For cattle feeders, it's not unlike a Chinese auction.
Sometimes used as a fundraising tactic, a Chinese auction begins with everyone in the room standing. When the bidding starts, people sit down as the price goes up. The winner? The last one standing.
Cattle feeders can relate, given the rather deep financial hole many find themselves in after two years of significant negative returns. And with a fed-cattle market thus far in 2009 that can best be described as disappointing, it shouldn't be a surprise to see a few cattle feeders glancing around the room to see who might be left standing after all is said and done.
That's the way Tom Basabe and Scott McNeley see it. Basabe is president of Simplot Land & Livestock, and McNeley is general manager of the cattle-feeding operations. Both are headquartered in Grand View, ID, at Simplot's 150,000-head feedyard.
“There's been a big transition here in the Northwest in the last two years,” Basabe says. “And I don't know that it's done shaking out yet. It's a very fluid situation right now.”
The shakeout began when Tyson closed its slaughter-only packing plant in Boise three years ago. That left no packer for fed cattle in Idaho until XL Four Star Beef fired up a defunct Swift plant in early 2007. While XL Four Star is primarily a cow plant, it does process fed cattle, offering a local market for Idaho cattle feeders. Beyond that, however, Idaho feeders must foot the fuel bill to haul fed cattle to either the Tyson plant in Pasco, WA, or the JBS plant in Hyrum, UT.
And that caused Simplot to reevaluate its cattle-feeding model.
Changing with the times
For 40 years, Simplot only fed its own cattle, either calves produced on its 15 ranches or feeder cattle purchased throughout the West. Using potato by-products and its economy of scale, the Simplot feedyards were able to stay competitive.
But the game has changed and Basabe and McNeley realized Simplot must change with it. While potato by-products and economy of scale still keep the company competitive in cattle feeding, they've stepped out of their traditional role of feeding only company cattle.
At a time when many feedyards are finding it harder to locate and keep customers, Simplot launched a countertrend initiative three years ago and became a custom feedyard. It's a transition Basabe admits hasn't been easy, but one the operation is having some success with.
The general concept of customer feeding isn't new for Simplot. The feedyards have been a quasi-custom operation all along. Each of the 15 ranches operates as its own profit center, so when a manager sends his calves to one of Simplot's two feedyards, he looks at the process in the same light as any other cow-calf operator. And, if he thinks the feedyard isn't upholding its end of the bargain, he'll let them know quickly and in no uncertain terms.
But the landscape is different when you're a true custom feeder, and so is the approach.
“For more than 40 years, we were a closed shop for all practical purposes,” Basabe says. “We had to develop a new mindset that was more customer-oriented, service-driven, to let people come in and have a look at us. That was something we'd never done.”
But they made the transition, hired several top hands with deep experience in customer relations to handle their custom-feeding efforts and are placing some cattle.
“Last fall, as the market started to soften, it got a lot of cow-calf guys looking around for different opportunities for marketing their cattle,” McNeley says. “So you can look at custom feeding as a different alternative to marketing those cattle and try to maximize the value of that rancher's genetics, especially for the progressive producers who are really trying to improve their genetics.”
As an outgrowth of Simplot's new customer-oriented focus, the Grand View yard also has dedicated pen space for both beef and dairy heifer development. Idaho is the nation's fourth-largest dairy state; many of those operations are located within a reasonable distance of the Simplot feedyard. The beef and heifer development programs give producers the option of sending replacement heifers to the feedyard where they're developed nutritionally and bred artificially to calve when the owner wants.
“If you're going to be competitive feeding cattle, for yourself or for a customer, then you've always got to try to lower your feed conversion and lower the cost of gain,” McNeley says. “That's a continual process of trying to analyze what we're doing and tweak the system, continually improving on what we're doing to make sure we keep a competitive edge.”
The operation has been using Intervet's auditing system since 2001, which has helped identify areas for improvement and adopt management strategies like statistical process control to better identify pens that perform out of the normal range for various measures of efficiency. They've become more aggressive on their implant strategy and began using a beta agonist (Zilmax) in late 2007 on Holstein steers and other plainer, lighter-muscled cattle to help the animals produce more carcass weight.
Through the auditing process, the feedyard tightened up its bunk management and started buying lighter cattle, backgrounding them a shorter time and feeding them longer. While that might seem counterintuitive in an era of high feed costs, the data showed they're able to take advantage of the efficiencies of lighter-weight cattle, which allows the calves to achieve their full genetic potential, especially heifers, and reduces the dock they take on overweight carcasses.
And they changed their ration. Because there's no rail or natural gas line close to the Grand View feedyard, the facility used rolled corn in the ration. In 2005, in an effort to achieve better feed efficiency, Simplot built a steam flaker in Mountain Home, about 20 miles away and with access to rail and natural gas service. It processes corn for the feedyard as well as many of the area's dairies.
While cattlemen are dealing with the market and other production-oriented factors in an effort to survive, Basabe thinks there's a broader challenge threatening all producers.
“Every segment of American agriculture is going to be under assault the next four years. No question, competitive advantage and (controlling) costs are huge. But I'm very concerned over the next wave of regulation that's going to hit,” he says.
If agriculture is to have even a whiff of a chance at influencing the development of those regulations, Basabe says all segments must put aside their philosophical and turf differences. “Everybody should figure out how to get arm in arm and ready to push back, because we're going to be under assault,” he says.
Every segment of agriculture is well represented by a vast array of associations. “I think every one of those organizations ought to align together with one voice and stand up. It's that important. I'm not trying to overdramatize it, but I think we better buckle up and get ready,” Basabe says.