A look at how small and mid-sized feeders survive and prosper.
It's no secret that big feedlots dominate the feeding industry, while many of their smaller cousins struggle.
"If you travel across the Midwest and Great Plains, you see an awful lot of lots that are empty with weeds growing up," says Marvin Duncan, professor of agricultural economics at North Dakota State University (NDSU).
Like much of agriculture, feeders are realizing the scale needed to make a profit tends to be increasing.
Still, many small yards, which feed from a few hundred to a few thousand head, not only survive but make money. Successful small feeders keep a sharp eye on costs, hold down debt and adopt well-conceived business strategies.
"The day is long gone where hard work alone will get you there," says Chuck Jones, operator of a 2,500-head lot in Torrington, WY. "You can generally make as much money in the office as you can out in the field."
Most importantly, successful small and mid-sized lots play to their strengths. Some turn to niche markets that the industry's giants won't touch, such as feeding newly weaned calves. Many farmer-feeders emphasize their farming operations as a way to cut their feeding costs. And, as a rule, smaller lots emphasize customer service.
For example, some feeders help customers minimize risk through hedging or forward contracting. And, like their bigger competitors, many smaller lots help customers market their cattle.
"Those who are really making it a success are customer oriented," says Ed Boos, president of First Bank and Trust, which serves numerous mid-sized feeders from its headquarters in Cozad, NE.
Bigger Isn't Always Better Giant lots have many advantages over smaller ones, including unmatched economies of scale. The big feeders can keep facilities and equipment in use year around, whereas some smaller operators only feed one cycle of cattle a year. And the big feeders benefit from specialization; because they do only one thing, they often do it very well.
"At a large feedlot, the sole reason to be is to feed cattle efficiently," says Tim Niedecken, business analyst at eMerge Interactive's Professional Cattle Consultants in Weatherford, OK, a firm that provides comparative feeding data to feeders of all sizes.
But Niedecken cautions against the assumption that bigger is always better. "We find very efficient operations in feeding performance and cost management at all capacities of lots we work with. Size is not necessarily a determinant of an efficient, well-run operation," he says.
Moreover, giant feeders can run into major problems if their segment of the cattle business goes sour. With the big yards, "you can make money faster, but you can go broke faster," says Duncan.
Small and mid-sized feeders wear many hats, and this has helped them survive and prosper. Diversity cushions them if one segment of their business hits the rocks.
"Diversity is a good thing when things go bad," says Niedecken.
For example, some small feeders have a cow-calf operation, a feedyard and a farming operation, which generates some crops for the feedlot and other crops for the cash market.
"Generally, one of the options you've got makes some money and keeps you in business in a bad year," says Chuck Jones, a Wyoming farmer-feeder.
By growing their own feed, small lots also insulate themselves when feed prices skyrocket. But there are drawbacks to diversity, notes NDSU's Duncan.
Diversity is an advantage only if you're good at each segment of the operation. That means some operators must excel at farming, ranching and feeding. And, even top performance in several areas may not overcome the disadvantage of prices or poor location - either too far from feed supplies or too far from slaughterhouses.
Keep Costs In Check Successful small feeders also stress cost containment. They hold down long-term debt and labor costs, avoid unnecessary equipment purchases and emphasize herd health in breeding and feeding operations.
Smaller operators also tend to keep their equipment in top shape. This avoids the need to take out big loans for new equipment. Gary Ham, operator of a 3,000-head lot in Benkelman, NE, checks his equipment over every time he uses it. He also keeps an old model feed truck in good repair to serve as a spare in case the newer one breaks down.
Ham minimizes equipment outlays by hiring out certain services. A custom operator chops his alfalfa. "I also have my corn harvesting custom done," he says.
The bottom line: Smaller feeders can survive and prosper if they find the right niche, play to their strengths and watch every penny.
"The largest lots have an economy of scale," says Niedecken. "But the smaller lots have an advantage in customized care - not only care of the cattle but care of the customer.
"I have people say that smaller operations in agriculture can't survive," says Niedecken. But he disagrees. "They may have to do things a bit differently. They may have to seek out niche markets. They may have to do things the larger yards don't want to do." But, he says, "They can be efficient, and they can be profitable."
Doug McInnis is a business management writer and a contributing editor to BEEF. He's based in Casper, WY.
Small and mid-sized feedlots may never achieve the economies of scale of a 40,000-head feedyard. Even so, they can adopt tactics to help level the playing field. Computers are one way to do this.
Computers help small feeders track their costs, figure when to reorder feed and warn them when they're headed for financial trouble.
"You can do a better job of figuring out where you have to be to break even," says Chuck Jones, operator of a 2,500-head lot in Torrington, WY. Jones also says the computer helps him determine when his cattle aren't eating enough, an early warning of possible health problems.
Computers also provide detailed cost-of-gain and rate-of-gain information that helps small feeders give first-rate service to their customers.