Feedlots are emptier than usual as tough cattle markets continue
Cattle producers and lenders are becoming increasingly concerned about the impact of poor profitability in the feedlot business. A lender and producer from south-central North Dakota talk about the cause, impact and countermoves they’re making.
EDGELEY, N.D. — For the fourth year, cattle feedlot operators are feeling the pressure from what they’re worried is a no-win market.
Brandon Schweigert, 39, runs Schweigert Feedyards at Edgeley, N.D. Brandon graduated high school in 2000 and immediately came back to farm. The Schweigerts raise corn, soybeans and alfalfa — sometimes sunflowers and wheat.
Brandon for the past five years increasingly has taken over financial responsibility from his father, Dave, 67. A series of tough years in the feedlot business had added debts. Grain markets have improved and “I hate to say it, the money from Trump has been beneficial on my farm .”
Their feedlot holds up to 2,000 animals.
They calve out 250 of their own cows from February to April.
“We develop the females, the heifer calves, and sell them as bred heifers the following year and finish the steers,” Brandon said. In most years, the Schweigerts would rotate pens, purchasing and selling yearling cattle that come at about 800 pounds. They finish on a schedule throughout the year, 1,300 to 1,400 pounds.
Eight years ago, they started selling fed cattle through Niman Ranch, a drug-free program based in Sacramento, Calif., that also processes pork and lamb. Initially, Niman Ranch paid the freight to California, but in recent years, Niman Ranch has custom-killed at the JBS USA plant at Omaha, Neb. The Schweigerts now pay the freight.
Timing has become more difficult, especially in COVID-19 times. The Schweigerts typically agree verbally on a shipping date and market weight. They’d line up trucks and two days before the date, the packer can text or call and tell them to hold back. That could mean another three or four weeks, sometimes in the heat of the summer. Not only won’t they get a premium as their qualities decreases with time but they may see prices deteriorate.
Instead of feeding a new animal in the yard, Brandon would feed an old animal that is declining in value.
“You’re not getting rewarded for feeding it anymore, and in fact, you could possibly be getting a deduction because you’re getting it too heavy, or a female because it’s a ‘hard bone,’ because of the age of the animal,” he said. (Hard bone means a discount for physiological maturity and palatability of meat, indicated by “ossification,” when cartilage turns from soft tissue to a hard bone-like structure.)
Schweigert’s lender is Steve Anderson, senior vice president of lending with Hometown Credit Union, a company based in Kulm, N.D., with branches in Ashley, Hazelton and Lincoln, N.D. Most of their loans are in farming, and about 40% of those in cattle.
Anderson’s trade area is from Highway 281 to the South Dakota border to Interstate 94 to the Missouri River.
As of Oct. 1, 2020, none of his customers had applied for loans to take in feedlot cattle.
“It’s not like I’m being piled with a bunch of requests and I’m turning them down. They’re not even coming in,” he said.
“I’ve been lending for 25 years,” he said. “This year, I believe, is the first year I’ve had no request to buy feeder cattle — calves — to put weight on.
Anderson counts nine feedlots in his trade area that went out of the business in 2020. He thinks another nine could go in 2021.
North Dakota State University agricultural economists have said that cattlemen need about $850 to $900 per calf to break even. Today, cow-calf producers are getting $900 per animal for their steers and less than $700 for heifers, just weaned off a cow.
Anderson said there are 16 registered feedyards in LaMoure County, fostered in part by Natural Resource Conservation Service technical help.
“We don’t have a lot of cow-calf operations, but we have a lot of corn,” he said.
On average, those feedlots would have sold 700 to 800 animals twice a year.
“Some of those guys have 3,500 head feedyards that are pretty much empty,” he said.
Anderson himself owns a 700-head feedlot.
“I sold out of them in the spring of 2017 and it was the best move I ever made,” he said.
Anderson said economics have been sliding since the end of 2016, when calf prices dropped $70 per hundredweight. Feedlot operators depleted their feed supplies and many quit. Since 2017, the U.S. has lost about 77,000 “intermediate” feedyards — family enterprises. At the same time, packers started buying their own feedyards.
“It’s sad,” he said. “There’s nobody to buy these calves.”
