Filling capacity is a big issue
With U.S. cattle numbers declining to their lowest level since 1952, finding enough cattle to allow feedlots and beef processing plants to run efficiently will be the top issue for feeding operations and packers this year.
It’s startling to realize that the U.S. has lost 14.5 million cattle since 1996. The beef industry has adjusted to the loss of these millions of cattle, notably by improving productivity per animal, better red meat yields and record heavy carcass weights for steers and heifers. Steer carcasses averaged 858 pounds in 2012, versus 841 pounds in 2011, while heifers averaged 792 pounds versus 773 pounds, says Jim Robb, director of the Livestock Marketing Information Center. But he doubts that carcasses will get heavier again in 2013 and has both categories down slightly.
This will exacerbate the 35 percent over-capacity in the cattle feeding industry and the 10 percent over-capacity in beef processing. I calculate that industry-wide processing capacity is just under 140,000 head per day. The industry last year slaughtered just over 125,000 head per week, with slaughter to Dec. 29 down 1.205 million head or 3.6 percent on the same period the year before.
Yet my annual survey of the Top 30 packers reveals that their combined slaughter capacity increased 1.8 percent last year from 2011. The Top 30 packers currently have capacity to slaughter 136,395 head per day in 56 plants. That’s against 134,020 head in 56 plants a year ago. The main reason for the increase is the listing in my Top 30 for the first time of Northern Beef Packers, Aberdeen, SD, and Triple J Family Farms, Buffalo Lake, MN. These two plants added 1,500 head and 550 head of capacity, respectively, to the Top 30 total.
I am often asked which plants might be vulnerable to closure in 2013. The most pressure might be on the two startups noted above, as they will have to compete with long-established buyers on the Northern Plains. I don’t foresee the top three packers closing any plants on the Southern Plains, even though numbers will be tight there, in part due to fewer Mexican feeder cattle imports. These packers have invested huge amounts of money in their plants and will find ways to run them economically with smaller numbers.
Incidentally, the market share of the nation’s top beef packers remained the same in 2011 as in 2010. This continued a trend of relatively little change in market share dating back to 1995. I estimate the top five packers (Cargill Meat Solutions, Tyson Foods, JBS USA, National Beef Packing and American Foods Group) in 2011 had a 78.6 percent share of total commercial cattle slaughter. That’s against 78.7 percent in 2010. The top three had market share of 62.4 percent, the same as in 2010. The top five’s share of steer and heifer slaughter was 89 percent versus 89.9 percent. The top three’s share was 73.4 percent versus 73 percent.
Reduced feeder cattle supplies and the high and volatile price of feedstuffs are by far the top concerns of the industry’s largest cattle feeding operations, which I surveyed last month. Reduced feeder cattle numbers have already forced some feeding operations to set aside some of their pens for backgrounding other cattle, notably cows and heifers that might be retained for breeding.
At least three operations in my annual Top 30 listing have closed finishing yards or sold them. Concerns about the feeder cattle supply are well justified. Supplies will get even tighter in 2013, as the U.S. cattle herd is forecast to fall by 1.7 million head to 89 million head on Jan. 1 from a year earlier. The 2012 calf crop is forecast to decline by 2.4 percent or more than 800,000 head from 2011.
Meanwhile, imports of feeder cattle from Canada will remain historically small in 2013 and imports from Mexico are expected to decline sharply.
My survey shows that the Top 30 operations reduced their combined pen space by 53,000 head over the past year. This reversed a 59,000-head increase in 2011. They currently have a onetime capacity of 5.556 million head, down from 5.609 million head a year ago. This returns their combined capacity to that of two years ago. Cactus Operating LLC in Texas reduced its capacity by 35,000 head last summer when it repurposed a yard in Syracuse, KS, from a finishing yard to use for what it calls supply chain management. Cattle Empire in Kansas added 14,000 head to its existing five feedlots. Oppliger Feedyard in Texas added 30,000 head of capacity when it acquired a yard in Farwell, TX, from AzTx Cattle Co. Adams Land & Cattle in Nebraska added 41,500 head of capacity by acquiring four feedlots, and Pratt Feeders in Kansas reduced its capacity by 20,000 head by closing a feedlot in Hays, KS. Some feeding operations might expand again in 2013. But more feedlots will close, especially if corn prices remain high. — Steve Kay