Compounding the feeding sector's problems is the exodus of outside money that predominantly fueled cattle feeding through the mid 1980s. That loss of outside capital has heaped more risk on feedyards, forcing them to take ownership of more cattle to maintain capacity.

“Today, for anyone serious about feeding cattle on any kind of competitive scale in terms of size — not withstanding the really small farmer-feeder operator — the customers are basically gone,” Helming says.

The result is the industry can expect major and accelerated consolidation in cattle feeding in the next 5-10 years. Most at risk are the middle-sized feed yards (5,000- to 25,000-head capacity), Helming believes, which will find it difficult to compete for capital and against the efficiencies of larger feed yards (50,000 to 100,000 head, depending on their location).

Lawrence and Hughes agree feeders will particularly be under pressure in the coming years. But Lawrence sees size as less of a factor in survival.

“Smaller, efficient feedlots strategically located near sources of ethanol co-products will thrive,” he says, while larger feedyards boasting a better economy of scale but located farther from co-products and other feed sources will scramble to compete.

Hughes adds, “I suspect we'll see some feeding operations selling for 50¢ on the dollar.”

Feeders Hold Leverage

But as competitive as the feeding business stands to become, those that survive will hold the leverage in the industry, these experts say.

“The bargaining position of the cattle feeder has improved relative to what it used to be with the meat packer because of the packing industry's underutilized capacity,” Helming says. “Packers need the cattle.”

It's a situation sure to grow more critical with the recent purchase by JBS S.A., Latin America's largest beef processor, of Greeley, CO-based Swift & Co. JBS has announced its intentions to gear up production at Swift.

Meanwhile, Hughes says the cow-calf sector should find plenty of willing buyers for heavy calves.

“In light of the effects of ethanol on grain costs, the cow-calf producer will have to figure out how to produce heavier calves on grass. Rather than add more cows to the herd, I expect ranchers to keep their calves longer, and run them as yearlings for sale next summer at 850 lbs. Those cattle will then go into 100-day feeding programs at the feedlot,” Hughes says.