20 August 2012

2 minute read

By now you are probably aware that this past year was the smallest calf crop since 1950. Estimates vary, but Dr Bill Mies was quoted in Beef Magazine a year ago indicating that excess feedlot capacity may be as much as 25%. Feedlot numbers had been holding their own due to drought, heifer feeding and general pulling ahead of cattle. This caught up with the industry with the May 1 USDA Cattle on Feed report. In that report cattle on feed numbers were less than the previous year for the first time in several months, a sign of things to come.

This sets up a competitive scramble for the available cattle. So who will feed the cattle in the future? Depending on where you sit and what your biases are, there are several answers that question. However, most answers will boil down to efficiency, economy (of size and scale) and complementarity.

Economy of size is difficult to evaluate because the answer differs depending on management. For example, the size of feedlot necessary to efficiently operate a feed mill that includes flaking capabilities is larger than one without. Manure management and efficient distribution may be a disincentive to increased feedlot size since it increases the distance that the manure needs to be hauled for distribution. Nonetheless, clearly the long term trend is for larger feedlots.

Complementarity here refers to two operational components or businesses that mutually fulfill needs of the other, as in horizontal and vertical industry integration. Some of the consolidation that has occurred at the larger end of our industry is related to increased ownership of cattle and feedlots by the packing industry. This reduces risk in a narrow margin business and ensures consistent supplies of fed cattle.

However integration can also occur with the cow-calf and feedlot sector (retained ownership) and the grain and feedlot sector (farmer feeders). Feedlots that own farming or crop production enterprises also spread risk and may be able to competitively source feed costs. This of course is an inherent advantage of feedlots in the Corn Belt. Retained ownership allows cow-calf producers to take advantage of their genetics and management and capitalize on profitability in the feeding sector when cow-calf margins are negative.

One current issue that is being discussed is the fate of small (<1,000 head) feedlots. Most of these operations are farm feedlots with grain operations. They tend to be seasonal, often feeding one group per year. For example, on Sept. 1, 2011, the number of cattle on feed in small and large feedlots in Iowa was equal. However, by Feb. 1 there were 11-12% more cattle in small feedlots.

Smaller feedlots are more likely to “sit it out” and remain empty when grain prices and the profitability of corn production remain high. The extent to which these feedlots come back into production remains to be seen. One concern of these feedlots has been uncertainty over their compliance with water quality regulations. The good news is that much of this has been clarified in the past year or two. For more info, including a new factsheet on water quality for small feedlots, check out the Small Feedlot and Dairy page on the Iowa Manure Management Action Group (IMMAG) website.

Small or large, the feedlots that will be most competitive in the future are those able to feed cattle most efficiently and at the lowest cost of production. This requires low cost feed procurement; excellent feed, bunk and nutritional management; and the appropriate use of technology to improve feed efficiency. More information on these topics is available on the Iowa Beef Center website.

Additionally, competitive feedlots often rely on consulting nutritionists and veterinarians to keep up to date with the latest technologies and tools. The custom feedlots listed in the summer issue of the Iowa Cattleman strive to be competitive in their costs and efficiency practices.

Iowa feedlots have significant feed cost advantages compared to other regions. However, feed costs alone do not assure competitiveness or the lowest cost of production. Those producers who are able to combine low feed costs with efficient production, professional decision-making, effective use of manure nutrients, effective marketing and good planning will be difficult to beat in “the battle for the cattle” though.

August 2012