Mr. Duff has experienced all the risks inherent in the business, from weather risks, including killing winter blizzards; times of low prices for cattle and high feed costs. What Mr. Duff and the other thirty-five thousand feeding operations that have gone out of business also mostly remember is when there was a fair and competitive market. Thirty some years ago the market worked. Risk, along with capital and good management was rewarded. Today everything on the supply side of Walmart is a cost to be reduced. No one within the Walmart (and other multinational corporations) supply chain will survive their crushing market power without antitrust law enforcement. The food monopoly must be broken.
The Obama administration promised they would fix the market – they lacked the courage
It would help the remaining few survive, or at least understand, if the real reason for the demise of cattle producers was told.
Mike Callicrate
August 13, 2013 By Jesse Newman
Great Plains Feedlot Operators, Battered by Losses, Are Closing at a Rising Rate
SCOTT CITY, Kan.— David Duff, a cattleman nearly all his life, is selling the last of his steers and heifers this summer, a casualty of a drought that has extended into a third year in Kansas, Texas and other major cattle-producing states.
Mr. Duff and other feedlot operators, who fatten cattle for slaughter, have been squeezed by rising prices for young cattle and high feed costs that have outstripped prices paid to them by meatpackers. U.S. beef consumption last year was 15% lower per person than 10 years earlier, as declining production and growing international demand have pushed up retail prices.
David Duff, part owner of Beef Belt Feeders, stands in front of an empty cattle pen. The feedlot, which will soon close, is the latest casualty of a record drought that is roiling the beef industry.
Even though the price of corn, a main feed ingredient, has fallen this year from last year’s record highs as more-normal weather returned to the Midwest corn belt, it comes too late for many feedlot operators struggling to stay solvent.
About 2,000 of the nation’s 77,120 feedlots exited the business last year, up from 20 a year earlier, federal figures show. Mr. Duff is expected to be one of many who close their operations this year as losses mount.
“It’s the end of an era,” said the 69-year-old Mr. Duff, wearing jeans and scuffed cowboy boots one recent morning at his western Kansas feedlot. “There have been four generations of Duffs at Beef Belt Feeders. Makes you kind of sad to close up shop.”
Running a feedlot has long been risky because of volatility in cattle and grain prices. Participants in the $35 billion-a-year feedlot industry buy roughly one-year-old cattle that weigh about 750 pounds and feed them a corn-heavy diet for as long as six months. When the animals are ready to be sold to slaughterhouses, they weigh as much as 1,400 pounds.
Ranchers across the High Plains have culled their herds of young cattle, which are sold to feedlots, to the lowest levels in six decades as prolonged drought has parched grazing pastures. That has shifted the industry north, where there has been more rain.
Now the woes are moving up the food chain, with feedlot operators from Texas to Nebraska bearing the brunt of dwindling supplies. Last year, feedlots with 1,000 or more cattle sold 24.95 million animals, down from 28.29 million in 2000.
Drought Dries Up Profits at Plains Feedlots
A prolonged drought in the southern Great Plains has hit ranchers hard and now is moving up the food chain.
Cattle in a pen at Grant County Feeders.
Click to Enlarge
On average, U.S. feedlots have lost money for a record 27 straight months, said Rich Nelson, chief strategist with Allendale Inc., an agricultural-advisory company in McHenry, Ill. The losses equal an average of about $141 per head of cattle over that period, he said.
“This is probably the worst two-year period we’ve had in the history of the High Plains cattle feeding industry,” said Jim Robb, director of the Livestock Marketing Information Center, an industry group in Denver.
The number of feedlot operators has fallen 20% in the past decade. The biggest impact has been on smaller operators with fewer than 1,000 cattle. “The industry is overbuilt now,” said Jerry Bohn, general manager of Pratt Feeders, which recently closed one of its four feedlots. “There are too many feed yards chasing too few cattle.”
Ranchers won’t be able to expand their herds until the drought subsides. Even once the dry weather eases, it will take years to rebuild herds.
During last summer’s drought, corn prices surged to record highs of more than $8 a bushel. This year’s wet weather in the Midwest helped push down corn-futures prices last week to roughly $4.65 a bushel in anticipation of a big fall harvest. On Monday, the U.S. Department of Agriculture tempered its estimate for the size of this year’s crop, while maintaining predictions for a record harvest. Still, lower corn prices alone won’t be sufficient to rescue some feedlots.
A recent decision by meat giant Tyson Foods Inc. to stop buying cattle fed with a popular weight-gain supplement, Zilmax, could further strain balance sheets if feedlot operators have to buy more corn to fatten cattle longer, or sell animals that weigh less.
Losing feedlots, many of which are locally owned, is tough on the region’s small towns, said Katie Eisenhour, executive director of the Scott County Development Committee. “To have them in the community, that’s the difference between thriving and just surviving,” she said. Scott County, which lost its distinction as the leading cattle-feeding county in Kansas over a decade ago, has struggled to maintain its population of roughly 5,000.
Mr. Duff and his father opened their business in 1969, just as feedlots were migrating west from the central Midwest. Thanks to a drier climate—more amenable to raising cattle—the advent of irrigated cornfields and the arrival of meatpackers seeking steady supplies, the industry enjoyed a boom period through the 1970s. “It was like a gold rush,” Mr. Duff said.
At its peak, his business fed more than 10,000 cattle and bison, a lucrative niche animal that helped keep the company profitable for years. On a recent day, Mr. Duff’s feedlot sat largely empty, the cattle pens swept of manure and feeding troughs cleared of grain. Only a few hundred cattle and a herd of bison remained, their shaggy, hulking figures towering on the horizon.
Last year, Mr. Duff lost more than $200 per head of cattle, compared with profits of as much as $150 per animal in better years. By the end of the summer, the cattle and most employees, who once totaled 12 full-timers, will be gone. “It was heartbreaking to let people go after 20 or 25 years,” he said. “It’s like there’s been a death in the family.”
Mr. Duff has experienced all the risks inherent in the business, from weather risks, including killing winter blizzards; times of low prices for cattle and high feed costs. What Mr. Duff and the other thirty-five thousand feeding operations that have gone out of business also mostly remember is when there was a fair and competitive market. Thirty some years ago the market worked. Risk, along with capital and good management was rewarded. Today everything on the supply side of Walmart is a cost to be reduced. No one within the Walmart (and other multinational corporations) supply chain will survive their crushing market power without antitrust law enforcement. The food monopoly must be broken.
Copyright ©2013 Dow Jones & Company, Inc. All Rights Reserved.
