Kenneth Eng

Eng Ranches
San Antonio, TX

It’s been a year full of feedlot financial problems, even though feedlot performance was excellent. That’s thanks to good feeding weather, good cattle, good management and good nutrition. No doubt the increased use of beta agonists has also increased gains and carcass weights.

The severe 2011 drought in the Southern Plains moved north to the Central Plains and Midwest in 2012, bringing poor pasture and crop production, and record grain prices. Complicating the ingredient price situation was the rapid increase in all by-product prices; even the most flexible nutritionist found providing bargain by-products difficult.

In addition, dry grass and high supplement prices resulted in more cow liquidation and more cows moving to dry lot. Limit-fed confinement cow programs have worked better than many expected.

Land prices continue to increase at a breathtaking rate. While most farmland is being bought by other farmers, ranchland is often bought by “outsiders.” With record-high land and cow prices, some ranches have opted to take the money and run. In some instances, beef production isn’t the major objective of new owners, which may limit future cow expansion.

Bill DickeBill Dicke

Cattlemen’s Nutrition Services
Lincoln, NE

The cattle industry faces more challenges today than perhaps at any time in several decades. For starters, losses on fed cattle continue to mount, but higher fat cattle prices in the near term hopefully will help.

High feeder cattle and ration prices, excess feedlot and packer capacity, and persistent drought in much of the U.S. are major hurdles, signaling that more shrinkage in the U.S. beef cowherd is likely. At the same time, however, feedlot capacity is increasing in some parts of the country.

With the November election behind us, we likely can expect a surge in taxes and regulations. Throw in weak economic conditions in the U.S. and abroad, and it’s easy to be a little pessimistic about the industry’s direction.

Cattle performance across most of the industry has been fantastic for the last two years. At some point, Mother Nature will change that, with potentially ugly results.

Feedlots practicing good risk management have fared well economically, and cattle operations with significant landholdings saw their net worth grow appreciably again in 2012. Some parts of the U.S. continue to have a competitive advantage in cost of production and ration prices, and this will continue to impact which and where cattle are fed.

All industry segments must adapt to a “new normal” as we move into 2013 and continue to wrestle with high feedlot replacement costs and risky breakevens. The current Choice-Select spread should get all of our attentions as well. While it’s obvious that the industry will look different five years from now, some excellent opportunities for those who can adapt are likely as well.

Tom Peters

Glacier Beef Inc./DeKalb Feeds
Oregon, IL

An abnormally warm and dry winter during 2011/2012 in the Ethanol/Corn Belt continued throughout 2012 and persists into the new year. In fact, 50% of the heart of U.S. corn production currently ranges from abnormally dry to exceptionally dry.

Corn producers struggled not only with reduced yields, but with salvaging crop failures. Many producers attempted to salvage subpar-quality corn silage for use in feedlots and cow-calf operations, but nitrates and aflatoxin levels were often high.

Interestingly, many cattle production units that manage manure intensively were blessed with increased yields compared to neighbors who used commercial fertilizer. This suggests that organic matter from livestock waste has an often-underestimated value.

Land prices continued to escalate, and many producers chose to liquidate their cow-calf herds due to a lack of feed and high land prices. Several years of highly profitable crop prices for growers have resulted in some feedlots closing down, while others have expanded. In addition, we’re seeing more construction of new designs of cattle-housing facilities that feature improved air quality, optimal cattle comfort, and are more labor-friendly for production and manure management when compared to older facilities.

Resultant from reduced corn supplies are dwindling hay/forage acres. Many producers are re-evaluating cropping schemes, and more wheat or rye acres are being planted for cover crops for possible harvest as forage in the spring. Meanwhile, distillers by-products continue to be further extracted (fat extraction), but many of these by-products are of marginal nutritional attributes and not economical to feed to finishing cattle.

In addition, disappointingly low supplies of growth implants are available to the industry. And high feeder cattle prices coupled with record feed prices have resulted in huge financial losses, especially for producers who “overfeed” cattle.

Some of this overfeeding results from producers not understanding the negative economic ramifications of growth efficiency. Meanwhile, other overfeeding is the result of packers buying cattle and then delaying their harvest for 2-3 weeks.

This past fall’s disappointing election results will assure increased regulations for U.S. cattle producers. It will take a good economist to survive and prosper.

dave hutchenson, Animal-Agricultural Consulting, Inc.Dave Hutcheson

Animal-Agricultural Consulting, Inc.
Scroggins, TX

Cattle numbers are at historic lows, but major droughts in the U.S. the past two years ensure that cowherds won’t begin rebuilding until the rain returns. Meanwhile, culling in beef and dairy herds is still increasing, thus decreasing feeder cattle supplies.

The world demand for feeder cattle significantly increased the export of U.S. feeder cattle in 2012, particularly to the Middle East. This factor, along with drought and increased culling, has reduced feeder cattle availability for U.S. feedlots.

In addition, reduced corn production in drought areas led to higher feed cost and increased costs of gain (COG). COG will be paramount in 2013, and alternative feeds will be in demand for growing and finishing cattle as a result of less corn in the rations. Feeding with alternative feedstuffs, however, requires a higher level of feeding management to maintain performance and decrease COG.

Asia’s demand for low-cost beef spurred India to become the major exporter of beef in 2012, while the U.S. will export less beef in 2012 than in 2011. Still, beef demand was strong in 2012, despite uncertain U.S. and world economies.

