Gerald Scheckel the farmer added more corn acres this year. An ethanol-fueled price near $4 will do that for a Midwest grower with about 5,000 tillable acres.
But that forced changes for Gerald Scheckel the cattle feeder. He didn't feed his own corn to some 1,500 calves in his grower/custom feedyard. Those cattle received distiller's grain from the local ethanol plant.
So goes the situation facing many farmer-feeders in these days of higher-priced grain, ethanol production and higher farming input costs competing for and against strong feeder- and fed-cattle markets.
“In the past, we could make more by running the corn through the cattle,” says Scheckel of Richmond, KS. “Now, we're farming all the corn we feasibly can for the higher grain prices. When we would normally be a 50/50 corn and soybean operation, we're more like 60/40 or an even higher corn ratio this year.”
In today's markets, the farmer in him overshadows the feeder.
Scheckel has even stopped finishing cattle for the time being, relying on the yard for grower purposes. “We take steer calves to 800-850 lbs. and heifers to 700-750,” he says. “I'll probably get back into custom feeding and/or feeding our own cattle in a year or two. But right now, the grower situation is working for us.”
So is the farming end, where Scheckel sold most of his 2007 corn crop for more than $3.40/bu. in the cash market, with some more than $4. He even forward-contracted some '08 and '09 corn for $4+, with most sales going through the local ethanol plant.
“We can do better by selling our corn and buying distiller's grain from the plant for part of the grower ration,” he says, adding that the extremely wet year also made him glad he didn't have cattle to finish.
In Iowa, long a leading farmer-feeder state, John Lawrence, Iowa State University livestock marketing specialist, says situations like those faced by Scheckel are seen more these days.
“Many farmer-feeders are using co-products (from ethanol production) in their rations,” he says. “For those close enough to an ethanol plant, they can expand their feeding operation without expanding their acres (for crop production). If 30% of their ration is distiller's grain, they can feed 30% more cattle with the corn acres they already have.”
The result is more cattle being fed at the smaller yards, along with larger commercial yards with access to ethanol co-products. For example, Iowa's cattle-on-feed numbers in feedlots with at least 1,000-head capacity were at 500,000 on Aug. 1. That was up 12% over 2006's 445,000.
However, the total number of cattle on feed in Iowa is lower than before, as the smaller farmer-feeder opted to sell corn rather than feed cattle, Lawrence says. At the same time, total U.S. cattle-on-feed numbers were at 10.29 million, down 5% from the 10.82 million on feed Aug. 1, 2006.
That doesn't mean High Plains feeding numbers will steadily decrease; just that there were better opportunities for feeding at yards with ethanol plants as neighbors, he says.
High cash rents
Some farmer-feeders see their operations' expansion potential fenced in by higher cash rents. “If farmer-feeders want to expand their farming, I encourage them to give some thought to these higher land prices and rent,” Lawrence says.
“It just isn't practical for some. There would be a lot more revenue (if they marketed their corn at the higher prices), but the cash rent can be 10-30% higher than a year ago.”
Scheckel says the $4 price level is about his cutoff as to whether he sells corn or feeds it. “It's hard to turn down that price if you can replace corn with distiller's grain in your ration,” he says.
Lawrence notes that some small feeders plan to sit out a winter's feeding in the wake of high corn prices and still too-high feeder cattle prices. “They say they'll sell their corn instead,” he points out. “Some will, but others will keep their same routine.”
Ready for regulations
The freedom of adding more cattle or simply maintaining current conditions for any sized feedyard, and many cow herds as well, may be thwarted by state and federal environmental regulations regarding water and air quality and waste management.
That's where being part of a state livestock or cattle association can make a difference. Clayton Huseman, executive director of the Kansas Livestock Association Feedlot Division, says increased regulatory pressure is an “across-the-board” problem for KLA members.
“It's at the top of the list,” he says. “The increased cost of compliance is a roadblock for some. A lot of hands are tied by their location.
“A family operation started 50 or more years ago has to come into compliance just like larger facilities. With their existing location, that can be difficult to do. Our role is often to help our members work through the regulatory rules.”
