Profits through the Supply Chain – a CRS Fact Sheet sponsored by Merck Animal Health

It is challenging, but not unheard of, for all sectors of the supply chain to be profitable at the same time, as the output from one sector (e.g. feeder or fed cattle) are the inputs for the next. So that high prices received in one place, imply higher costs for another. In addition, as the cattle cycle progresses leverage shifts up and down the supply chain. Each sector has experienced times of abnormally large margins and abnormally large losses. This stresses the importance of risk management and protecting equity at every stage (e.g. cow-calf, feedlot, packer).

The cattle cycle occurs as producers respond to the profit cycle which is impacted by supply and demand at each stage in the supply chain. The broader industry situation of being in a supply push or demand pull situation can vary from one stage of the supply chain to another as bottlenecks occur in the system. In addition, inflation and input costs can occur faster than output prices at different rates for each sector, impacting profitability.

In this Fact Sheet, learn about historical profit margins estimated for each sector and how they have changed from decade to decade. Overall, margin in the supply chain has increased, but continues to catch up to higher input costs.

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