Okay, you've been putting off building a new lagoon at your feedlot. So you read up on the latest requirements and get quotes on what it will cost. Suddenly you're looking at a $50,000 outlay. Yet you only feed 1,000 head at a time. That's when you decide it's time to quit feeding cattle.

This scenario is likely to play out repeatedly as feedlots upgrade their manure and wastewater systems to comply with, or stay in compliance with, federal and state rules. These rules are getting increasingly burdensome. The feedlot industry already faces pressure because of negative feeding returns the past two years, a shrinking cattle supply and huge overcapacity. But rising environmental costs are an issue that surmounts everything else.

The biggest costs relate to the concentrated animal feeding operations (CAFO) regulations updated by the Environmental Protection Agency (EPA) in November 2008. They required for the first time a CAFO (which includes all feedlots 1,000 head and larger) to have a nutrient management plan related to manure disposal.

The cost of managing a plan is huge. It requires, among other things, constant inspection and testing of effluent and wastewater, and extensive record keeping. For a large commercial feedlot, managing a plan is a full-time job for an employee.

Some of the costs involved are startling, and they are higher on a per-head basis the smaller the feedlot is. Environmental consultant Phil Brink recently completed work for a 1,000-head lot, where it cost $48,000 to put in a new lagoon and solids settling basin.

The feedlot qualified for USDA's Environmental Quality Incentives Program (EQIP), which paid half the bill. But the feedlot owner still had to fork out the equivalent of $24/head of capacity. It isn't uncommon for a 10,000-head feedlot to spend $50,000 to $100,000 to get into compliance, Brink says.

Several multi-yard feedlot operators have spent several million dollars in upgrades over the past few years. Some of the largest have attempted to stay ahead of the cost curve by allocating more and more capital expenditures to environmental requirements.

That's what the nation's largest cattle feeding operation — JBS Five Rivers Cattle Feeding — has done. Some of its yards were formerly owned by ContiGroup, which had a sizeable capital expenditure budget, says Five Rivers' Tom McDonald. A lot of work has been done in the past four years on its other yards, notably since JBS acquired the business.

The feedlot industry has done a really good job of managing soil and water, in applying nutrients and keeping wastewater out of the water supply, McDonald says, but the air component is the next unknown. In fact, the National Cattlemen's Beef Association (NCBA) is now on the offensive to get EPA to reject what NCBA calls a faulty study of dust as part of EPA's plan to set dust levels.

EPA in July used a study to suggest there are adverse health effects from dust at levels that are 10 times lower than the current standard. Its proposed level, in case you want to do your own test, is 12-15 micrograms of dust per cubic meter of air. If EPA were to set air standards at this level, most of the country would be over the limit, NCBA says. In fact, the level is below what naturally occurs in many Western states, including pristine national parks. Plus, studies don't show that rural dust is a health concern, it says.

One of the ironies of the CAFO regulations is that the same people who support small family farms also support stricter environmental standards. Yet these standards are pushing small farms out of business because they can't afford to comply with the new rules. One can only hope EPA decides to study the dust issue far more thoroughly before it acts. Otherwise, the whole economy, not just the cattle business, is in deep trouble.

Steve Kay is editor and publisher of Cattle Buyers Weekly (www.cattlebuyersweekly.com). See his weekly cattle market roundup each Friday afternoon at beefmagazine.com.