Packers don't wanna be cowboys
Prime Future 168: the newsletter for innovators in livestock, meat, and dairy
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I've been reading the fascinating history of Kenny Monfort, who started Monfort of Colorado, the beef packing & cattle feeding company. Here’s the high-level story:
Kenny's dad was one of the early cattle feeders in Colorado in the 1950s, interestingly about the same time as his contemporary WD Farr, who we've talked about.
Kenny came along and started looking at how to grow the business and break the large cattle feeder's biggest bottleneck of having a limited number of options for processing cattle, all of them at fairly long distances.
Kenny's dad wasn't so sure about this plan because packers generally operated on 2% margins while cattle feeders consistently enjoyed 5% margins.
But Kenny won the debate because the company would have the advantage of operating both a feedyard and a packing plant, which would allow them to smooth out the cattle cycle and allow each side of the business more predictability by its largest supplier (for the plant) and its largest customer (for the feeding business).
The plan worked, the company grew, and Monfort of Colorado was publicly traded from 1970 until they were acquired by ConAgra in 1987.
What's interesting is that when Monfort of Colorado began building the plant, there was a cattle industry kerfuffle. Many ranchers were concerned that a cattle feeder building a plant was a signal that soon the vertically integrated poultry model would be moving to beef. They didn't want that to happen.
It's notable that this conversation was happening in the 1960s because it's the exact same pearl-clutching conversation you can hear in 2023.
Something that is rarely acknowledged is that one reason cow-calf production hasn't been vertically integrated is that it's one of the least economically attractive segments of agriculture.
But let's play out the scenario. Let’s say you're Cargill, Tyson, or JBS. The last thing you want in the US right now is more packing capacity, but you've got profits from the last 3 years that need to be invested.
So, what would the business case look like for vertically integrating all the way back to commercial cow-calf production?