U.S. Beef Industry Insights with Orlando Salazar

Ryan Morfin sits down with a member of the 44 Farms family, Orlando Salazar, to discuss Angus beef and how American farms have been impacted by the COVID-19 crisis.
Ryan Morfin sits down with a member of the 44 Farms family, Orlando Salazar, to discuss Angus beef and how American farms have been impacted by the COVID-19 crisis. Angus beef has the longest, most accurate carcass data of all livestock, meaning that the breeding and feeding methods used on angus cattle ensure optimal quality and taste. 44 Farms prides themselves in not only keeping detailed records of this data, but also by their refusal to use hormones and antibiotics. Hormones, which enhance growth, and antibiotics, which enhance health will cause the meat to, respectively, become less flavorful and tender.

This trade-off forces many farms to make a difficult choice: whether to produce a quality product or whether to maximize profit? Salazar claims that 44 Farms has chosen the path of “Quality.” During this lockdown period, American farms have taken a hit because the HORECA sector (Hotels-Restaurants-Catering) is no longer ordering products in the mass volumes that they previously were. In response to this, 44 Farms has pivoted toward a heavier reliance on their online sales as well as a recent deal with Walmart to boost cash flow and stimulate operations.

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Ryan Morfin:                    Welcome to Non-Beta Alpha. I’m Ryan Morfin. On today’s episode, we have Orlando Salazar, part of the 44 Farms Family based in Cameron, Texas. They do all natural cattle and today, he’s going to talk to us about food supply, food access, as well as food security. As many of us in the wealth management industry eat a lot of steak during the given year, it’s probably important for us to all dig in and figure out what’s going on behind the scenes, behind the menu at the steakhouse. This is Non-Beta Alpha.

                                           Orlando, welcome to the show. Thank you for joining us today.

Orlando Salazar:             My pleasure. Thanks, Ryan.

Ryan Morfin:                    Well, all natural, could you tell us a little bit what that means and why that’s so important for people who are buying steak or ordering steak?

Orlando Salazar:             You bet. We raise all black Angus cattle. The Angus breed has had the longest history of maintaining carcass data than any other breed in the country. We’ll start with that. That’s important because if you’ll notice in restaurants, you rarely see any other breed promoted on menus or by restaurants, even by hamburger places. McDonald’s and Arby’s, they’ll mention all Angus burgers and the reason why there are lots of do that and want to do that is because the Angus industry, specifically black Angus, has kept the most accurate and longest history of carcass data in the country. So since they’ve done that, they’ve been able to literally prove the quality of the beef by maintaining this carcass data.

                                           So the USDA allows them to pretty much tout the quality of the beef because of the data that is behind it. So when we talk about all natural, we’re talking about two things, specifically, no hormones and no antibiotics. This is really important because in a very large operation, antibiotics play a key role for a lot of big producers. The more cattle that you have that you’re able to keep in the pipeline, the better price point you’re able to maintain. As you lose a head of cattle in the pipeline, you lose numbers and antibiotics keep those numbers up because you don’t lose that head. You don’t lose sick animals. Hormones promote quick growth and weight gain, but antibiotics take away from the flavor of the animal and hormones take away from the tenderness. So by not using antibiotics or hormones, you’re upping the quality of the beef, but you’re also hurting yourself because you’re not able to maintain the number of head of healthy cattle by using antibiotics.

                                           So when you don’t use antibiotics, once an animal has a respiratory issue, you have to remove that animal from the pipeline and so your numbers go down and it gets tougher to maintain the number needed to meet demand. So there’s a very tight balancing act that you have to make an order to produce all natural beef, so it’s not easy. There’s not a lot of people doing it and the reason why is because it’s hard. It’s hard to maintain those numbers when you take away the use of antibiotics and hormones.

Ryan Morfin:                    Well, that’s a great question. A lot of people don’t really look into the numbers, but hypothetically, for a thousand head of cattle, if you do all natural, how many of those cattle can you actually take through to production for meat versus the larger farms that are doing it, injecting them full of hormones and antibiotics, what percentage of that thousand herd would go? What’s the loss factor from one business model to the other?

