Cattle feeding profitability has careened between all-time highs and all-time lows in recent years, but all things considered it isn't the worst time for one of the largest cattle feeding entities in the country to come up for sale, according to Jim Robb, director and senior ag economist at the Livestock Marketing Information Center based in Denver.
Cattle feeding profitability has careened between all-time highs and all-time lows in recent years, but all things considered it isn’t the worst time for one of the largest cattle feeding entities in the country to come up for sale, according to Jim Robb, director and senior ag economist at the Livestock Marketing Information Center based in Denver.
He made that observation during the recent Arkansas Valley Livestock Symposium, hosted by the Colorado Livestock Association and held on the campus of Otero Junior College.
In the wake of a massive corruption scandal in Brazil, international meatpacking conglomerate JBS announced this summer that it was putting its large cattle feeding division, Five Rivers, on the market.
With the industry increasingly consolidated, any major shift in ownership or possible closure of feedlots or packing plants sends ripples of concern throughout the countryside.
Enduring a shakeup at a large cattle-feeding entity is still fresh in the memory of livestock producers in the Arkansas Valley. Jason Crouch, who was in the audience on behalf of his employer, Ordway Cattle Feeders, recalled the widespread uncertainty two years ago that accompanied the restructuring of Four States Cattle Feeding. The company operated multiple feedlots in the region before running into financial problems, forcing it to pare its inventory from 85,000 to 40,000 head capacity.
“It affected every feeder, farmer and local business in this area,” Couch said.
The company’s flagship feedlot in Ordway is now under the exclusive ownership of one local family and has emerged leaner but financially much stronger, Couch said.
Still, when ownership changes happen, it puts stress on a long list of ancillary businesses. Timing of a forced sale is critical too.
“When we went through it two years ago that was at a time when nobody wanted to buy a feedyard. That’s why we’re quite a bit smaller now,” Couch said.
Robb noted optimistically in his presentation that JBS has received letters of interest from several potential buyers. Five Rivers operates more than a dozen feedlots across the Western U.S. and Canada.
JBS also owns multiple meat processing enterprises worldwide, but Robb said its large cattle-feeding arm was the least insulated from the company’s political and financial turmoil.
“They are buying 35,000 head a week to keep those lots full, so that’s a big buyer,” he said. “The risk of the fallout from this, and how it might effect yearling prices, that’s the thing I’m watching. I think we can transition through it, but it’s just another risk factor at a time when we are trying to move more cattle through the system.”
Justin Miller, one of two CLA board members from the southeast region who attended the meeting, handles environmental oversight for Five Rivers’ 60,000-head feedlot at Lamar. Miller had no comment on the sale other than to state that it was “business as usual” at the yard.
“We are still buying cattle and selling cattle and buying commodities,” he said.
The potential impact of the Five Rivers sale is magnified by its size. The company feeds close to a million cattle and buys many semi-loads of corn every day. The JBS-owned packing plant in Greeley is the largest beef processor in Colorado.
Robb noted in his presentation that domestic supplies of meat are building, not only of beef but pork and poultry too. Ranchers began increasing the size of their herds in recent years when prices spiked.
Strong export sales have been crucial to keeping prices firm this year, he said.
“The export demand profile right now represents a record large tonnage of beef. It’s the foreign customer that has been more of a positive factor than the domestic customer,” he said. “Without them, we’d have a disposal problem in the U.S. for less desirable cuts like liver.”
The U.S. trade outlook in recent months has become increasingly murky, with President Trump scrapping some pending free trade agreements and launching the renegotiation of others.
“We’re in the heat of it right now, and we’ll just have to see what happens,” said Toby Johnson, an owner-operator of Collins Ranch at Cheyenne Wells, another CLA board member who represents the southeast region.
In terms of the cow-calf segment, Robb called the profits of 2015 a “once in a lifetime” occurrence, but added that cow-calf producers should make on average $30 or $40 a head this year. On the flip side, the costs to carry a cow have been climbing and are now in excess of $800 a head.
Bob Bledsoe, a rancher from Hugo who was in the audience, took note of Robb’s suggestion to consider reducing market risk by diversifying away from strictly calving in the spring. That’s a strategy Bledsoe has been working toward for several years.
“I’m in the process of moving all of my cows to fall calving,” he said.
There are lots of reasons to do it, but the primary one is to gain more marketing flexibility while capturing a seasonal upswing in prices, he said. Spring-weaned calves are ready to go to graze-out wheat pasture, summer grass or a cover crop stocking situation among other options.
He wasn’t too worried about calving in the fall with four barns on his place but did express concern about having adequate hay supplies to carry him through the winter.
Bledsoe’s son Brian is a meteorologist in Colorado Springs and operates a private ag weather consulting service. With this insider knowledge as a backdrop, Bledsoe said the La Nina weather pattern that has emerged in South America could signal a drier winter ahead with less snow from January to March. There’s typically a three-month lag between when the temperature pattern develops along the equator and when its impact is felt in southern Colorado, he said.
The need to prepare for continued price volatility in the future and find ways to reduce market risk was one of the key messages Robb stressed in his presentation.
He noted that while increased market segmentation creates new niche outlets for producers, it also injects inefficiencies and unpredictability into the system. That’s because beef distributors can’t just go to the cooler and fill orders by sorting through the available inventory.
“That likely ends up giving you more volatile pricing,” he said.