Structure of the Beef Cattle Industry

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Structure of the Beef Cattle Industry

• Industry is very segmented - numerous phases of
  production
• Industry is very diverse - almost infinite number
  of environments, types of resources, etc

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Structure of the Beef Industry

• Cow-calf Operations - Purebred
• Producers of germ plasm -- genetic information
  for the beef industry
• Animals are recorded (or eligible) in breed
  association registry have record of pedigree
• Probably only 4 of cattle reproducing needs to
  be PB

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Goals/Objectives/Challenges of the PB Producer

• Have a sense of seed stock needs of commercial
  cattlemen
• Develop a planned mating system
• Have long range goals
• Merchandise - be a salesperson
• Stay current

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Structure of the Beef Industry

• Cow-calf Operations Commercial
• Raise cattle of nondescript origin to produce
  final product
• 89 of operations have less than 100 head but
  these account for only 52 of total cows
• These operations are concentrated in areas of
  abundant, inexpensive forage -- at most times of
  the year cows nutrient requirement can be met by
  forage alone
• Warmer climate advantage?? Probably from a
  forage standpoint
• Majority of the operations are spring calving
  -- make use of grass when cows have the greatest
  need

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Structure of the Beef Industry

• Stocker Operations (yling, backgrounder, others)
• Weaned calves to graze grass, range, or any
  available forage
• most in warmer climates to place fall-weaned
  calves through the winter
• Consume high forage diet (lower energy), weaned
  calf is physiologically ready to develop muscle
  and skeleton
• Need any form of abundant (cheap) mid quality
  forage
• corn stalks
• wheat pasture, hay field regrowth
• harvested forage concentrates in drylot

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Non-feed costs often dictate what is needed for
economical gain
Goal keep cost-of gain low What if running on
corn stalks (low gain but low non-feed cost) if
get 1.2 lb/day gain for .12/day non-feed cost,
then non-feed cost of gain .10/lb of gain,
not bad! What if feeding in drylot for the same
gain if get 1.2 lb/day for .28/day non-feed
cost, then non-feed cost of is .23/lb, not
good What if you drylot and get 2.5 lb/day
gain non-feed cost is .11/lb, not bad

• Feed costs are associated with a cost per weight
  gain (/lb)
• ? Non-feed costs are usually associated with a
  cost per
• time (/day)
• ? Can not afford slow gain if non-feed costs are
  high

What about compensatory gain??!!
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Structure of the Beef Industry

• Feedlot Operations
• Feed calves and yearlings a ration that is
  moderately high to very high in energy -- rapid
  growth and some fattening
• More rapid gain with more expensive feeds than
  the stocker operations -- higher nutrient
  concentration
• Where are feedlots located??
• Dry, moderate climate
• Near source of feed, especially grain
• near source of feeder cattle
• Population centers
• Others

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United States Feedyards gt 4,000 Head
January 1, 2002
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Midwest Slaughter vs. Feedlot Capacity
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Types of Feedlots

• Farmer/feeder
• smaller - usually less than 2-3,000 head
• raise much of their own feed

• Commercial lot, one-time capacity more than 2,000
  head
• May own the cattle
• May custom feed

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Commercial Feedlots
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Farmer/Feeder Feedlots
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Structure of the Beef Industry

• Packer Operations
• Slaughter and carcass processing -- did not
  process carcasses in the recent past
• Eliminated some of the middle men
• No butchers at super markets
• Packing industry is now controlled by 3 major
  companies (concern about packer concentration)
• Tyson (was IBP)
• Swift and Company (was ConAgra)
• Excel (Cargil)

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United States Packers gt 200 Head
January 1, 2002
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Vertical IntegrationRetained Ownership

• Weaning and selling calves at weaning greatly
  simplifies planning for credit, labor, feeds,
  market however,
• Market flexibility is difficult in strict
  cow-calf operations
• When the market drops the producer is a price
  taker
• Retained ownership for a period post-weaning
  increases the option, thus the market flexibility

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Advantages of Retained Ownership

• Potential for lowering the total cost of
  production
• Reap benefits of genetically superior animals
  (growthy calves, carcass quality, breed
  discrimination) builds track record on cattle
• Growth potential for cattle is greatest at
  weaning
• Take advantage of your superior management
• Owning cattle longer provides more time to
  utilize marketing and risk management chose
  time to market allows for flexibility
• Take advantage of seasonal market

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Disadvantages of Retained Ownership

• Finance and credit needs slower cash flow
• More feed and other costs
• Tax implications
• Understanding banker
• Need to be a more complete manager
• Knowledge of more phases of production
• Facilities
• Must have a market for heavier cattle
• Watch price spread between calves and yearlings

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Basis of Decision to Retained Ownership Watch
the price slide

• The greater the price slide the less likely
  retained ownership is a good option
• Example if weaned calves (500 lb) are worth
  90/cwt, total value 450
• 700 lb yearlings _at_ 85 is worth 595, difference
  is 145 or 72.50/cwt
• 700 lb yearling _at_80/cwt is worth 560,
  difference is 110 or 55/ cwt
• 700 lb yearling _at_ 76/cwt is worth 532,
  difference is 82 or 41/cwt

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What factors affect the price slide??

Read CL 816
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Price slide example

• Conditions of the sale selling weaned calves
  with a base weight of 565 pounds for 90. The
  buyer wants a 6.00/cwt price slide. The calves
  are weaned and weigh 610 what is the selling
  price?
• 610 565 45 pounds over the base price
• 45 pounds x .06 slide per pound 2.70
  (negative)
• 90 2.7 87.30/cwt (only 24.03 more revenue
  versus 40.50)
• Some negotiated prices might include a grace
  period or weight what if the slide did not take
  effect until 10 pounds over the base?