Orlando Salazar:             I don’t know. Since we operate a boutique operation, we only slaughter about 200 head a week, between 200 and 220. I’m not sure what national numbers are, but it’s significant. I mean, for us, two to 3% is a big number. So animals get sick, you can’t use them anymore, you’re committed to the program. We’re called Never/Ever program because we never ever use either antibiotics or hormones, but it is an impactful percentage for sure.

Ryan Morfin:                    The trend right now in high end restaurants is for people to really make sure they’re using the best products and it seems that this process definitely captures the flavor and the health of the meat and also the consumer, I think, appreciates that. Has this always been the case or is this becoming a new trend you’re seeing not only the beef market, but also other markets is that niche providers of sustenance are looking at treating animals better and healthier as the overall conscientiousness of consumers start to awaken?

Orlando Salazar:             Well, it’s a great question. Our tagline is know your rancher and what that means is we want you to come out, come to 44 Farms and see how we treat our animals. Come out and see how we feed them, how they’re maintained, the cleanliness of our property, the cleanliness of the water, the quality of the food they’re provided. So those things are things that people look at now. Over the past 30 or 40 years, the whole restaurant eating experience has changed. Forty, 50 years ago, the star, so to speak, of the restaurant business was the owner. And as time went on, 15, 20 years ago, the chefs became the star. And I would say now we’ve trended to the point where the chef is still important, obviously, but the food is now the star of the restaurant, the food, where it came from, how it’s prepared, how the animals were cared for, how the vegetables and all the other products are brought to the table.

                                           So now it is the product itself that is the star of the whole eating experience. And restaurants are always looking for places to secure food and product from places that they know that they can refer their customers to and say, “Here’s where we get our stuff from. Here’s where we get our product from.” And you can go to that place and feel very secure about the quality of not only the product, but of the staff that’s caring for the animals or raising the crops.

Ryan Morfin:                    No doubt, the farm to table concept has taken off with people like Jean-Georges, Daniel Boulud, and the folks over in Copenhagen, Noma, really focusing on that. And it is, you’re right, putting the spotlight on the people who are raising the animals and curating the ingredients. And so as it relates to a layman’s perspective, a lot of folks don’t really know their food and they probably should spend some time getting to know it better. One head of cattle, I mean, how many, on an average, how many pounds of meat does that provide and how many types of different cuts of meat would typically be provided from one head of cattle?

Orlando Salazar:             Well, a steer is slaughtered when it’s about a year old and it’ll be slaughtered at anywhere between 1200 and 1400 pounds and that will yield a carcass weight of about 800 to 900 pounds. And as far as the number of cuts, it just depends how the primals, or the larger sections of the carcass, are cut up. So it really varies as to how many cuts it provides, but it will produce about 900 pounds of beef. The primary portion of that is ground beef, because one of the things that you find, as we moved into the carcass business, because originally we were in the genetics business so all we did was raise SEED stock. All the animals that we raised were meant for reproduction. So you wouldn’t want to slaughter the animals that we were selling 15 years ago. When we moved into the beef side, we had to actually learn a whole new side of the business, which was the carcass side, the slaughtered animal side.

                                           So we went to Texas A & M and took a three day course on Beef 101. And basically, we took a live animal and actually put our hands on it and our instructors, after five hours of book learning, they asked us to try to rate that animal that was still alive, whether it was prime choice or select, just by looking at the what’s called the phenotype of the animal, the curvature of the animal, the musculature of the animal, how round it was, it’s features on the outside, that was in the morning. In the afternoon, those dudes were hanging, those carcasses were already hanging and there were teams of 10 of us, and we all had an opportunity to actually butcher up a carcass. And what you find is that the cuts of meat that everybody wants, the ribeyes, the filets, the filet mignons, those are actually very small percentage in a big old carcass.

                                           So everybody wants those cuts of meat, but then you have 80% of the carcass remaining that you have to find a home for, so it’s a challenge. It’s a challenge because all the restaurants all want the same cuts. They all want the tenderloins, the ribeyes, the skirt steaks, the New York strips. Everybody wants those cuts, but we still have a lot of carcass that we have to move. And just to give you an example, in every carcass, there are two 12 to 14 pounds filet strips. So you have about 22 to 24 pounds, 26 pounds, of filet, in a 900 pound carcass. So that tells you, number one, why they’re so expensive and number two, they’re not easy to get to. There’s no automation that can be set up in order to, in an automated way, get to that sirloin, that filet, that tenderloin, so it’s a lot of work. And that’s one of the things that we found is that we have a much higher appreciation for butchers and the work that they do in order to provide that ultimate product to the consumer.

