Part 2

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.

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.

There are two distinct divisions of the process of turning livestock into available meat supplies. First, the production, shipment and sale of livestock. Second, the preparation, transportation and distribution of meat products to retailers. The two are interrelated and absolutely dependent one upon the other.

The opportunity for organized producers to take complete possession of their end of the process by assuming control of the stockyards, is offered in the passing of that control from the packing industries by virtue of the recent understanding with the U. S. Government.

Farming as a Business

ALL business undertakings are ventures. Under the best of conditions there are fat and lean years, and the possibility of failure, due to poor management, lack of capital, or adversity, is always present.

Farming is no exception. It is in essence a business proposition, and should be so regarded.

A knowledge of crops, of soils and tillage, of livestock breeding and feeding and other purely agricultural subjects constitutes but one side of the farming industry. On top of this come the important matters of business management—the buying of seeds, fertilizers, feed stuffs, livestock and general equipment and supplies; the erecting and maintenance of buildings; the arrangements for necessary credit; keeping in touch with market conditions and prices; the hiring of help, and finally the establishing and operation of an accurate cost-accounting system.

Yet when all is said and done, records indicate that farming offers more chances of success than almost any other line of business endeavor. A retail merchant, according to statistics, has from two to four chances in ten to conduct his business successfully for fifteen years; a manufacturer has from two to seven chances to do the same. Farming is conspicuous for its small percentage of out-and-out failures. Living is practically assured, which gives the farmer a distinct working advantage to begin with. He enjoys a cash market and is not called upon to suffer bad debt losses. He is in an industry that is absolutely essential, which cannot be destroyed by any shifting of circumstances.

The greatest need is doubtless for cost-accounting systems which will serve as a guide, not only to prevent unwise purchases, but to indicate wise expenditures in improvements that will bring a good return on investment, and to show definitely the amount of profit obtained on each transaction. Next to this in importance is perhaps the need for a thorough understanding of crop rotation and the principle of diversified farming as a means of offsetting losses in one line with gains in another. The securing of credit to enable expansion, and the adoption of labor-saving devices are also essential.

Profits and losses in farming must be reckoned, as in all other businesses, on averages over a term of years. But the future offers better assurance than ever before to the man who is a good agriculturist and at the same time a skillful business manager.

We Stand or Fall Together

WITH some elements of the American public there seems to persist the conviction that the great packing concerns are seeking the injury of livestock producers to their own enrichment. How such an idea can be seriously harbored by thinking men is hard to understand. For the packing industry to plan for the farmer anything but prosperity is to endanger or destroy the source of supply of the raw material by which it lives and grows.

It should be perfectly plain that the packers are selfishly interested in encouraging the producer. Their selling efforts are directed towards disposing of the largest possible volume of meat products, at the best price obtainable in competition with other foods, in order that they may maintain large volume of livestock purchases at prices that will encourage both quantity and quality of production.

Between the producer and the consumer, between the buying and the selling price, the packers operate upon a smaller margin of profit than any other large industry. On invested capital they have realized an average of about 9 per cent over a term of years, on volume of sales about 2 per cent, and on each pound of meat less than one-half of a cent.

At the same time the risks of the business are greater than in other lines, both on account of the perishable nature of the product and the violent fluctuations of food prices, the causes for which cannot always be foreseen.

The comparative low prices of hogs and pork products at the end of 1919 is a case in point. The packing business entered upon the year in the belief that the world shortage of food would maintain pork prices at high levels for a number of years; that European demand would absorb even a larger surplus of American hogs than the pre-war period. The earlier months of 1919 confirmed this belief. The foreign demand was very brisk, exports reached unprecedented volume and prices were maintained.

Then came the unlooked-for event. Foreign exchange rates fell to so low a point that Europeans could no longer afford to buy American meats. The packers extended credit for a time, but the limit of safety was soon reached, and when the year closed very little American pork was being exported and no new contracts were being made.

The result was great loss to both producers and packers. Armour and Company alone packed millions of pounds of pork during the period of high prices, much of which was still in the course of curing when the slump in the market came.

But the conditions that caused this decline and loss are exceptional and only temporary. The great foreign need for American meats still exists—the greatest need in the world’s history. The ability of Europe to buy will be restored with the full restoration of peace and the arrangement of international credits. The result will be a return of profits and prosperity to both producers and packers of pork.

The facts to keep in mind are these:

First, there must finally be a realignment of prices on all livestock and meats, to levels below the prevailing high war prices. A fair balance must be struck between the interests of the consumer and those of the producer. Prices for meat must be sufficiently attractive to consumers to insure an adequate volume of sales; on the other hand prices for livestock must be sufficiently high to encourage production. Only on this basis can the industry thrive.

Second, the utmost care must be taken in breeding and buying of feeding stock and the most exacting economy practiced in feeding methods.

Third, the producer must realize that the packer is his natural ally in maintaining the prosperity of the two inseparable branches of the livestock industry—production and packing.

It is a reassuring sign that producers and packers are already getting together on a platform of better understanding of their mutual interests, both for protection against disturbing agitation and legislation and for the correction of whatever inequalities or abuses may exist in the shipping and marketing of livestock.

Armour and Company’s Farm Bureau was established three years ago as a point of contact with livestock men, through which better methods of breeding, feeding, shipping and marketing could be promoted.

Being in constant touch with the requirements of the markets, Armour and Company know the types of meat animals which are most demanded and which bring the largest profit to the stockman. The Farm Bureau has available many facts regarding the economical production of these types, and these facts can be had by addressing the Bureau, care of Armour and Company, Chicago.