What is in this article?:
- High Costs Challenge Cattle Feeding's Rules Of Thumb
- Economics demand downsizing
Cattle feeding has always revolved around opportunity and need, usually both at the same time.
Sugar and cotton mills in California – commonly regarded as the root of modern commercial cattle feeding in the 1930s – offered the opportunity with cheap sources of feed. The need was to feed an influx of Dust Bowl immigrants.
For the record, history tells us the practice of feeding groups of cattle to slaughter weight is at least as old as the nation itself. The sprawling, business-first, intensively managed cattle feeding industry of today grew from those California roots to Arizona and finally the High Plains in the 1950s and 1960s. Farmer-feeders had already been going strong in the Corn Belt and as far west as places like Colorado for decades.
Arguably, it was the beef price freeze in 1973 that spawned the first round of consolidation that led to today’s scenario where five cattle feeding organizations control 20% of all cattle feeding capacity and churn out 80% of the annual fed cattle supply. At the time, survival demanded greater economic efficiency. One opportunity was acquiring the feedyards that had bankrupted others in the colossal economic wreck.
In other words, cattle feeding has never been for the weak of heart. There’s too much money, time and risk tied up in a pen of cattle that will be priced in a narrow marketing window.
Though it was never easy, nor guaranteed, modern-day cattle feeding used to pay well enough, often enough to recover from the losses in between, if you stayed in the market.
One of the reasons is that for all the uncertainty – until the commodity bubble a few years ago – the averages associated with cattle feeding were fairly predictable. These included cheap corn, how much different classes and weights of cattle consume and gain, price seasonality, basis, how various technologies impact performance and carcass quality, even the fundamental way the futures market seemed to ebb and flow.
Though predictability remains for live-cattle performance, commodity markets have become so divorced from fundamentals, and competition for feed resources so fierce, that price volatility and increased financial risk reign as never before.
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Citing the “Historical and Pro-jected Kansas Feedlot Returns” report from Kansas State University (KSU) as an example, from January 2002 to September of this year, estimated monthly net returns for steers fed in Kansas feedlots were negative 61% of the time. Only two months in the past 18 (up to September) showed positive returns. This past summer was historically ugly. Steers in August were estimated to have lost $253/head, according to the KSU data.
Keep in mind, these estimated returns are projected on a cash basis; there is no way to account for the risk management of different feedlots on each pen of cattle or premiums received beyond the average price.
As important, keep in mind, the estimated net returns are based on owning, feeding and selling cattle. Feedlots are a different business entity altogether. In the case of commercial ones, revenue is generated from services and feed sold. The line between feedlots and cattle feeding gets obviously blurry because many commercial yards own a substantial number of the cattle being fed there.