Ryan Morfin:                    So when you’re at a restaurant, which cut of meat are you typically ordering?

Orlando Salazar:             Well, it depends. Everybody loves a filet. I love New York strips, so ribeyes. I mean, those are the top three, and I’ll take either one of those.

Ryan Morfin:                    So you said earlier that one of the parts of the business that you guys were initially, and it was the genetics component, and maybe you can talk a little bit about how that’s evolved. I mean, science has really evolved around health and wellness, but also of the genetics of kind of curating the head of cattle and maybe you can talk a little bit about that process.

Orlando Salazar:             Yes. When I talk about genetics in beef, people think it’s kind of curious. They hear about genetics with race horses, and they kind of get it, right? You buy the progeny of a secretariat++++ and you know why you’re doing that because you’re going to get an animal that runs really fast and that’s the point. You want the genetics behind the parents of those animals, because you figure, “Well, mom and dad were quality animals, then their progeny are going to run fast too.” Well in beef, the point of genetics is to create several things. One of them is obviously a better tasting beef, better quality beef, but for the producer, for the cattlemen, they’re also looking for other characteristics.

                                           And as they maintain these animals, some of the characteristics that they’re looking for makes it a lot easier for them to maintain these animals and breed more animals safely and more easily and those characteristics include their birth weight. Birth weight is a key component to animal guys that are raising in an operation, a cow calf operation. They want these mommas to be able to have these calves out in the pasture and not struggle and they don’t want to have to send guys out to have to help these mommas give birth. So low birth weight is a key characteristic that’s controlled by genetics. Some of the other things that are controlled by genetics-

Ryan Morfin:                    So lower birth rate, sorry, lower birth rate is better for the calf?

Orlando Salazar:             Birth weight. It’s birth weight-

Ryan Morfin:                    Birth weight.

Orlando Salazar:             not rate. Birth weight. Yeah because if they’re born at a smaller size, it makes that momma have an easier time giving birth. So low birth weight is a plus, but then you want them to grow quickly. So some of the other characteristics that are controlled by genetics are then the weaning weight and yearling weight, how quickly they start gaining weight after they’re born. So these numbers are all kept, all these statistics are kept by the Angus association. So every animal that’s ever born, that information is fed into a central collecting area that are called EPDs. And those EPDs literally change every month because every month thousands and thousands of bits of data are being fed to the Angus folks in order to track the genetic outcomes of the animals that we’re selling.

                                           So we go from birth weight to weaning weight, when they’re taken off of momma’s milk, to yearling weight, how much they weigh at a year and some of the other characteristics that’s controlled by genetics is milk production, the quality of the ribeye, the carcass quality overall, so there’s lots of the marbling. All those characteristics are controlled by genetics. So when we’re talking about a genetics operation, when men come to, cattle guys, come to buy our animals, they open up one of our sale books and they look at these numbers, the EPDs, and they decide what is important to them. Do they need lower birth weight, animals? Do they need something that’s going to grow quickly? And a lot of that depends on the animals that they already have on their place.

                                           For instance, if they have some momma cows that are three, four or five years old, low birth weight is not going to be a huge issue for them because those mommas have been giving birth already, so maybe you want a bull that produces a bigger size animals. But if you know you have a bunch of heifers, which a heifer is a female cow that’s never given birth, if you just bought a bunch of new heifers, then you want some low birth weight animals so that those new heifers don’t struggle when they’re giving birth for the first time. So they look at all these numbers and they decide the characteristics of the bull that they want to buy, that they need for their particular operation.

Ryan Morfin:                    So approximately how many data points are in typical books, you have 10, 30? And how often are you measuring these cows to capture the data?

Orlando Salazar:             Let me pull one out and I’ll tell you. This is our sale book from our spring sale, I’m sorry, our fall sale, and we sold 500 bulls in one day. So as I open this book and I look at our EPDs, I’m counting one, two, three, four, five, six, seven, eight, nine, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, about 32 data points that are collected on every animal.

Ryan Morfin:                    And frequency of monitoring, you’re measuring this cow once a day, once a month?

