Kay’s Korner

Dec 31, 2009

How many cows do you have?

Why is it that packers disclose so much information about their business, but beef cattle producers so little? The contrast has fascinated me ever since I started surveying the industry’s largest packers, cattle feeders and cow/calf producers back in the late 1980s. Packers were initially reluctant to provide slaughter capacity or annual slaughter or sales data. But they soon realized they had nothing to hide and that providing accurate information might help other sectors of the industry better understand their business. I would like to think that

more producers now realize what a low-margin business beef processing is, that packers have to sell a lot of beef to make a few dollars. As I noted in last month’s column, National Beef Packing made record profits in fiscal 2009. But these profits still represented only 2.6 percent of sales.

Cattle feeders and producers are more cautious about providing information. I have surveyed the top 30 cattle feeders for 22 years. One trend is how fewer operations provide an annual marketing total. Keeping such information confidential is their prerogative. But I would have thought that disclosing the information might help them attract cus tomers.

For example, if an operator has 200,000 head of pen space and markets 425,000 cattle each year, the message is clear—this is a well-run business that stays full all the time.

I only surveyed cow/calf producers until the mid- 1990s. But my experience revealed that some operations were happy to give precise cow numbers while others didn’t want to at all. I also became aware that there might have been a “phantom herd” out there, consisting of cattle that never made it into USDA data each year. I discovered a couple of legendary characters who were said to run thousands of cows across several western states. I scoured county records for cow data but never got close to a number that could be published.

I also learned that asking some people how many cows they have is almost as bad as asking them if they had cheated on their marriage partner. So I understand if you’re in the group that says that my or anyone else asking for your cow numbers “is none of your darn business.” But two thoughts come to mind. Why is it okay for some folks to keep their numbers to themselves yet demand that packers disclose all? Second, how much does this attitude pervade the opposition to a national animal identification system?

Meanwhile, cattle feeders will be looking for a better 2010 after suffering two years of moderate to heavy losses. Losses varied enormously, depending on the degree of risk protection employed for purchasing feeder cattle and feed. Most of the industry’s largest operators lost equity but far less than smaller operators who did not employ risk management strategies. Operations that fared best are in locations that allow ready access to dried distillers grains or other feed sources such as potato waste. This gives feedlots in the Corn Belt and the Northwest some advantage when corn prices increase, say the feedlots.

As always, location makes a difference. Close proximity to packing plants and regular bids by three or four packers helped some feedlots.

One interesting trend in 2009 was the re-emergence of the investor cattle feeder. This mainly occurred on the southern Plains. One Texas operation says it was full all year and is currently at 110 percent of capacity. It has attracted more people willing to invest in cattle feeding because they believe agricultural commodities will increase in value in 2010.

These investors are prepared to lose a little equity now but be ready for a price upswing, says the Texas operator.

Pen space at the industry’s largest cattle feeding operations declined slightly in 2009, mainly because of the exit of Heritage Feeders from the group. My annual survey reveals that onetime feeding capacity at the top 30 operations is currently 5.609 million head in 122 feedlots. This is 83,000 head less than the 5.692 million head in 119 feedlots a year ago.

Only three operations expanded their numbers from a year ago. JBS Five Rivers added 27,000 head of capacity by adding three small feedlots in Ohio, Wisconsin and New Mexico to its numbers. Cattle Empire in Kansas added 27,500 head of capacity with an additional feedlot while Innovative Livestock Solutions, based in Kansas, added 35,000 head of capacity by acquiring a feedlot from Heritage Feeders.

Dinklage Feed Yard in Nebraska reduced its capacity by 35,000 head when it sold a feedlot in Minatare, NE.

Over-capacity remains one of the main issues facing the sector. The Dec. 1 Cattle on Feed total of 11.282 million head meant feedlots with 1,000 head of capacity or more were only 68 percent full. Excess capacity at the same time as the cattle supply shrinks will continue to challenge cattle feeders in 2010. — Steve Kay (Steve Kay is Editor/Publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707/765-1725. Kay’s Korner appears exclusively in WLJ.)