This classification covers establishments primarily engaged in the fattening of beef cattle in a confined area for a period of at least 30 days, on their own account or on a contract or fee basis. Feedlot operations that are an integral part of the breeding, raising, or grazing of beef cattle are classified in SIC 0212: Beef Cattle, Except Feedlots. Establishments that feed beef cattle for less than 30 days, generally in connection with their transport, are classified in SIC 4789: Transportation Services, Not Elsewhere Classified.
112112 (Cattle Feedlots)
According to the U.S. Department of Agriculture, at the beginning of April 2003, cattle and calves for slaughter on feedlots with a capacity of 1,000 or more head totaled 10.7 million. This represents an 8 percent and 7 percent decrease from the same time period in 2002 and 2001, respectively. Of the total feedlot inventory, steer and steer calves accounted for 63 percent, or 6.72 million. Heifers and heifer calves totaled 3.92 million. Three states dominated cattle feedlot production: Texas had 2.7 million beef cattle on feedlots; Kansas, 2.3 million; and Nebraska, 2.2 million. Combined, these three states accounted for two-thirds of all beef cattle feedlot production.
The total number of beef cows in the United States in April 2003 was 33 million. One-third of the nation's beef cattle (10.7 million) is produced on large feedlots. The remainder are either grazed or raised on smaller feedlots with capacity under 1,000 head. The average price per 100 pounds in 2000 was $69.52 for steers (heifer prices vary slightly). The price per hundred weight in March 2003 averaged $72.70. Prices during the 1990s ranged from a decade high of $76.23 in 1993 to a decade low of $70.06 in 1998.
The early 2000s continued the trend toward larger feedlot operations. However, the industry exists under a cloud of environmental suspicion regarding the damage caused by waste runoff, as well as the effect of growth hormones injected into cattle to promote quick weight gain.
The feeding of grain to cattle is unique to the United States. Americans and an increasing number of international consumers have developed a taste for American grain-fed beef, as opposed to beef cattle fattened on grass only. The cattle that are fed in U.S. feedlots are young steers and heifers that have been weaned from their mothers, perhaps run on grass for another season or two, and then placed in the feedlot for further finishing. Typically this finishing period lasts between 110 and 150 days, during which the cattle may grow from 800 pounds to 1,250 pounds by eating a ration containing grain, byproducts, and hay that gives American beef its unique taste known throughout the world.
Prior to the 1970s, farmer feeders would send their "fat" cattle to an auction or terminal market, and packers would have representatives there to buy them. But by 1993 less than 7.6 percent of fed cattle were purchased by packers through public auctions. Instead, packers staffed their own buyers, who visited the huge feedlots and perused the "show lists," which are pens containing cattle being sold that week. After settling on a price for particular cattle, buyers then purchased the cattle directly from the feeder.
Because ranchers have been increasing their investment in genetic technology, a growing number of them have been retaining ownership of their cattle from the time they are born until the time they are processed by packers. Owning cattle through the finishing stage allows ranchers to be rewarded directly when their cattle are sold to satisfy packer and consumer demands. Ranchers, however, are more vulnerable than other farmers during market drops. Under retained ownership agreements ranchers can buy feed outright and pay only a yardage charge, pay a set price per pound gain, or pay only for the amount of feed used.
Cattle are pen-lotted in a feedlot after being vaccinated. They are lotted by owner, and pen riders check the cattle daily and pull any sick or nonperforming cattle. Some feeders keep feed in front of the cattle at all times, while others feed them twice a day with huge feed trucks that place the feed in bunkers. The feed is mixed either in a large mill or by trucks that mix it while carrying it to the cattle. The ration contains grain, hay, and by-products, such as cottonseed and almond hulls. Computers keep track of the amount of grain consumed, the cost of grain, the cattle's daily weight, and the number of days on feed. When the cattle are eventually processed, the owner receives a computer report with all of this information.
Cattle are fed by investors, ranchers, or packers, who want to guarantee a steady supply of cattle for their packing plants. Such cattle are referred to as "captive supply." The captive supply generally represents about 20 percent of the cattle on feed at any one time, and the government watches this number as an indicator of packer concentration. When cattle are considered good enough to be graded "choice," they can be sold in a variety of ways. They might be sold by the pound while the cattle are still alive, or they might be sold "in the meat," based on what they weigh when hanging on a packer's rail. The cattle business is currently attempting to achieve "value-based marketing," whereby cattle are priced according to the quality and amount of meat in the carcass rather than by their weight alone. Thus, there is a growing trend toward selling cattle on "grade and yield." This strategy helps prevent packers from buying overly fat animals.
