Feedlots in trouble?

[cowman]

I keep hearing stories about various mid-size feedlots that are in serious trouble. Not too difficult to understand with high feed costs, high(relatively) feeder prices, and slumping fat prices.
The only solution is to lower the cost to the cow/calf sector...however this will result in either more calves heading south or more cow/calf producers quitting. Is there a solution?
This drought is sort of coming home to roost. What happens if the feedlots close? Will our large packing houses be able to stay in business? Where will all the extra grain go?

[ValueChainFX]

Cowman good questions, when we put all our eggs in one basket then every bump in the supply chain is felt. I guess the mid size feed lots are going to have to look again at the market place and decide if they want to keep being the scape goat for the large packers, or if they feel they can enter into a market that may make them a little less dependent on the big guys and straight commodity goods.

You already know my feelings on this I believe that the small and midsize guys in the industry need to focus their efforts on markets that they can get a premium price from and combine the efforts throughout the supply chain. Will it happen? Well in some cases yes, in other cases well, I believe that the feed lot guys may give up thinking that there is only one way to sell their product.

A new market place requires new marketing! Good luck guys!!!!

[jmillang]

Yes there are bumps in the feedlot business. and yest its most ugly for the mid size lots that only deliver cattle a few times a year. I'm not sure about most mid size lots but most of the ones I've talked too did not feel the feed cost price squeeze most had most of their barley bought last fall and before christmas, and as for forage supply most run a silage based system and as such had it in the pit before the real jump in feed prices. The guys that took a real bath are the small backgrounders who rely on a hay based ration.

As far as calves going south don't hold your breath the US feedlot system has also taken a bath. Now I can hear the noise that packers own the lots anyways - but in the mid west that is not the case very few US lots are owned by the packers (or have cattle owned by the lots)

There is an over capacity of pen space in the feedlot business anyways in Alberta. If the breakevens say that calves are too expensive - guess what the cow calf guy will take less he still wants needs to sell sometime. I have a chart from Canfax that show that 32 lots feed 56% of the cattle in Alberta (greater 10,000 hd) - the other 178 lots feed 44% now not all the 178 are going to quit feeding this fall, there is always someone who has deeper pockets or wants to "invest" in the cattle feeding business.

The feedlot business is a margin game, you work on the difference between cost and sale price, if the sale price decreases then your purchase price will decrease as well. I've read somewhere the outlook for the fall calf prices is about 10 - 15 cents off last years high (all else being equal)

[cowman]

The fact of the matter is feeder cattle are going south in a big way right now. Not to hard to check...talk to your local auction mart. And once again it is how you look at it...you either price your feed at what it cost or at the value it is actually worth! An example: I have a friend who priced it at $35/ton(what he was offered for it) and he fed 350 calves. He got his $35/ton plus the cost of the calves plus the interest. Nothing for running the feed tractor, the utilities, yardage or wages! This is good business?
The thing to consider in regards to the cow/calf sector is this: your average producer is getting old. He probably owns just about everything outright and he doesn't need to feed a bunch of cows and spend his nights calving cows. Especially at a loss!! Yes, it is true some of these old boys will run cows no matter what the cost, but it isn't much fun when you are old(and pretty dumb from a business point of view!). I think a whole lot of people are thinking of bailing!!! Nothing scientific, just what I'm hearing, and what I'm doing!