The need has emerged once again in recent years. It points to a need for the cattle-feeding sector to downsize because there are so few cattle relative to available feeding capacity. In part, it also has to do with the fact that cattle feeders have been able to produce as much beef in recent years with a cattle inventory of 90.8 million head or so, as there was produced in the mid 1970s with 135 million head.

“Not only are feedlots paying record prices for feed and essentially record prices for feeder cattle, it’s been recognized for quite a while now that the supply of feeder cattle will be increasingly inadequate to maintain feedlot inventories at any price,” says Nathan Anderson, Oklahoma State University (OSU) Extension director and agricultural educator for Payne County.

Breaking It Down: Feedlot Capacity And Long-Term Profitability

Anderson and Derrell Peel, OSU Extension livestock marketing specialist, explain that feedlots maintained inventories by feeding lighter and younger animals for longer periods of time when cattle numbers peaked in the 1970s and began to decline.

“Feedlot inventories (in the 1970s) represented slightly less than 11% of total cattle numbers and 31% of feeder supply,” Peel says. “This last figure means there were approximately three feeder cattle available to replace every animal already on feed at the beginning of the year.”

By the 1990s, Peel says feedlot inventory represented nearly 13% of total inventory and more than 40% of feeder supply. So, there were typically fewer than 2.5 replacement cattle available for every animal in the feedlot.

In the last decade, feedlot inventories represented almost 15% of total cattle inventories and 51.4% of feeder supplies.

In 2012, Peel explains the Jan. 1 feedlot inventory was 14.1 million head, a record 15.6% of total cattle inventories and 54.9% of feeder supplies. In other words, there are currently 1.8 feeder animals available for every animal in feedlots.

“Obviously, the only possibility for this level of feeder-cattle supplies to maintain feedlot inventories is with the very slow turnover rate that comes with feeding ever lighter and younger animals for longer periods of time,” Peel says. “Corn prices that average twice the historical level, and currently are 3.5 times historical levels, make this economically infeasible.”

If this year’s drought hadn’t occurred, Peel reckons corn prices might be closer to $5/bu. rather than the current $7 plus. “While these short-run factors would have changed the feedlot picture somewhat, they don’t change the fact that the role of the feedlot sector is changing and must change fundamentally in the future compared to how it has operated in the past,” he explains.

“It is likely that corn prices in the future will average at least twice the level under which the feedlot industry we know today evolved,” Anderson says. “The point is that even without the drought, feedlots face a significantly different business environment.”

Peel adds, “The already high pressure resulting from chronic excess feedlot capacity will increase sharply in 2013 and 2014.”

For perspective, there were 2,091 feedlots with 1,000-head or more capacity in 2000, according to the annual summary from the National Agricultural Statistics Service (NASS). In 2011, there were 2,140. In 2000, total bunk capacity of those yards was estimated at 16.5 million head. It was 17.0 million head in 2011. Tables 1 and 2 illustrate other feedlot trends.

Ultimately, Peel and Anderson say that expanded beef cattle inventories will allow feedlots to respond appropriately to high corn prices by placing heavier cattle and reducing days on feed.

The need is there. It’s the opportunity side of the equation that cattle feeders are in the midst of conjuring.