Part 4

Financial Aspects of Livestock Industry

ONE of the most significant and gratifying gains in the livestock business during the decade just past is the recognition of its financial soundness. This is reflected in the changed attitude of financiers and investors towards cattle paper. While a decade ago bankers in the great financial centers looked with suspicion upon such securities, now bankers and business men throughout the country purchase approximately $500,000,000 of cattle paper annually and regard it as among the safest investments.

Melvin A. Traylor, President of the First Trust and Savings Bank of Chicago, declares that “loans on livestock are the best of all investments,” and President Thos. P. Martin, of the Oklahoma Stock Yards Bank, Oklahoma City, agrees with him. This latter bank loaned $45,000,000 in seven years to cattle producers in Oklahoma, Texas and New Mexico, only fifty dollars of the amount loaned being lost. It is doubtful if any other industrial securities could make a better or even an equal showing.

There is still some difficulty in arranging loans in some sections of the country, where bankers have not yet realized the changed conditions of the business and farmers have not given the proper emphasis to the improvement of livestock production. But generally speaking the cattle feeder with good judgment in the breeding and selection of feeders meets with no obstacles in financing his operations.

Most country bankers freely accept cattle paper because it is readily rediscounted in the country’s financial centers. But many of them urge the borrowing feeders to keep accounts and determine accurately their profits and losses.

This is to the interest of the feeder and the cattle industry as a whole. For if the business is ever to be placed on a cost-of-production basis for the reckoning of market prices, it must be done by an accumulation of thousands of actual tests in feeding practice. It is plain that each individual feeder could not set or ask a certain percentage of profit, since a poor judge of stock and a careless feeder would demand more for an inferior product than the more efficient feeder would ask for a better article.

The feasibility of any such scheme of regulating prices does not now appear, but it is clear in any case that each lot of cattle would have to be appraised at what their production ought to cost, considering quality, and not what it actually did cost.

Losses on Declining Markets

THAT the packing industry suffers with the livestock producers on a falling market was never more clearly emphasized than in the year 1919. Armour and Company’s losses on dressed beef alone amounted, in the twelve months, to several million dollars; and on the sale of pork products the losses were even greater.

These losses are figured on the basis of the primary sales, which include not only the meat but the hides and all other by-products derived from the animals.

Such deficits do not mean that the Armour organization, as a whole, suffered a net loss for the year. But there is no mystery about the methods of countering these deficits. They are offset by the profit made in manufacturing by-products into merchantable commodities. Each by-product industry in the Armour organization is placed on its own responsibility. It must pay to the beef, hog, or sheep killing department the market value for its raw materials—the same price it would pay if it purchased on the outside market.

For example, the beef department buys its cattle to the best possible advantage in competition with other buyers, and sells the beef at the best price obtainable. The hides go to the tannery at prices ruling on the open market. If the Armour tannery cannot pay this price the hides go to outside buyers. To sell at less would be favoring the tannery at the expense of the beef department, or robbing Peter to pay Paul.

The same business methods are pursued with every scrap of the animal, whether used in making glue, soap, sand-paper, drugs, fertilizers, or any other commodity.

While on this basis Armour and Company sustained heavy losses in their meat departments, the by-product industries showed profits, as they usually do, because their products are not so perishable and are not so much influenced by market fluctuations.

These by-product industries are, in short, the insurance of the packers against crippling losses, and may be likened to the activities of the up-to-date livestock farmer, who diversifies his operations by feeding cattle and hogs and by keeping fowls, sheep and dairy cows, so that if he loses on cattle or hogs he may offset his losses by better prices for lambs, wool, butter, eggs, poultry, or a money crop.

Why Prices Fluctuate

PRICES for livestock are not controlled by packers, and only to a limited extent by the supply of cattle in the market. They go up or down in response to the price the consumer is willing to pay for meat.

Note how closely the two lines in the chart, representing prices of cattle and dressed beef, follow each other through the two and a half years covered by the graph. America’s twenty million food shoppers determine the dressed beef price, by their willingness or refusal to accept beef at the price asked in competition with other food. And naturally dressed beef prices react directly and at once on cattle prices.

It is often necessary for the packer to take a marginal loss on beef in order to stimulate demand, but he must at once hedge against this loss by buying cattle cheaper. He tries to fit the price he pays for cattle each day to the price he is obtaining for beef. Only by so doing can he maintain his business on present small margins. Large receipts of fish, poultry, game, eggs, vegetables or fruit at certain seasons also affect the price the public is willing to pay for beef, and this is reflected in the price the packer can afford to pay for the live animal.

It is plain that the packer cannot determine retail meat prices, simply because he cannot say to the consumer at the butcher’s counter, “You must buy meat and you must pay such and such a price.” Because he cannot do this he cannot control the prices of livestock.

THIS CHART SHOWS THAT DEMAND BY CONSUMERS IS THE BIG FACTOR]

What Efficient Distribution Means

LIVESTOCK producers are, of course, engaged in an absolutely indispensable industry. Of scarcely less importance is the packing business. For upon food production and preparation depend all other industries and activities.

But it is profitable and enlightening to ask, of what use would be production and preparation without means for delivering the food to the consumer? The mere asking brings realization of the prime importance of ample and uninterrupted transportation and distribution of packing house products to consumers through the retailers of the country.

And this, in turn, brings us to the consideration of the packers’ salesmen in the hundreds of cities and towns throughout America, which as a whole make up the final market for the producer’s livestock.

With the sale of his meat animals by the commission man at the primary market, the owner seems to witness the end of the transaction as far as he is concerned. But does he?

Could the commission man sell and the packer buy the livestock if it were not for another salesman and another buyer out at the farthest end of the market system transacting business with each other in the retail market?

Again the question answers itself. For the packer’s salesman is literally the salesman of the livestock producer at the final market, upon which all other markets depend. The advertising and educational activities conducted by the packer continuously broaden and intensify the ultimate market for the products which the livestock man produces. It devolves upon these agencies to keep the meat products moving towards final consumption, just as the man at the measuring spout of the old-fashioned threshing machine had to keep the grain out of the way and prevent congestion.