Prepared Feeds and Feed Ingredients for Animals and Fowls, Except Dogs and Cats

SIC 2048

Industry report:

This classification covers establishments primarily engaged in manufacturing prepared feeds, feed ingredients, and adjuncts for animals and fowls, except dogs and cats. Included in this industry are poultry and livestock feed and feed ingredients such as alfalfa meal, feed supplements, and feed concentrates and pre-mixes. Also included are establishments primarily engaged in slaughtering animals for animal feed. Establishments primarily engaged in slaughtering animals for human consumption are classified in SIC 2011: Meat Packing Plants, SIC 2013: Sausages and Other Prepared Meat Products, and SIC 2015: Poultry Slaughtering and Processing. Establishments primarily engaged in manufacturing cat and dog foods are classified in SIC 2047: Dog and Cat Food.

Industry Snapshot

Feed is by far the largest input cost of producing food and fiber of animal origin, exceeding even the initial cost of the animals themselves. The cost of feed represents 50 to 70 percent of the cost of producing meat, milk, and eggs at the farm level. For instance, the United States Department of Agriculture (USDA) calculates that it requires 88 pounds of feed to produce 100 pounds of milk; 9,523 pounds of feed to produce a steer; 1,273 pounds to produce a lamb; 50 pounds of feed for 100 eggs; 261 pounds of feed to produce 100 pounds of poultry; and 629 pounds of feed for 100 pounds of pork. In the case of grass-eating livestock such as cattle and sheep, a great deal of their nutrition may come from foraging pasture land, but the latter stages of their lives often require significant portions of prepared feeds. With poultry and hogs, however, nourishment is supplied primarily through prepared feed mixes.

Total production of U.S. feed grain in 2009 was 349.0 million metric tons, up from 325.7 million metric tons in 2008. Production was estimated to be level at 349.1 million metric tons in 2010. Feed products ranged from grain mixes to orange rinds to beet pulps. The feed industry is one of the most competitive businesses in the agricultural sector and is by far the largest purchaser of U.S. corn, feed grains, and soybean meal. Tens of thousands of farmers with feed mills on their own farms are able to compete with huge conglomerates with national distribution.

Record-high use of corn for ethanol production drove prices up during the second half of the 2000s and kept prices high despite record crop production in 2009. Average farm price for corn in 2009 was estimated at $4.06 per bushel by the U.S. Department of Agriculture's Economic Research Service, down from $4.20 per bushel in 2008. For comparison, corn was selling for around $2.00 a bushel in 2005 and a $1.90 a bushel in 2000. As a result, feed prices rose significantly during the latter 2000s. According to the U.S. Department of Agriculture's (USDA) National Agricultural Statistical Service, farmers spent $45 billion on feed in 2009, up from $29.7 billion in 2004.

Organization and Structure

Owning a feed mill is a capital-intensive operation. Many modern feed mills increasingly rely on computer technology; human hands rarely touch the feed ingredients. Not only can the feed mill itself be a multimillion dollar investment--with attendant costs associated with maintaining a competitive position regarding machinery--but the feed manufacturer must also have an expensive commodity inventory on hand at all times. Mill managers attempt to purchase their ingredients up front, often contracting for goods months in advance. To hedge the risks associated with fluctuating grain and commodity prices, many feed manufacturers utilize the option of futures trading. Most feed manufacturers also have a sizable investment in a truck fleet used to deliver bulk feed to dairy, poultry, and swine operations. Virtually all cattle feedlots in the United States, however, prepare their feed on the premises in bulk form. Many poultry processing companies own their own feed mills and sell the feed to contracting poultry producers who in turn sell their broilers back to the processor.

Retail outlets often will carry only one brand of feed. In return, the feed companies do extensive advertising in the rural press, usually on a regional basis. Another important aspect of the feed industry is the production of sacked feed, which is sold through farm supply stores and feed dealers. This feed is often used for 4-H and Future Farmers of America projects, backyard poultry projects, and feeding horses and small animals like rabbits and guinea pigs. Although the sacked feed sold in farm supply stores is prepared in the same manner as the feed delivered in bulk form, it is more expensive because of the extra packaging.