Reduced feeder cattle availability and higher corn prices historically have meant lighter carcass weights, but that wasn’t the case in 2012, as the average dressed weight in October was 880 lbs. This was due in part to fewer animals to feed, new technologies and U.S. beef demand. Traditional U.S. cattle feeding is rapidly changing to meet the demand for high-quality beef.

Nathan ElamNathan Elam

Nutrition Service Associates
Hereford, TX

For a second consecutive year, cattle-on-feed numbers in 2012 reflected environmental conditions that limited pasturing opportunities, while feed prices established record-high levels.

Scarcities of feed and feeder cattle continue to create competition for inputs, with little or no opportunity to operate at the margin. These realities likely favor entities with little long-term capital debt service, sophisticated risk management strategies, and the equity requirements to finance operations at a volume that will hopefully generate net income and, at the very least, at a level that can maintain equity.

Because of these realities, the industry is positioned to further segment into entities that already have, or can build, a partnership-like arrangement with a packer; and those that operate on an economy of scale that renders them less likely to have a packer alliance. A decided advantage for those entities with packer alliances is the ability to predict and exact marketing outcomes that allow for efficient cattle performance and feedyard operation; it also changes the economic considerations concerning input pricing points.

Smaller operations with the ability to procure and handle lighter, higher-risk cattle currently have an advantage in providing captive supply for entities with a packer alliance. What will be interesting to watch is how quickly the world can once again oversupply grain; and, when pasturing opportunities arise, will economics actually favor production outside the feedyard?

Jim Simpson

Simpson Nutrition Services
Canyon, TX

Last year continued the dry trend established in 2011. While the Southern Plains enjoyed some respite from crippling drought, the area remains very dry and subsoil moisture is nonexistent. Early rains provided promise for winter wheat pasture, but dryland wheat all but vanished when continued rains didn’t materialize.

Cow liquidation has slowed, thanks mostly to fewer cows left in the drought-affected areas following 2011’s massive liquidation. Many ranches are available for lease, but have little grass or water available to support livestock.

Feedlot occupancy is mixed, with some yards at or above capacity, and others below 50% capacity. Feed costs and feeder cattle prices are high, and breakeven projections are miserable at best.

Ground cornstalks, wheat straw and other low-quality roughages have displaced most alfalfa hay in all but starter rations in the Southern Plains. And by-products continue to be used extensively to replace high-basis corn in feedlot rations. The high corn basis has caused the outlook for ethanol production in the Southern Plains to be very hazy due to high production costs.

Performance in feedyards has been excellent, given the thin condition of most placements and the total lack of any weather events to date. However, profits have eroded and losses are escalating. Continue to pray for rain!

McClellan Consulting Service, Dave McClellanDave McClellan

McClellan Consulting Service
Fremont, NE

I love roller coasters, but the 2012 ride was way too expensive for the thrills it provided. I don’t believe anyone in the cattle industry has ever seen, or would care to see again, such volatility in all sectors of the industry.

During our annual client meeting in late June in North Carolina, much of the discussion centered on whether corn would have a 4 or 5 as the first number in its price. Little did we know that our early-planted, great-emergence corn crop in the upper Midwest had its last rain.

Similarly, 2013 will revolve around moisture in the Corn Belt and cow-calf country. If we get an average-to-good crop, commodity prices will be more reasonable and herd liquidation will slow; but that’s a big if.

We have too much bunk space, much of which is in the wrong location relative to commodities. We also have too much packer capacity, which also is ill-placed to some extent. Thus, we can expect more contraction, regardless of moisture conditions.

Despite that pessimism, niches like natural, source- and age-verified, as well as producer-identified marketing, will continue to grow as the industry responds to what the market tells us it needs. We also must take the offensive and do a better job of telling our story, so consumers have real facts about our industry.

abe turgeonAbe Turgeon

Koers-Turgeon Consulting
Amarillo, TX

Last year’s continued crippling drought helped foster runaway land values, record-high corn prices, shortages of grazing and harvested forage, and a limited feeder cattle supply. The implications of continued drought are serious and will only serve to slow the rebuilding of the nation’s cowherd, which is now the lowest since the 1950s.

Nonetheless, the U.S. feedlot and packer industries adapted to survive. The day of “John Deere rations” (yellow corn and green hay) seem to be gone, as consultants were forced to become extremely creative in utilizing ethanol by-products cost effectively. Meanwhile, packers raised heavyweight carcass limits to deal with existing supply challenges, and feedlots complied by increasing out weights to historic levels. Accordingly, the use of beta agonists rose.

Other 2012 highlights include an implant shortage that left one major supplier (Merck) to carry the supply burden, while the media frenzy over lean finely textured beef temporarily set back the beef markets.

In addition, the Environmental Protection Agency denied an industry request for a waiver on the renewable fuel standard (RFS). And, Miratorg, the largest pork producer in Russia, entered the beef business by utilizing North American seedstock and intellect.

Kenneth Eng is a consulting nutritionist and owner of Eng Ranches. In 2012 he established the Dr. Kenneth and Caroline McDonald Eng Foundation, which funds research in cow-calf efficiency at the University of Nebraska, Texas A&M University and Oklahoma State University.

 

You might also like:

Long-Term Weather Outlook: Cinch Up

60+ Stunning Photos That Showcase Ranch Work Ethics

Early Weaning May Offer No Feed Savings Advantage

Readers Favorite Spring Calves Photos

2013 Setting Up For Higher Cattle Prices