The grain-growing region of the Midwest dominated the U.S. cattle feeding industry in the 1970s. Huge American grain surpluses caused by government price supports provided cheap food for livestock and made cattle feeding a standard practice in the nation's beef industry. Iowa was the nation's leading cattle feeder during this period, feeding over 4 million head per year, or approximately 20 percent of the nation's cattle. Nebraska and Illinois were the other top cattle feeding states in the Midwest. These three states combined with California to account for 62 percent of all fed cattle in the United States.
Across the country a majority of American cattle were fed by small, farmer-owned operations. These farmers used cattle to market their grain. If grain was drawing a satisfactory price, farmers would sell it outright. But if farmers were unsatisfied with the price of corn, barley, or oats, they might market their grain indirectly by feeding it to cattle or hogs. Midwestern feed farmers typically acquired their cattle by attending livestock auctions themselves or by having commission buyers purchase steers or heifers that had been raised and bred by ranchers. The cattle would then be placed in pen lots on the feeders' farms. Small mills on the farms processed the grain used to feed the cattle. For decades this was how the majority of U.S. cattle were "finished." (The "finishing" period was once referred to as "fattening." But as Americans began to limit their fat intake, feeders decided to refer to this stage of the cattle's growth as finishing.)
The geographic center of the cattle feeding industry began to shift from the Midwest to the southern plains states in 1972. By the 1980s the biggest cattle feeders were located primarily in Texas, Nebraska, Kansas, and Colorado. During the 1990s these four states accounted for over 60 percent of the total beef production annually. Iowa had fallen to fifth place among cattle feeding states by 1999, marketing only about 1 million finished cattle a year, or about 5 percent of the nation's total. This represented a drop for the Iowa cattle feeding business of more than 3 million head since 1970. California and Montana also experienced severe declines in their cattle feeding business, both down more than 25 percent since the 1970s.
Several reasons explain why the nation's cattle feeders moved. First, the southern plains states provided tax incentives for cattle feeders to leave the Midwest. Second, it was much cheaper to feed and slaughter beef in modern facilities that were located far from large population centers, where wages and land values were high, and environmental restrictions were often prohibitive. Third, low transportation costs made shipping boxed beef across the country cheaper than shipping grain to feedlots. Fourth, many cattle feeders in the plains states transformed the grazing land surrounding their feedlots into farmland that grew grain to feed the cattle, increasing the efficiency of their operations and decreasing the need to buy grain from the Midwest. Fifth, several Midwest cattle feeders began focusing their operations on growing corn and soybeans to capitalize on the grain market boom of the 1970s.
Cattle feeding operations also grew larger, as they migrated to the plains states. In 1980 small farm feedlots with fewer than 1,000 head accounted for 25 percent of fed cattle sold in the country. By 1997 these feedlots made up only 15 percent of the fed cattle sold. At the same time, the share of cattle in medium (capacity for 16,000 to 31,999 head) and large (capacity for at least 32,000 head) commercial feedlots increased from 43 percent in 1980 to nearly 60 percent in 1997. Large commercial feedlots experienced the largest increase in share, accounting for 35 percent of cattle on feed in 1999 as compared with only 22 percent in 1980. In Kansas the percentage of cattle fed in large feedlots rose to 87 percent in the 1990s, while in Texas it rose to 97 percent. In these and other large cattle feeding states it was not uncommon to see feedlots capable of holding over 100,000 head of cattle at any one time.
The Corn Belt states have suffered the largest loss of market share. Just as many industrialists left the Rust Belt for the Sun Belt, cattle feeders in the 1990s fled the Corn Belt for Texas and the plains states, and have been thriving there since. More than half of all beef slaughtered in this country is processed in plants west of the Mississippi River. Most cattle feeding takes place between the western bank of the Mississippi and the eastern slope of the Rocky Mountains in large feedlots that commonly contain more than 50,000 head of cattle.
According to industry analyst Topper Thorpe, beef production continued to concentrate within a 400-mile radius of Grand Island, Nebraska. Where Iowa, Minnesota, and Missouri once fed 17 percent of America's cattle, they accounted for barely 10 percent in the 1990s. The eastern Corn Belt also suffered in the 1990s, as states in that region accounted for just 7 percent of total U.S. fed cattle. Lack of financing hurt farmers throughout the Corn Belt, causing many to go out of business or shift their resources to other endeavors. The Corn Belt also became less environmentally suited to feedlots, as population density increased. Additionally, increased federal regulation made the feedlot business more costly and burdensome. Regulations governing water quality, runoff, erosion, and drainage forced many small operators out of business.
