Beef Cattle Feedlots

SIC 0211

Companies in this industry

Industry report:

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.

Industry Snapshot

America's favorite protein, beef, is still "What's for dinner?" According to the National Cattlemen's Beef Association, the retail value of the beef consumed in the United States in 2009 was $80.6 billion, and the United States was the worldwide industry leader in beef production. In 2010, cattle on feedlots with a capacity of 1,000 or more head totaled 10.5 million, down slightly from 12 million in 2007. Cash receipts from all cattle and calves produced in the United States in 2009 totaled $42.5 billion, which represented the lowest figure since 2003. In the early 2010s, three states accounted for two-thirds of all beef cattle feedlot production: Texas, Nebraska, and Kansas. Though 95 percent of feedlots were smaller, with a capacity of less than 1,000 head, larger feedlots marketed about 80 percent to 90 percent of fed cattle.

Organization and Structure

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." This finishing period typically 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, by-products, 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 of 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.

Background and Development

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 more than 60 percent of the total beef production annually. Iowa had fallen to fifth place among cattle feeding states by 1999, marketing 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. Finally, 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 more than 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 between the mid-1980s and mid-1990s. By the later 1990s, three large corporations controlled nearly 80 percent of U.S. boxed beef production. To be competitive, a packing house should process more than 500,000 head per year, and most of these super plants 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 had the largest number of processing facilities and were also the four largest packer states as the twentieth century drew to a close.

The business aspect of the feedlot industry also became increasingly sophisticated. 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 hoped that this technology would increase their profit margins, and the feedlot industry did return 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 percent, while the cost of corn, the main ingredient in livestock feed, rose only 2.2 percent. Feedlots had faced negative margins in 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.

Nearly all segments of the beef cattle industry were in a downsizing mode during the 1990s. The consolidation was especially pronounced in the feedlot sector. In the mid-1960s there were 200,000 feedlots scattered around the country. In 1997 that figure had fallen to 110,000 lots, with the largest 2 percent marketing 95 percent of the nation's fed cattle.

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 more than $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 also were 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 USDA 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 stopped importing cattle from countries with reported cases of BSE. The fear of mad cow disease was also prevalent among the larger importers of U.S. beef, particularly Japan, who enacted a ban in 2003 that was not retracted until 2006. In 2003, the volume imported was 920 million pounds of carcass weight; the figure stood at 12 million pounds in 2004 after restrictions were implemented and rose slowly to 52 million pounds in 2006 once those were reduced.

Many scientists contended that the disease was 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 diseased 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.

The industry continued to deal with the issue in the early years of the first decade of the 2000s. At the end of 2003, a BSE diagnosis was confirmed in a cow in Washington State. Subsequently, by the early spring of 2004, the USDA announced plans to spend $70 million on new testing systems to go into effect by June 2004 and continue for 18 months. This would allow for the testing of approximately 250,000 cattle, as opposed to previous levels of around 20,000 tested annually. In 2005, about 375,000 were tested without any new cases being discovered. In addition to BSE, major causes of premature death and various health concerns in feedlots were bovine respiratory disease (BRD) and bovine viral diarrhea virus (BVDV).

Environmental Concerns.
Along with the perception that large corporate farming operations have squelched the beloved national image of the family farmer, large feedlot operations provoked a stir of controversy centered around the environmental damage caused by waste runoff and air pollution. 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 remained a serious environmental concern.

Also subject to the Clean Air Act, feedlot operations had a much harder time controlling the levels of nitrogen and ammonia given off by mass concentrations of cattle. According to the Environmental Protection Agency (EPA), cattle were responsible for more than 43 percent of nitrogen released into the atmosphere in the early years of the first decade of the 2000s. In 2002 the EPA introduced a new farm animal pollution curb, which was expected to reduce the presence of the main pollutants produced by cattle waste and urine by 25 percent. In 2006 the agency received criticism from the National Resources Defense Council (NRDC), the Sierra Club, and the Environmental Integrity Project charging that a new rule proposed by the EPA in 2005 was not sufficient to protect bacterial pollution from livestock and poultry factories from entering food and water supplies, thus creating a public health issue.

Efficiency Issues.
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 studies were 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 efficiently than untreated fish. Prior to these studies BST had been used to boost milk production in dairy cattle. The growth hormone was 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. However, in the mid-years of the first decade of the 2000s, controversy surrounding the safety of BST caused consumer demand to sway against its use.

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 was less healthy than chicken, turkey, or pork were largely to blame for the fall. Beef lost much of its market share to pork and poultry, going from 59 percent in 1980 to about 46 percent in 1999. But beef was 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.

Current Conditions

Into the early 2010s, beef cattle feedlot operations continued to be financially dominated by large corporations with diversified interests that refined the process of raising calves to slaughter-ready weight. Calves typically are 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.

U.S. per capita consumption of beef, however, continued to drop during the first decade of the twenty-first century, mostly due to health concerns. In 2009, Americans consumed an average of 61.1 pounds of beef annually, down from 67.6 pounds in 2000 and 79.2 pounds in 1985. In comparison, consumption of poultry (chicken and turkey) rose from 93.4 pounds in 2000 to 96.9 pounds in 2009, a sharp increase from the annual consumption rate of 65.6 pounds in 1985.

Environmental concerns continued to affect the industry. In May 2010, for example, the EPA took action against six cattle feedlots in Iowa, Kansas, and Nebraska for violating the Clean Water Act. Research on the effects of air pollutant emissions from feedlots also proceeded, supported by grants such as the one awarded to Colorado State University for $1.5 million in 2009 to discover how much nitrogen and ammonia may be coming from the state's cattle feedlots.

In addition, the concept of grass-fed beef, as opposed to that produced on feedlots, continued to gain popularity into the early 2010s. According to Gerard Brickley of Bord Bia, the Irish Food Board, grass-fed and organic beef accounted for only 3 percent of the total U.S. beef market in 2010; however, "The sector has been growing at a rate of over 20% for the last five years, and double-digit growth is predicted to continue for the coming years."

Despite these challenges, corporate feedlot operations continued to provide the United States with a large majority proportion of its red meat, and, as a result, the presence of large feedlots was expected to remain an important part of the U.S. cattle industry well into the twenty-first century.

Industry Leaders

Cactus Feeders of Amarillo, Texas, ranked first among U.S. cattle feeders in the early 2010s with 500 workers and $750 million in annual sales. It owned 10 feedlots in Texas and Kansas with a capacity for 520,000 head of cattle. Cargill Cattle Feeders of Wichita, Kansas, was the second largest in the industry with four feedlots in Texas, Kansas, and Colorado. Feeding more than 600,000 head of cattle annually, Cargill Cattle had 2006 sales of $552 million and 850 employees. Agri Beef Co. of Boise, Idaho, had four feedlots in Idaho, Kansas, and Washington and 1,000 employees. Sales for Agri Beef were $342 million in 2005.

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