How Long Before A Feedlot/Packer Washout?

For years, industry analysts have said there’s too much bunk capacity for the available supply of feeder cattle. Will next year tip the scales?

Burt Rutherford, Senior Editor

November 1, 2011

7 Min Read
How Long Before A Feedlot/Packer Washout?

It’s a case of who blinks first.

For a good many years now, industry analysts have pontificated about excess feedbunk capacity in feedyards, excess chain capacity in packing plants, and how the industry will have to adjust to a continually shrinking cowherd.

And so far, no one has blinked. Like a bull rider straining for the buzzer and losing his grip on the rope with every twist, feedyards are hanging on, some by the tips of their fingers.

So far, it appears most feedyard managers are riding the twists and turns that the current situation is throwing their way, hoping the next guy gets bucked off first.
“When we come out on the other side of this deal, the reasoning seems to be, ‘I intend to be one of those left standing,’” says Bill Mies.

Mies, a former feedyard manager and Texas A&M University professor emeritus in feedyard management, says he gets “pretty good agreement” from feedyard managers that something needs to be done. “And, they say that ‘as soon as everybody else reduces some of their pen space, I’ll think about reducing some of mine.’”

Mies says that reluctance to blink first is what has kept feed in the bunks. “Nobody wants to disarm unilaterally; that’s what has kept the feedlot industry where it is.”
Perhaps that’s why we haven’t reduced capacity, a puzzlement that has simmered just under the surface in the cattle-feeding industry for several years.

Some capacity is gone

Some of that feedyard capacity may have already exited the industry and we’re just now realizing it, says Tom Brink with JBS-Five Rivers Cattle Feeding in Greeley, CO. “My opinion is that we’re going to see some structural changes in the next couple of years. And it’s probably gone on under the radar even in the last few years among the smaller yards.”

Jim Robb agrees. Director of the Livestock Marketing Information Center in Denver, Robb says the industry is seeing the results of this quiet change beginning to appear in cattle-on-feed numbers.

“Feedyards of less than 1,000 head are not reported monthly, and such feedyards are a dying breed in the Lake states and Midwest. It’s a structural change in the industry, thanks to the corn and soybean market. So, at least half of the increase (in recent cattle-on-feed numbers) is just because we’re counting those animals where they’re at and they’re in the larger feedyards,” Robb explains.

Slow reduction

The long-predicted drawdown in feeding capacity has been slower than most expected. And it may remain stuck in low gear for at least another year thanks to Mother Nature. Drought that began in Texas and Oklahoma and radiated outward caused a lot of lightweight calves to move to feedyards early, padding the monthly cattle-on-feed figures.

That means feedyards, particularly in Texas and Oklahoma, are running closer to capacity than they might otherwise have been.

“Given the numbers we have on feed, given their weight, it will be at least nine months before we have to address the question of reducing bunk space, because we’re going to be full until then,” says Don Close, Texas Cattle Feeders Association (TCFA) market director in Amarillo. That means it will be the third quarter of 2012 or later before the cattle-feeding complex has to again consider its future.

Then there’s this: cattle feeding has, in spite of tremendous challenges on the input side, generally been profitable.

“2010 was a very good year and 2011 has been very solid, very good, through the first half of the year, although more challenging for the second half of the year,” Brink says. “So that would have helped everybody.”

Will that breathing room be enough? It’s hard to say, analysts tell BEEF.

“I think it will change going forward,” Brink says. “I think we’re going to see a more pronounced trend in reduced bunk space. It just about has to happen. The numbers just will not be there.”

But, he says, how and where all of those things will occur is a very difficult question to answer. “Will it be only small yards? No, I don’t think so. Will it be medium-sized, maybe even larger yards? Could be. You can’t rule that out totally.”

Ultimately, says Ross Wilson, TCFA CEO, the market will wield the axe. “As always, if not encumbered by ill-conceived government influences, the marketplace will efficiently allocate resources in both cattle feeding and beef packing,” he says.

“The industry has discussed a relocation of cattle feeding and beef packing, along with contraction, excess capacity and related topics, for several years now. But, I’m not sure we’re any closer to answering the question than we were 10 or 15 years ago,” Wilson says. “Packing plants have closed. Feedyards have closed, and some have shifted to backgrounding. But I don’t recall that anyone has accurately quantified those changes. We should also remember that more than just the price of feedstuffs goes into decisions for asset allocation for the two industries.”

The bulldozer principle

Just locking the gates, Mies contends, isn’t a long-term solution to the problem of too much bunk space. If the industry is to truly adjust to the new normal he sees in cow numbers, it will require a bulldozer.

After all, a feedyard can stand empty for a very long time and still be resurrected. He’s seen it happen time and time again.

“There will be enough of them empty that will get sold on a sheriff’s sale. The first time they can acquire cheap feeder cattle, there will be cattle back in those pens again,” Mies says. “If facilities just sit idle, that’s not taking them out of the business. It takes a bulldozer to change the paradigm.”

However, he doesn’t expect that will happen. “I just don’t think we’ve got the collective will to go in and scrap them out.”

So it’s possible that cattle feeders will continue stepping over each other to buy feeder cattle. That’s because Mies doesn’t see any real increase in cow numbers anytime soon.

“This is just my guess, but five years from now, if we get back to where cow numbers are now, we would have been wildly successful at rebuilding the cowherd. The day and time when we’re going to have 100 million is history; I don’t think it will be repeated,” he says.

That means the industry will have to adjust. “I see us needing to get along with about the calf population we’ve got today or a few less for the next 10-15 years. That means a lot of feedyards are unnecessary,” Mies says.

Sidebar: Packer contraction

The other factor in the question of beef-industry contraction is packing capacity. There, too, it’s possible that the future holds long-term ramifications for cattlemen.

“I suspect that each packer has a pretty well thought-out plan: ‘If I decide I need to, I’ll close this plant or go to one shift at that plant,’” says Bill Mies, former feedyard manager and Texas A&M University professor emeritus of feedyard management.
Cattle feeders have already seen the painful ramifications of a plant closing when Tyson’s Emporia, KS, plant went dark. Mies thinks it will take closing one or two more fed-cattle plants to bring kill capacity in line with current numbers.

But, perhaps the first plants to go dark will be cow plants, says Tom Brink with JBS-Five Rivers Cattle Feeding in Greeley, CO.

“Cow slaughter at some point is going to drop, and it’s probably going to drop very sharply over the next couple of years, especially if it starts raining. That will impact the cow plants first and it will impact mixed plants (cow and fed cattle both) second,” he says.

That concerns Brink because once a beef plant goes dark, it’s much more difficult to bring it back on line than it would be an empty feedyard.

“You don’t want to lose the infrastructure. You want to keep as much of the industry infrastructure, on the packing side especially, because if you ever want to grow the herd again, you need enough packers. If they exit, how will you get them back?” he asks.

About the Author(s)

Burt Rutherford

Senior Editor, BEEF Magazine

Burt Rutherford is director of content and senior editor of BEEF. He has nearly 40 years’ experience communicating about the beef industry. A Colorado native and graduate of Colorado State University with a degree in agricultural journalism, he now works from his home base in Colorado. He worked as communications director for the North American Limousin Foundation and editor of the Western Livestock Journal before spending 21 years as communications director for the Texas Cattle Feeders Association. He works to keep BEEF readers informed of trends and production practices to bolster the bottom line.

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