Changes in the meat packing industry also helped transform the feedlot business. More than 405 packing plants shut their doors since the mid-1980s. In the 1990s three large corporations controlled nearly 80 percent of U.S. boxed beef production. To be competitive a packing house should process over 500,000 head per year, and most of these superplants relocated to the plains states. If the location of American feedlots were plotted on a map and then dovetailed with an overlay of a map identifying the packing houses, they would form a heart shape covering the nation's midsection. Nebraska, Kansas, Texas, and Colorado have the largest number of processing facilities. They are also the four largest packer states.
The business aspect of the feedlot industry has become increasingly sophisticated. Most feedlot managers have computers on their desks to check current prices, futures, and the amount of grain consumed on their farms. Advanced communication devices allow managers to track the performance of individual animals from ranch to feedlot to packing plant. Tracking individual animals once involved a blizzard of paper and a bevy of manpower. Today the job is made easier by computers, electronic identification tags, high-speed data transmission networks, and specialized software. Computers sort the data. Electronic tags track the animals. Software makes the system work. But it is communications devices and data transmission networks that tie the system together by allowing managers to easily access, collect, and share data. Ranchers use the beef quality data from packers to improve herd genetics, while feedlots use the data to decide which ranches best suit their needs.
Cattle feeders hope that this technology increases their profit margins. The feedlot industry returned to profitability in the late 1990s after sagging earlier in the decade. Cheap feed prices in 1999 made it more profitable to fatten cattle than to slaughter them. In August 1999 cattle prices rose 3.4 per cent, while the cost of corn, the main ingredient in livestock feed, rose only 2.2 per cent. Feedlots had faced negative margins since late 1997, with losses accelerating in February 1998 due to the sharp break in fed cattle prices, as the domestic market adjusted to larger supplies of higher quality beef than normally would have entered the export market.
Downsizing. Nearly all segments of the beef cattle industry were in a downsizing mode during the 1990s. The consolidation was especially pronounced in the feed-lot sector. In the mid-1960s there were 200,000 feedlots scattered around the country. In 1997 that figure had fallen to 110,000 lots. But the largest 2 percent were marketing 95 percent of the nation's fed cattle. Those numbers were not expected to change much in the first few years of the twenty-first century.
The feedlot industry requires individual farmers to invest a great deal of capital in their cattle. A typical steer going on feed costs a cattle feeder over $600, and at least another $200 in costs are incurred during the feeding phase. Consequently, many small cattle feeders teetered on insolvency or went out of business in the 1990s. As the packing industry became concentrated, packers started looking to build fiscally sound strategic alliances with their suppliers. Packers were not inclined to build such alliances with financially unstable smaller feeders. Marketing alternatives for smaller feeders dwindled, as fewer fed cattle were marketed at auction. Large feeders were better able to hedge their cattle using futures contracts. The practice of hedging saved many feeders from the wild price swings common to the cattle business. Large diversified companies were also more resilient during lean years than their unvariegated smaller competitors.
Mad Cow Disease. Bovine spongiform encephalopathy (BSE), commonly called "Mad Cow Disease," shocked the beef-eating world in 1986 and culminated in a frenzy in 1995, as producers in the United Kingdom found escalating numbers of afflicted cattle throughout the country. BSE is a fatal disease that affects the central nervous system of cattle. The U.S. Department of Agriculture promptly attempted to allay consumers' concerns by releasing studies showing that no cases of BSE existed in the United States. As a precautionary measure, the United States does not import cattle from countries with reported cases of BSE. Moreover, many scientists contend that the disease is not transmissible through an infected cow's meat or through physical contact.
Nonetheless, Texas cattle ranchers sued talk-show host Oprah Winfrey for defamation in 1996, after one of her guests told a national television audience that the cattle industry had potentially exposed Americans to Mad Cow Disease by feeding cows the remains of live animals. The cattle ranchers blamed Winfrey for sagging beef prices and requested money damages totaling $11 million. Winfrey argued that the dip in cattle prices was caused by high feed costs, oversupply, and low prices of competing meats. In 1998 a federal jury in Amarillo, Texas, sided with the talk-show host.
Beef cattle feedlot operations continue to be financially dominated by large corporations with diversified interests that have refined the process of raising calves to slaughter-ready weight. Calves are typically housed on a feedlot for six months and fed grain, along with antibiotics, synthetic growth hormones, and protein supplements to push the animals' weight up as quickly as possible. The result is readily available beef products at relatively low prices. However, according to Kenneth Eng in Feedstuffs, "The classic image of the 'family farm' has been replaced by the negative image of a 'corporate factory farm,' resulting in increased danger that perception may replace reality."
Along with the perception that large corporate farming operations have squelched the beloved national image of the family farmer, large feedlot operations have provoked a stir of controversy centered around the environmental damage caused by waste runoff and air pollution. According to the Natural Resources Defense Council and the Clean Water Network, as reported by Mother Earth News, feedlot waste can be found in the watershed up to 300 miles away. Subject to the Clean Water Act, feedlot operations must follow regulations to ensure that the quality of the area water is not harmed. However, runoff remains a serious environmental concern.