When his feedlot was running, his annual veterinary bill was $20,000 to buy vaccines and work the calves.
“That’s just money that leaves the community, with the feed, the mineral and all of that,” he said.
Here's Anderson's rule of thumb: Start with the price of corn, he said. At $4 per bushel for corn, move the decimal multiply by two: 80 cents per pound is the cost of gain. Feeders usually make money off their feed, but that's less likely when cattle prices are low.
“It depends on when you buy the cattle and what you get when you sell them. To take a 600-pound calf and take it to (about 750 pounds) you’re going to lose $54 on the current market. Why would you do it? Might as well sell it off the cow,” he explained.
Bred cow move
In the absence of acceptable fed cattle markets, operators like Schweigert get creative.
This year, the Schweigerts sold much of their corn for better prices and sold the yearlings.
“We’ve changed our strategy to more (bred) cows — something a little more ‘safe,’” from a marketing standpoint,“ Brandon said.
They purchased about 600 bred cows from October until the end of December. They were priced at an average of about $1,060 per animal, which he considered reasonable for the age and condition. The Angus cattle came from either Dickinson, N.D., or in the Perham/Motley area in Minnesota.
“We bought into some bred cows that we can take out and graze on some of our corn residue. We’ll try to save some costs by grazing and felt safer by having these bred cows,” he said.
He felt fortunate to buy some for as little as $900. He was able to “flip out” of those by selling them at $1,400.
Typically, the Schweigerts feed about 70% of what they produce on the farm and go with some cheaper inputs they can find.
They purchase some potato byproducts from Cavendish Foods of Jamestown, N.D., available a $16 a ton delivered. They buy peelings and poor potatoes that don’t make food production.
They get some french fry or hash brown products that for whatever reason hasn’t made the company’s human consumption standards. Some product has been fried once, and provides good crude fat levels.
They’ve cut back on distillers grains because of price. They don’t contract it but buy it through a broker/trucker. DDGs are currently are the $100 per ton area, compared to a $75 to $85 per ton that would make sense if cattle prices were at $1.20 per pound, versus the $1.05 they’d been selling at.
The Schweigerts had a half-section of corn that didn’t get harvested in 2019. The ground stayed too wet to harvest until May, when a horrific wind blew it flat. They got a healthy crop insurance claim on a 200-bushel per acre Actual Production History. Weeds and volunteer corn started growing. Instead of baling it, burning it, or turning it black into the soil, the Schweigerts hired someone to green-chop it. Now they’re feeding an 1,800-ton pile of corn silage.
“It has more protein than my typical silage does, and the cattle are eating it just fine,” Brandon said. The cows are less finicky than feedlot calves. The silage ran 11% protein compared to the 9.5% to 10% average for typical silage corn in the area. It was 66% moisture, so it ensiled well in the pile.
Brandon thinks the market puts too much power in the hands of the packers whose profits don't “go downstream to the beginning of the food chain” — feedlot operators and cow-calf operations.
“There’s a lot of damage going on right now in the cattle industry,” he said. “I wish we could get more eyes and ears on the packers and (that) the consumer could realize what’s going on.”
Anderson blames “corruption” in the cattle business , despite government investigations that have concluded otherwise .
“When a farmer can take a 1,400-pound critter to the sale barn and get 65 cents, and it’s slaughtered and you get $4 per pound to $5 per pound for hamburger? That’s somewhere between $1,500 and $2,000 lying on the table between the farmer and the consumer,” he said.
He thinks R-CALF (Ranchers-Cattlemen Action Legal Fund United Stockgrowers of America) based in Billings, Mont., is the “only one” representing the interests of cow-calf producers.
Long-term, Brandon worries that the cattle industry could shift into the contract growing situation seen in the swine and poultry industries, where someone other than the producer owns the animals and makes significant decisions.
“I don’t know if they could 100% do it with beef, but they could test the waters to push it as far as they could, get it more factory-streamlined to take us guys out of the country,” he said.
The impact will be in the “fragile” background-feeding or feeding industry, he thinks, but the cow-calf part of the business would be more difficult to take out. And he worries about the Biden administration’s focus on renewables fuels, and policies that could harm petroleum, which is linked to the prospects of corn-ethanol fuel.