David P. Price is a consulting nutritionist specializing in feedlot and range cattle
As a kid growing up in the ’50s, cattle buyers were looked upon with awe for their clairvoyant vision. Through subtle observation a cattle buyer was believed to be able to tell most everything about cattle. To be fair, the better ones were able to detect inbreeding, age and to a certain extent prior management.
Twenty years later, trained as a scientist, I was taught there are some attributes that can only be detected through data (genetics). To a large extent progressive breeders have used such data as EPDs, but feedlots have largely ignored them. That is, very few cattle are purchased at a premium based on their genetic history. Most cattle are bought on phenotype (and condition).
Today we are approaching monumental changes in the cattle-feeding industry. To begin with, the “investors” are largely no longer present. Traditionally “investor” was a euphemism for tax shelter. Through cash accounting “investors” were able to push income forward and substantially reduce their taxes. Today, because of the recession, few people have need for tax shelter.
This should mean that all cattle placed in feedyards are there to make money. While that is fundamentally true, in 2009 many yards placed cattle primarily to keep their doors open. That is, with the “investors” out, the head count in some yards plummeted so low the owners had to buy cattle to recover their fixed costs and/or keep from laying people off.
Unfortunately, 2009 saw a disastrous reduction in fed cattle prices. This caused a lot of equity to be lost. As a result, some yards went out of business and the feedlot industry has shrunk further. While 2010 has some real issues with respect to demand for beef; at some point we will have a different world with respect to cattle feeding. Most notably, with fewer feedlots and fewer tax dollars skewing our market to a break-even, most cattle placed on feed will be there to make money.
Retained Ownership a Reality. Cow-calf operators have long been urged to retain ownership through the feedlot, but up until now that didn’t make a lot of sense. With so many “investor” cattle only looking to break even (the real money in tax shelters), there was less profitability in the feedlot sector (than in selling them as feeders).
The Catch 22 was that if the cow-calf producer had superior cattle he couldn’t get paid for them as feeders, since feeder cattle are bought based on phenotype. The result is that the benefit for doing a good job with genetics up until now didn’t pay very well.
Hopefully, that is about to change. With feedlots forced to buy more of their own cattle, quality will become much more important. Certainly condition will always be a factor, but as we discussed last time, efficiency, or more correctly maintenance is highly variable. Most important, is it heritable. Cattle of the same colour and breed will convert on 7.5:1 while others that look identical will convert on 6.5:1. That is worth something.
As we discussed in 2008, it is the same with marbling. We will be talking about cattle feeding myths in the future, but for now we need to recognize that marbling is largely controlled by genetics. Yes, we all know that Angus marble well, but there are lines within the Angus breed that marble better than others. Likewise there are lines within other breeds that will marble much better than cattle that phenotypcially look identical.
But you cannot see genetic capabilities as cattle pass through a sale ring. You must have the data and you must have confidence it is accurate. Certainly breeders could supply data publicly and sell their cattle through auctions. More likely, however, superior cattle will be bought by private treaty. This will be a positive factor for good breeding.
Final Note on Investor Feeders. I have studied “investor” feeding for decades, and collectively they have been good for the overall industry. Without question they skew the premium conscientious breeders should receive for their calves, but they create an inordinate demand for feeder cattle in general that results in higher overall prices to everybody. Since they do place cattle independent of favourable marketing conditions, they reduce the overall fed cattle market… but they fill feedyards and pay feed bills. In short, they have reduced the profitability of feeding cattle, but increased the profitability of cow-calf and stocker operations (by increasing the overall price of feeder cattle).
Their demise is not good for the industry, but while they are gone the spread between ordinary cattle and those with exceptional performance should increase. This will create an advantage to good breeders, but will still reduce their overall price.
Ostensibly this should help the smaller cattle feeders who either feed their own cattle or place cattle for ordinary income. The only problem is with the high unemployment figures we could see demand for beef slide further. Because of the negative effect on demand from unemployment, more than ever cattle need to be hedged or forward sold.