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Profits Pivot On Performance

If cattle feeders are grumpy these days, you can't blame them. Cattle feeding the past several months has been tough, tough, tough. It's no secret this is a difficult point in the cattle cycle to make money feeding, says Jim Robb, director of the Livestock Marketing Information Center (LMIC), Lakewood, CO. Feeders will be looking for any way they can to surround themselves with animals, and they're

If cattle feeders are grumpy these days, you can't blame them. Cattle feeding the past several months has been tough, tough, tough.

“It's no secret this is a difficult point in the cattle cycle to make money feeding,” says Jim Robb, director of the Livestock Marketing Information Center (LMIC), Lakewood, CO. “Feeders will be looking for any way they can to surround themselves with animals, and they're going to have to pay the price. We think this will force more alliances between cow/calf producers and feeders — and possibly packers.”

If there's disagreement over how feeders will survive, no one is arguing that profits will pivot on animal performance, all the way through the meat characteristics.

“There is huge variability on how animals perform in feedyards,” says Robb. “This is where feeders are making or losing money today.”

Cooperation And Contracts

Feeders of the future will need to somehow be part of a relationship or alliance. And to sell the kind of numbers that will fit the marketing scale, small and medium-sized feeders will need to either expand or cooperate. That's the word from Lee Borck, president of Ward Feed Yard, Larned, KS.

Borck and a dozen other feeders began the Beef Marketing Group of Central Kansas about 12 years ago. The group now has a combined one-time capacity of around 250,000 head.

“I think alliances are the future of this industry,” says Borck. “And the price rewards we are receiving reflect the kind of cattle we produce.”

For the past seven years, the group has had a production and marketing relationship with IBP. The feeders receive carcass data from IBP and manage feeding practices and procurement processes to fit the end-product needs.

The group then works with cow/calf producers — customers and custom feeders — so the ranchers get the information they need to make genetic and production decisions.

Borck is adamant that the days of the cow/calf producer and feeder making production decisions in a vacuum are history.

“Sometimes rugged individualism can be a liability,” he says. “We won't survive by thinking we can make a profit selling everything and anything we produce. We need to accurately follow the signals coming down the line.”

This “signaling” includes interpreting grids and taking advantage of them. While he still sells cash cattle at times, Borck likes selling on grids. He also believes there's a value in “process verification” — especially for food safety considerations.

“It just makes sense to produce and handle an animal desired by the packer,” he says. “Then go out and negotiate a contract that works for you.” But, he cautions that not all packers are looking for the same thing, so you have to know what they want and find the grid that fits what you're able to produce.

To Grid Or Not To Grid

George Foote Jr. is yard manager for CRI Feeders, a 45,000-head custom feedyard located 25 miles north of Guymon, OK. CRI is an investor-owned operation in which only perhaps 10% of the cattle fed are grid marketed.

“There's no question we're gridding more cattle than in the past — and there's going to be more cattle sold on grids as we go along,” says Foote. “We want to do what makes our customers the most money — and we might have to encourage more grid marketing.”

In order to survive, a feedyard operator will have to pay close attention to cattle performance, he says. He adds that CRI has looked at some of the newer technologies for sorting and animal tracing.

“We're looking at how these systems fit our feedyard and our customer base,” he says.

Foote notes that the Oklahoma Cattlemen's Association (OCA) has initiated the Oklahoma Quality Beef Network, where calves are preconditioned using guidelines set by the OCA.

“Cattle are sorted by sex, size and type and commingled using an electronic identification system before being sold at special sales,” explains Foote. “We're going to see more of that as the technology for sorting comes along and gets more affordable.”

CRI is dedicated to keeping with the basics while constantly investigating new opportunities.

“We want to make sure any investment into high-tech cattle management is looked at very carefully,” he explains.

Still A Farmer-Feeder?

For Tom Robinson, Coggon, IA, traditional farmer feeding might be a thing of the past. But, even though changes are in order, he's convinced there's a future in feeding cattle — especially in Iowa.

Robinson has been struggling with economy of scale in feeding 300-400 calves to finish each year. He's a third-generation, eastern Iowa corn farmer who supplements his cattle feeding “habit” as a nutritionist for a local feed company.

He's always been able to weather the cattle feeding storms by adding value to his homegrown corn. With only a small herd of his own cattle, Robinson buys calves both direct and through auction barns.

To survive in cattle feeding, Robinson now knows he needs to find a way to expand.

“I'll probably buy into an existing facility someplace,” Robinson explains. “There's plenty of bunk space available — so that shouldn't be a problem.”

Robinson knows he has some “issues” to deal with as he looks ahead to expansion — none of which he thinks are insurmountable:

  • Managing risk — it might come in part through marketing alliances.

  • Waste management and environmental regulations — both state and federal.

  • Proximity to packing plants and availability of calf supplies.

  • Buying corn in one location versus selling his own production.

Robinson says there's plenty of capital around to finance the feeding business.

“But, you need a business plan, and you need to show you have experience in what you're doing,” he says. “I had the tar beat out of me in the 1980s — I guess they count that as ‘experience.’”

Bottom line — Robinson thinks Iowa is going to be an exciting place to feed cattle in the future.

“Corn is consistently cheaper here than in the High Plains, and we have the advantage of corn by-products all around us,” he explains. “I know we can compete with any region in the country.”

Concern Over Cash

Jack McCaffery, North Platte Feeders, North Platte, NE, is pessimistic about cattle feeders' prospects, particularly smaller feeders or ranchers who retain ownership. As long as packers carry a captive supply in volumes seen over the last several years, it will be hard for independent feeders to make a profit, McCaffery believes. The proliferation of marketing alliances and grid-based programs are chipping away at cash markets, he says.

“Somebody still has to go out everyday and establish a cash market. Today, 20% of the cattle are pricing the other 80%.”

McCaffery is a firm believer that good feedlot performance is the key to feeding for profit — and above average performance can generally offset the risk associated with grids and formulas.

“But in times like these, there's no way you can feed them cheap enough to offset the losses,” he says.

McCaffery sells some grid and formula cattle for his feedyard customers, but 90% of the cattle that leave North Platte Feeders is sold live FOB the feedyard. McCaffery's fortunate to be located where buyers for six packers visit his yard every week, but still disillusioned with the prospects for cash-based pricing.

In the past, he says, cheap fed cattle meant cheap feeder cattle. “Now that we have all the big conglomerates and their programs with the big feeders, that's all out of whack,” he says.

But, even alliances are not going to survive unless the retail chains and packers are willing to back up and give the feeders the profit he's used to getting, he says.

“Grids and formulas seldom work unless you know the genetics and can manage the cattle to fit exactly the grid,” he explains. “We have little premiums for the superb cattle and big discounts for the cattle that are just a little bit off.”

The Paradox Continues

LMIC's Robb has advice for the rancher who has cattle with the genetics to perform well in the feedlot and packing plant.

“Depending on the program — you can capture that genetic potential by taking it further down the line after weaning,” he says. “And there are a lot of ways to do that today.”

But for the rancher who has “average” cattle, it's clearly not the time to retain ownership.

“On balance, you sell to the feeders — that's the historical cattle-cycle logic,” he says. “If you're in the commodity beef business, you don't have to change.”

When the industry comes down the other side of the cattle cycle, though, the markets for those “average” animals will become thinner, and change may be necessary.