Orlando Salazar:             They’re weighed very often. To be honest with you, I don’t know how often they’re weighed, but they’re definitely tagged and they’re monitored. We like to average about three to four pounds a day in growth. We are a vertically integrated operation, so we grow our own feed. We grow our own sorghum. Our sorghum is mulched and is crushed and it’s mixed into… Lost my place. But we produce our own food for them and so we monitor how much they eat, how much they drink. We’ve even reached a point to where we have found that keeping the food that we provide to them in shade causes them to eat more because they don’t like eating when it’s hot, when it’s been heated up by the sun so-

Ryan Morfin:                    Interesting. What does a healthy cow eat versus an unhealthy diet? I’m sure there’s some producers who put some things in the trough that are probably not as healthy. I mean, what do your cows versus that?

Orlando Salazar:             Well, that’s a great question and everything really just depends on the amount of moisture that’s available in any part of the country. When there’s lots of rain, cattle can graze on grass. And there’s plenty of hay. Hay is available at low prices and so a lot of this can be supplemented. So it just depends on the situation. I mean, I know guys that literally go out and literally buy anything to feed their cattle when we’re in a drought situation. But all those things, these questions that you’re asking, more and more cattlemen are being way more careful about what they do, especially if their cattle are going into a well known food chain, because they know these questions are going to be asked. So they’re doing a lot better job about maintaining the food quality that they’re providing to their animals.

Ryan Morfin:                    Well, you mentioned food chain and food supply during this period that we’re in of uncertainty about a health crisis, what are your thoughts about the U.S. food supply and food chain and food access and do you think it’s robust and strong, or is there something that could be put under pressure in the future?

Orlando Salazar:             Well, I think that the farmer is probably one of the most important links in the chain of our culture. The farmer produces everything that we have. Obviously we import a lot of product, but when I look at the American farmer and I look at the American cattleman, we operate on very, very tiny margins. And we are so dependent on climate, we’re so dependent on rain and we’re so dependent on things that are out of our control. In a way, we’re sort of blessed because we’re a boutique operation. We aren’t part of the sort of big operation that’s impacted by the rest of the country.

                                           We have our own niche, little marketplace, but the American farmer and cattleman needs support right now. For instance, we are not able to move cattle right now. Nobody’s buying cattle, nobody’s processing cattle because restaurants aren’t ordering, everything’s backed up. So that, that puts us in a situation where we’re having to sort of dump product and we’re not making any money off of it. We have three areas of business. We have our genetics operation where we sell live animals for reproductive purposes, we have our online sales where we receive product from our processor and we fulfill orders online for people all over the country for consumer use and then of course we have our restaurant customers, which is fulfilled by our processor, which works with our distributors and I guess it would be a fourth part, and that is our prime pursuits business.

                                           We just recently, as of about six months ago, started procuring all of Walmart’s cattle and the-

Ryan Morfin:                    Wow, that’s amazing.

Orlando Salazar:             Yeah. And so what that means is that we are building up a pipeline of product with our own customers to provide cattle to Walmart. In the meantime, our pipeline is not big enough, honestly. I mean, it’s a huge, huge demand, so we’re securing cattle as good a quality cattle as we can find that’s Angus beef from all over the country for Walmart’s use. So that piece of the business has gone well for us. Obviously Walmart’s still open, they’re still selling, so that part of our business has gone well. Now, the difference between what we do for our high end restaurants eventually, and what is currently going on with Walmart, is because we need the numbers, because we need the volume to supply Walmart’s demand, we are using antibiotics in the Walmart product, but we’re not using hormones. So whereas our product is no hormones and no antibiotics, the product for Walmart is only no hormones.

Ryan Morfin:                    So some of the stock shows, and a lot of our viewers may not be familiar, but you could get a head of cattle to sell for a few hundred thousand dollars. What’s the highest you’ve ever seen cattle go for per head and what’s kind of an average price you would say?

Orlando Salazar:             Well, those are good questions. So for us, the highest that I’ve personally ever seen at our sale barn at our farm was $500,000 for a female and that was a few years ago. I see bulls sell for 60, 70, $80,000 all the time. The average price for a good bull that we can sell to our customers can go anywhere between five and $10,000.

