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.