Future of Agriculture podcast - the Greet Beef Bonanza and the Fall of Cattle Kingdom.

This is a great Future of Agriculture podcast episode that covers the evolution of the cattle business - the boom, the bubble, the bust, and shares some thoughts on the impact of innovation on the beef cattle business. I wanted to share my thoughts around the innovations that helped launch the boom, create the bubble, and shift the balance of power from cattle barons to other parts of the supply chain (mainly packers).

1) The boom got created when the demand for beef began to increase globally and there was a large relative shortage of cattle. Basic economics suggest what happened next - lots of money flooded into the cattle market based on what was alleged by some to be never-ending demand (sound like a bubble anyone?) Because cattle was largely a regional market, there was huge regional arbitrage opportunities - a cow in Texas worth $4 was worth $49 in New York, and entrepreneurs saw multiple opportunities and raised capital to scale businesses. Farmland became a very desirable asset class overnight, as did cattle operations. British investors put $45M ($1B in today's dollars) into cattle operations. As a result, the cattle industry grew by about 10x in a couple of years.

2) A couple of innovations helped enable market growth. First, the growth of railroads throughout much of the eastern US and midwest (this is the 1860s to 1890s time frame), along with an infrastructure of railroad depots, made moving cattle across regions a lot easier. Second, complementing the depots, were slaughterhouses that that avoided the need for moving cattle on trails, which meant significantly less risk of bad events on the trail (predators, bad guys, etc - it wasn't the wild, wild west for no reason ...) Third, refrigerated rail cars combined with slaughterhouses to allow cattle operators to process the animals and then ship the meat in refrigerated rail cars instead of shipping the whole cow.

3) There were some business and financial innovations that helped scale cattle operations. The creation of LLCs (limited liability corporations) and stock corporations that reduced or removed some of the personal exposure that businesses had and helped de-risk the business for founders. These vehicles also made the sale of a portion of a company easier. Both of these formats helped the cattle industry grow faster. They are both being used today by generational farming operations today to allow multiple generations to sell shares instead of having to sell the underlying farmland assets or farming operations.

4) An often overlooked innovation is the move to barbed wire, which created fences that could help keep cattle in specific areas and keep them safe from a lot of the predator risks in the wide open spaces that were some of the best cattle acreage. Fences have continued to evolve, with electric fencing (which shocks the cattle to provide an even stronger incentive to stay where they should) and not virtual fences where a sensor on the cow actually keeps them in the designated area without putting the physical fence up. As a young lad, I put my share of fence posts in as we rebuilt a few miles over a few years - trust me, the move to virtual fences is good for everyone.

5) One innovation was to create pack houses at scale, and a lot of them were built near Chicago, which helped turn Chicago into one of the dominant cities because of all the economic impact that they had. In the late 1880s meat packers represented about 20% of GDP (for comparison shopping, 20% of GDP is represented by ... health care).

6) Byproducts at scale and creation of alternative markets for them was a big innovation. In fact, it became so important to the economics of cattle operators that they both had and found good uses for the byproducts - the non-meat parts of the cattle. In many ways, this was the packer's largest early advantage (because only they could use the byproducts at scale) and represents their largest competitive advantage right through to today. Profitability is often determined by the success (or not) of the byproduct markets.

The boom created a situation where high prices created a large demand set for cattle. Once the cattle operators found a way to reach and exceed demand, the balance of power shifted from cattle barons to packers. That dynamic is always fluid and depending on market conditions sometimes the cattle barons have the upper hand, sometimes the packers do.

Finally, there's more to it than just innovation - business, product, and financial innovations included. In many cases, risk, luck and greed can play equal parts in the outcomes. The podcast goes through an example of a cattle operator that raised a lot of capital the year of the great die-in when a lot of animals died (50% by many estimates). All of a sudden, through no fault or credit of his own, his business plan just got a lot more attractive because of something completely outside of his control which impacted the supply side of the cattle market in a very meaningful way.

In some ways, the cattle industry mirrors the specialty crop industry. Just like the individual cattle operators, the small to medium-sized growers that grew great crops but were not vertically integrated gradually found themselves at a disadvantage and the businesses closer to the customer gained leverage over the actual growers. Just like cattle operators figured out how to centralize operations for processing, leverage new transportation options, and create refrigerated rail cars, specialty crop operators were also able to centralize operations, create similar refrigerated rail cars and leverage new mobility options.

Just like the pack houses gained leverage over cattle operators, in many cases the retail locations selling the specialty crops to the consumer gained leverage over the farm operators whose operation stopped at the farm gate. There are many similarities between the growth of the cattle industry and the growth of the specialty crop industry. In many cases, the primary difference was that specialty crops occurred later in time and were able to learn from and benefit from the work that was already done by the cattle operators.

This podcast format of taking a single topic, focusing on it for an entire episode, and building off of a great book was really effective for learning about all the changes in the cattle business with Janette's and Tim's perspective on cattle and innovation shining through to make this a great episode. Tim has done a couple other podcasts like this format. I enjoy the single topic deep dives with subject matter experts. I will also recommend the Modern Acre podcasts that go deep on one topic (their first effort was the Climate Corp acquisition by Monsanto).

https://futureofagriculture.com/episode/history-of-agriculture-the-great-beef-bonanza-and-the-fall-of-the-cattle-kingdom