Kay's Korner

Sep 28, 2012

Cattle feeding moves north

“Corn is King” has been the catch-cry in U.S. agriculture for many years. This was also the case in the beef industry as it moved to grain-finishing more and more cattle. While corn remained cheap, certainly compared to today, cattle feeding operations were able to succeed in regions that were far away from the Corn Belt states of Iowa, Nebraska, Illinois and Indiana.

A lot of cattle were fed in those states in the 1970s. Iowa had the second largest number of cattle in feedlots in 1980. It and Nebraska had thousands of small feedlots (under 1,000 head of capacity), as well as some larger feedlots. But cattle feeding operations on the central and southern Plains soon came to dominate the cattle feeding industry.

These feedlots thrived due to their size and the economies of scale, innovations and services they brought to cattle feeding. Beef packing plants followed, with several mega-plants built in Kansas and Texas in the late 1960s to 1980 that remain in operation today. Six of the industry’s nine largest plants that handle fed cattle are in these two states. Each can harvest 5,000 head or more per day.

Events over the past decade, however, have begun to effect changes in the structure of cattle feeding. The rapid increase in ethanol production in the Corn Belt states has meant a growing supply there of dried distillers grain, a byproduct of ethanol production. The result is a slow but discernible increase in the number of cattle being fed up north. Feedlot operations in Nebraska in particular have grown larger.

Any analysis of cattle feeding trends is slightly complicated by the fact that monthly cattle on feed, placement and marketing data exist for feedlots 1,000 head in capacity and larger but not for feedlots under 1,000 head. But annual data and several studies suggest that thousands of these small feedlots are no longer in business.

The number of feedlots has been declining since 1996, notes a study of the beef industry by agricultural economists Darrell Mark, South Dakota State University, Ross Pruitt, Louisiana State University, and David Anderson, Texas A&M University. There are nearly 35,000 fewer feedlots now than in 1996. Almost the entire decline is in the smallest size feedlots while the number of 1,000-plus feedlots increased by 11 during this time. I view this decline partly as a result of the 14.5 million-head decline in U.S. cattle numbers since 1996.

Economies of scale and technology adoption seem to be increasingly important in cattle feeding, says the study. Larger feedlots often have the opportunity to procure feeder cattle or feedstuffs at discounted prices due to the large volumes they purchase, and they can offer a wider variety of services. The feeding of ethanol co-products represents one of the most significant technology adoptions in the cattle feeding industry in the last 20 years. Because the ethanol industry has concentrated in the western Corn Belt states, this has provided a larger cost of gain advantage to cattle feeders in these northern states, it says.

Despite these trends, Texas and Kansas have remained the two largest feeding states. Texas marketed 5.78 million cattle in 2011 while Kansas marketed 4.99 million cattle. The two states accounted for 47.7 percent of all the cattle marketed in 2011 out of feedlots 1,000 head and larger. Third in marketings was Nebraska with 4.82 million head and fourth was Colorado with 2.11 million head. The four states accounted for 78.4 percent of all cattle marketed in the U.S. out of larger feedlots. However, Nebraska has slid past Kansas in cattle on feed inventories. Texas on Sept. 1 had 2.62 million head on feed, followed by Nebraska with 2.24 million head and Kansas with 2.17 million head.

Texas looks set to remain the No. 1 feeding state for some time because of its large-scale operations. Four of the industry’s five largest feedlot companies have a majority of their feedlots in Texas. In addition, Texas is by far the most populous cattle state. Its total numbers dropped 11 percent in 2001 due to historic drought. But it still had 11.9 million cattle on Jan. 1 this year, far ahead of No. 2 state Nebraska. It had 4.365 million beef cows, versus Nebraska’s 1.884 million beef cows.

However, there will be increased pressure on Southern Plains feedlots in the next two years. They have historically fed large numbers of young Mexican cattle.

Exceptional drought in Mexico might force as many as 1.6 million cattle north this year. This is helping feedlots keep pens full today. But Mexican feeder imports might decline by 600,000 head or more next year. Texas and Oklahoma lost 948,000 beef cows in 2011, which was 98 percent of the national decline in the beef cow herd. Conversely, Nebraska’s beef cow numbers increased by 112,000 head. This means fewer calves down south and more up north to put in feedlots. — Steve Kay