Ryan Morfin:                    And so one of these male bulls that is not going to be used for breeding is a steer and that head of cattle is going for that five to $10,000. Is that what you’re saying?

Orlando Salazar:             Oh, no, no, no. The animals that I’m referring to are all only for reproductive purposes, only for genetics.

Ryan Morfin:                    Got it.

Orlando Salazar:             When you take those animals and our customers would take those genetics, that bull, and use that to multiply his herd on his ranch.

Ryan Morfin:                    Got it.

Orlando Salazar:             And then the progeny of that bull would produce, then he would sell commercially to the feedlots.

Ryan Morfin:                    I see. And so the average a bull or steer now, that goes into the feedlot, what’s the average price for a high quality carcass?

Orlando Salazar:             That is a good question. I don’t know the answer to that. I do know that Angus is paid a premium. In other words, they’re sold per pound, whereas on the genetic side, they’re paid per animal, five, 10, $15,000, $20,000 for a bull. When they’re sold to the feedlots, they’re sold per pound. And if they are Angus, they get three, four or 5 cents a pound higher because it is Angus. I’m just not sure what the going rate is right now.

Ryan Morfin:                    Right now, yeah. And it seems the animal and meat sales have been going up maybe online, but I believe the restaurant side of the business is getting dramatically impaired. But are you seeing an uptick in online sales and an uptick in, I guess, retail consumption or has it been slow across the board?

Orlando Salazar:             Yeah. Online sales have skyrocketed for us, but it is a very small percentage of our business. Restaurant sales have completely dried up. Retail sales, we’re not in that many retail locations right now so that’s not a huge impact. Right now, we’re selling for the Prime Pursuits program with Walmart, we’re procuring the animals and then we’re selling them to Walmart at a certain age, I think maybe about six months old. So at that point they’re released from us. So I’m not sure eventually how much they’re selling in the stores. We did open up with 500 stores in the Southeast part of the country. So that’s where the Prime Pursuits program first started.

Ryan Morfin:                    Wow. So you mentioned farmers dependent on climate and that’s an interesting comment. There’s a lot of the, we’ll call them environmentalist or I’ll call them hyper-environmentalists talk about CO2 emitted from cattle, heads of cattle, as an argument to become a vegetarian. Do you pay any credence to that? Or what are your thoughts on that?

Orlando Salazar:             My thoughts are that I’m the sixth day, God created man and cattle. They were created on the same day. If you look in the Old Testament and you looked at some of the areas in Chronicles and you see that King Solomon, in one day, slaughtered so many head of cattle they couldn’t count when they were celebrating, I think, the opening of the temple. They had to have a huge operation. One verse says that they slaughtered 25,000 on one day. So in order to produce that many bulls, you had to have a heck of an operation.

                                           So what I’m saying is this, we’ve had CO2 emissions since practically the beginning of time, and I don’t think they had any problems back then. There’s probably fewer head of cattle now than there’s ever been, so I would say it’s silly.

Ryan Morfin:                    Yeah. Well the all natural food movement is definitely accelerating and 44 Farms is known as some of the best high end meat in the country and so I wanted to thank you for joining us. I know it’s a huge monumental feat to get Walmart to let you into their supply chain, so congratulations on that. And I’ve seen 44 Farms in some of the highest end restaurants here in the South and I’m probably coming across the country at this point. So keep up the great work. And do you want to give us the website that people can go to if they want to order online?

Orlando Salazar:             Pretty simple, www.44farms.com. We’ve got not only steaks and high-end cuts of beef, but our hotdogs and ground beef are phenomenal. You will love them.

Ryan Morfin:                    Orlando, thank you for joining us today and I’m going to be sure to get on that website today and buy some food for the freezer. And I appreciate you explaining to us and our viewers a little bit about what goes on behind the menu as we all go to many steak restaurants for business dinners across the calendar. Thank you so much and be well.

Orlando Salazar:             You bet. Thanks so much, Ryan. Appreciate it.

Ryan Morfin:                    Understanding the quality of the food supply that you and your family consume is important. We thank Orlando for helping us understand that. Thanks for watching None-Beta Alpha. And before we go, please remember to subscribe and leave us a review on Apple Podcast or our YouTube channel. This is Non-Beta Alpha. Now, you know.


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