Also subject to the Clean Air Act, feedlot operations are having a much harder time controlling the levels of nitrogen and ammonia that are given off by mass concentrations of cattle. According to the Environmental Protection Agency (EPA), cattle are responsible for over 43 percent of nitrogen released into the atmosphere. In 2002 the EPA introduced a new farm animal pollution curb, which is expected to reduce the presence of the main pollutants produced by cattle waste and urine by 25 percent. The noxious odors caused by the feedlots are leading to a growing number of lawsuits from area residents. According to Elizabeth Becker, "Residents contend that feedlots destroy the quality of pastoral life with their odor and threaten the environment and public health with noxious air pollution and seepage of polluted water into drinking and surface water."
Despite the environmental concerns, corporate feed-lot operations provide the country with a growing proportion of its red meat. As a result, the presence of large feedlots will remain an important part of the U.S. cattle industry. Although feedlot operators deal with uncontrolled fluctuations in the marketplace, environmental and ecological concerns have the most potential to introduce havoc to the industry.
Cactus Feeders of Amarillo, Texas, ranked first among U.S. cattle feeders, owning feedlots with a capacity for 480,000 head of cattle. Cactus Feeders reported revenues of $625 million during fiscal year 2001, ending in October. In an industry dominated by large corporations, the largest at the beginning of the twenty-first century was ContiGroup (formerly known as Continental Grain). Its home office was located in Chicago, Illinois, but the company owned feedlots in six different states. Capable of feeding 405,000 cattle at one time, and marketing nearly 1 million fed cattle during the course of a year, its division ContiBeef runs the second largest cattle feedlot operation in the nation.
ConAgra Cattle Feeding of Greeley, Colorado, ranked third, owning four lots with a capacity for feeding 320,000 head. National Farms Inc., of Kansas City, Missouri, ranked fourth, owning seven lots with a capacity for 274,000 head. Caprock Industries (a division of Cargill) of Amarillo, Texas, ranked fifth nationally among cattle feeding businesses, owning four lots with a capacity for feeding 263,000 head of cattle.
J. R. Simplot of Idaho, who had been included on Forbes list of the 400 richest men in America, was another leader in the cattle feeding industry. Simplot gained his fortune through potato farming and became one of the largest cattle feeders in the United States. He developed a system of feeding the potato waste from his French fry plants to cattle in his feedlots. Simplot was also one of the largest ranchers in the country.
Some industry leaders such as ConAgra ran both meat packing and feedlot operations. ConAgra fed its cattle in Colorado and Idaho, and was also a major meat packer. ConAgra entered the cattle feeding business to assure a ready supply of cattle for its processing plants. The company's biggest acquisition was the purchase of Monfort of Greeley, Colorado, which had once been among the largest cattle feeders in the country. Monfort was also one of the country's largest lamb packers.
As the feedlot business entered a new millennium, industry experts warned that even some of the leading cattle feeders might be forced to downsize or go out of business. According to industry analyst Topper Thorpe, efficiency would separate the successful cattle feeding operations from those that fell by the wayside. Several recent studies have been released concerning efficiency in the beef industry. In 1997 Idaho researchers released two studies showing that rainbow trout that had been given the cattle hormone bovine somatotropin (BST) grew nearly 70 percent faster and 50 percent more effi-ciently than untreated fish. Prior to these studies BST had been used to boost milk production in dairy cattle. But the growth hormone is now being studied for its stimulation in beef cattle. In 1998 scientists at the Agricultural Research Service Grazinglands Research Laboratory in El Reno, Oklahoma, released a three-year study showing that beef cattle finish as efficiently on grass pastures with a low grain supplement as they would on a mostly grain diet.
The beef industry as a whole opened the twenty-first century on a mixed note. Annual per capita beef consumption declined to about 66 pounds in 1999, after peaking at 87 pounds in 1976. Public perceptions that red meat is less healthy than chicken, turkey, or pork were largely to blame for the fall. Beef has lost much of its market share to pork and poultry, going from 59 percent in 1980 to about 46 percent in 1999. Industry reports predict that by 2004, beef's market share will further drop to 26 percent, pork will advance to 26 percent, and poultry will rise to 47 percent. But beef is still America's favorite source of protein. The United States produced a record amount of beef in 1999. At the same time, consumers were spending $5 per capita more on beef in 1999 than the year before. The beef industry also began a $25 million marketing campaign in 1999. Advertisements reprised the catchy "Beef: It's what's for dinner" tag line, and beef companies introduced a host of new products.
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