastes the same, well, then why don’t I just eat the thing that it really should be instead of what it isn’t?” 

A lot of people view the alternatives as being better for you.
Well, I would actually be willing to say that beef is probably a more healthy and wholesome product, because of what these companies have had to do to achieve a texture and a flavor that is similar to beef. Like I say, I have not tried any of them. But based off of the way Burger King is advertising the product they're selling, they're saying it tastes just like a true Whopper. I guess this is [an irony] of the Millennial generation. They want everything to be natural and local. And then they jump into things that are not as natural or local.

You’re saying they’re embracing a product that has probably been shipped very far and been highly processed, and turning their backs on something that was probably grown much closer to home and in a much more natural way.
Yeah. I mean, cows have been around since before Jesus. And sure, we’ve been producing soybeans for a long time and we’ve been producing corn for a long time. And we’ve been mixing stuff forever, too, to get new products. But if you’re trying to imitate a product that doesn’t need [to be imitated], then that doesn’t seem as natural to me. So that’s a tough one to understand. I mean, like I say, it doesn’t matter to me what they choose, but it seems a little bit insane to me. 

Well, what about the environmental argument, that cattle production is too environmentally intensive and that this is a smarter environmental alternative?
Well, the argument is pretty weak to say that it’s a more environmentally friendly product. We’re able to utilize cattle to graze and harvest a lot of land mass that otherwise could not go into crop production. All these [new products] are plant-based. Some pieces of ground are not tillable ground. There’s a lot of ground that you couldn’t put a soybean or corn plant on with conventional equipment and expect it to be successful. And so we harvest a lot of grass and things that you and I can't utilize, through cows, and it becomes this nutritious product that we can consume without disturbing some of our natural resources.

What about carbon?
Yeah. They say, “Well, cows create methane.” Everybody wants to say it’s from their farting, but it’s actually from their belching. But they're really not producing that much methane. You know, in reality, all these people driving up and down the road are creating more greenhouse gases than that cow is, and she’s actually doing something that’s good for the environment. Now, I’m not fixing to stop driving my vehicle. But most of us? We’re driving to see a movie. Or we’ve got to go pick out pumpkins for Halloween. Or, “Oh, we want to go to the beach, so let’s go driving or get on a plane.” And so there’s another [irony] there. People want to blame animal agriculture for things, but yet the other decisions those same people are making are equal or worse than a cow standing out there.

The other hot topic has been these cellular-based meat alternatives. Do you see them having much of an impact on beef?
Well, the issue there right now is they just haven’t got it to a [good] price level. It’s just too expensive so far to economically produce it and market it to the public. It’s probably been a year or so since that was in the news media hot and heavy. I mean, they're actually using cell cultures to grow meat, so it would actually be closer to something like a steak or a roast. But they’ve hit a lot of snags in that, just figuring out how to get the cost down low enough so that they can compete with what they're going to have to compete with, which is beef. And I realize beef is one of the more expensive proteins that we have. But it’s still relatively cheap compared to a lot of things, like growing it in a lab.

You said you don’t predict that this trend toward alternatives would have a very big impact on the beef industry. But are we seeing any impact at all right now?
Not really, no. We’re not seeing much impact on beef demand. Beef demand is still pretty strong. Now, if all of a sudden China opened up its market to our beef, then we’d see beef prices jump in a hurry. But from just a domestic standpoint, we’re not seeing any hit on demand for beef. It’s still very, very strong. Actually, you know, Burger King has said their sale of Whoppers has gone up since they introduced the Impossible Burger or whatever it is. That’s probably because people are coming in wanting to try the Impossible Burger and whoever’s with them decides they really want a Whopper instead of an Impossible Burger.

Or you buy one of each for a taste test, right?
That’s exactly right. You know, for six or seven dollars apiece, it’s worth it to try and see if you can tell the difference or if there’s one that you prefer over the other. And they probably find that they can’t tell a difference because our palate is not sensitive enough to tell that difference. So, no. We haven’t seen a hit to beef demand.

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Andrew Griffith is an Associate Professor and Extension Livestock Economist with the University of Tennessee. He started serving Tennessee producers in May 2012 after completing his PhD at Oklahoma State University. Prior to earning his terminal degree, he earned a B.S. degree in Agriculture from Tennessee Tech University and a M.S. degree in Agricultural Economics at the University of Tennessee. He is originally from Hampshire, Tennessee where his family operates a commercial cow-calf operation, and where he produces soybeans and stocker cattle.

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