Nutritional Experts
More than 150 micro- and macro-ingredients are covered in a guide prepared by the Nutrition Council, which has become the authoritative source for the feed industry. Nutritionists are commonly employed in the feed manufacturing industry to determine the needs of domestic livestock. Animal nutritionists rely heavily on university research and industry publications for information on the chemical properties of various feed ingredients and their use and availability.

The role of the nutritionist is to calculate a ration that fits the nutritional requirements for the least cost. This is known as a "least-cost ration," and is the ultimate goal of all livestock nutritionists. There are thousands of professional nutritionists working for livestock feed suppliers, poultry feed manufacturers, feedlots, and poultry raising operations who spend a great deal of their time determining the needs of each animal during different phases of its productive life cycle. Nutritionists use the most sophisticated computer hardware and software to make these calculations on a daily basis. Nutritionists either are employed in-house or work as consultants.

The job of the feed manufacturer is to buy the commodities and blend them in the feed mill according to the specifications outlined by the nutritionist. There is little room for error because if the ration is not apportioned correctly, lowered animal production and diminished outward appearance can occur.

Associations
The 1992 merger between the National Feed Ingredients Association (NFIA) and the American Feed Industry Association (AFIA) under the AFIA name brought the entire feed industry under representation by a single organization for the first time since 1909. The membership of the American Feed Industry Association includes companies that manufacture feed to sell; firms that manufacture feed for their own animals; and those that provide equipment, ingredients, services and supplies to feed manufacturers. AFIA headquarters are located in Arlington, Virginia.

One of the primary goals of the AFIA is to represent the interests of the feed industry on federal legislation and regulation. The AFIA meets often with U.S. Food and Drug Administration officials to coordinate such things as mill inspections, manufacturing practices, labeling requirements, feed additives, and the administration of laws and regulations. The AFAI played a leading role in the development of the Uniform State Feed Law and other regulations mandating uniform feed labels.

The main ingredients used in commercially prepared feed are the feed grains, which include corn, soybeans, sorghum, oats, and barley. Corn production was valued at $48.59 billion in 2009, up from $24.38 billion just four years earlier in 2004. Soybean production was valued at $31.76 billion, up from $17.29 billion in 2004. Roughly 66 percent of sorghum production, which was valued at $1.24 billion in 2009, is used as livestock feed. Approximately 60 percent of barley production, which totaled 227 million bushels and was valued at $917.5 million in 2003, is used as livestock feed. Annual oat production in 2009 was valued at $216.57 million.

The sale and manufacture of pre-mixes is an industry within an industry. Pre-mixes are comprised of micro-ingredients such as vitamins, minerals, chemical preservatives, antibiotics, fermentation products, and other essential ingredients that are purchased from pre-mix companies, usually in sacked form, for blending into commercial rations. Because of the availability of these products, a farmer who uses his own grain can formulate his own rations and be assured that his animals are getting the recommended levels of minerals and vitamins.

Current Conditions

According to the USDA, one of the largest expenditures for U.S. farmers in 2009 was feed, accounting for 15.7 percent of total farm production expenditures. Only chemicals, fertilizer, and seed accounted for a larger portion of farm operation expenses (16.4 percent). Even labor was cheaper than feed for most farms. As corn prices rose during the latter 2000s, so did farmers' feed costs. According to USDA figures, U.S. farmers spent $31.4 billion on feed. Feed costs hit a record hit of $46.9 billion in 2008 before declining to $45 billion in 2009. Feed costs were forecast to fall to $43 billion in 2010 as corn prices softened slightly.

According to industry statistics, 1,900 establishments were engaged in manufacturing prepared feeds, feed ingredients, and adjuncts for animals and fowls except dogs and cats in 2009, with industry-wide employment at 31,500 workers. The majority of feed mills in this $7 billion industry were housed in California, Iowa, Texas, and Minnesota.

Other significant industry sectors included feed supplements, poultry feeds, meat and vegetable meal feeds, feed pre-mixes, fish food, bird food, and meat meal and tankage prepared as animal feed.

Industry Leaders

Leading companies involved in prepared feeds production in the early 2010s included Cargill, Incorporated, a diversified company that was the nation's top exporter of grain. Other significant industry players included ContiGroup Companies, Inc., the world's leading cattle feeder; CHS Inc. (previously known as Cenex Harvest States Cooperative), which was primarily involved in grain trading; and Smithfield-owned Farmland Industries, Inc., the leading agricultural cooperative in the United States.

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