Scheckel says he's had to rework a drainage area. “As long as you're trying to make upgrades, they (regulatory agencies) will usually work with you,” he says.
“It's not just the environment,” Huseman says. “The cumulative effect of every little regulation, regardless of how simple it is by itself, adds up. Before you know it, you're bogged down in paperwork. The smaller the operation, the fewer head of cattle those costs can be spread over. Your options are to try to get bigger, spend the money or do something different.”
Another hurdle for the small feeder, like the large ones, is finding and keeping good employees. “I had a really good employee leave,” Scheckel says. “He has been hard to replace. That hurts my operation.”
Lawrence says the loss of even one employee can be critical. “If you have an operation with five employees or less and one quits, that's a 20% reduction in your workforce,” he says. “It shifts a lot of pressure to the remaining folks. The farmer-feeder doesn't have a human-resources department like the larger commercial feedlots to be constantly recruiting, hiring and training new employees.”
To keep good employees, they must have a good benefits package, including health insurance, which is usually offered by larger operations or a factory in town (maybe even that new ethanol plant).
“Remember that every employee is important; there can be no weak links. They should know their actions impact the overall success of the feedlot,” Lawrence says.
Scheckel uses a marketing consulting service to handle his grain marketing. For cattle, he looks to “margining” to keep custom-feeding profits intact.
“Like with grain, I know what I need for a profit in custom feeding, whether in a grower situation or finishing cattle,” he says. “If I can get feed bought at the right price that will produce that profit, I usually contract for it.”
Farmer-feeders and other small feeders should also consider using USDA's Livestock Risk Protection programs, which enable producers and feeders to obtain price insurance for smaller numbers of cattle up to 2,000 for fed cattle and 1,000 for feeder cattle. Visit www.rma.usda.gov/livestock/ for more information.
Larry Stalcup is a freelance writer based in Amarillo, TX.
What's a "professional" feedyard?
Iowa Beef Center's John Lawrence asked that question in a survey of cattle feeders, and why they did or didn't feed cattle in Iowa. Many of his findings can apply to a small or large feedyard in any region. And a farmer-feeder can use the guidelines to assure his yard is efficient.
Good service and management were ranked as high or higher in importance to would-be feeders than the cost of gain. And there are apparently some problems with some smaller feedyards being able to offer what a cattle feeder expects from a “professional” feedyard.
Lawrence says the keys to operational management include:
Consistency: “Well-run feedlots do the same thing the same way, every time,” he says. “They're consistent in when and how they deliver feed to the bunk. Bunks are read every day, each pen is fed at the same time every day and the ingredients are added and mixed the same every day. Cattle are inspected daily using the same criteria. Processing, treatment and sick-pen management is consistent every time.” Feeders should develop and follow a written protocol for feeding, processing, treatment and inspection.
Information: Successful operators or managers measure and record what is important to the yard's profitability, including production and financial variables. “They must be able to trust the numbers, and thus must calibrate scales and validate results from time to time,” Lawrence says.
Marketing: Feedyard operators or managers should understand markets and what drives prices, and be current on market conditions and price movement. “They should understand how cattle are expected to grade and how grades and cost of gain change at different market weights and classes of cattle,” Lawrence says. Also, they should know area buyers and have a working relationship with them. Knowledge of how to manage price risk through futures, options and margin insurance is also needed.
Facilities: Feedlots must be designed to enhance cattle performance, worker safety and efficiency and meet or exceed all environmental regulations. “Pens must provide a low-stress cattle environment with protection from heat and cold if possible,” he adds. “Pens must be well-drained and maintained to reduce dust, mud and run-off problems and provide cattle comfort.”
Lawrence says feedyards, large and small, must have a good system of communication with their customers.
And little things, like wearing clean clothes when showing a customer his cattle, can also make the difference in whether a feedyard maintains good clientele. The Iowa Beef Center offers results of a survey of cattle feeders as to why they do or don't feed in a particular location.
The survey can be viewed at www.iowabeefcenter.org/content/WhatDefinesAProfessionalFeedlot.pdf. The site also looks at the importance of good marketing.