Mid-Sized Feedlots Exit The Industry
By: Katelyn McCullock, Economist American Farm Bureau Federation
February\’s Cattle on Feed Report provides some unique insight of the previous year\’s feedlot capacity. The daily livestock report highlighted some of the key points last week. The monthly cattle on feed report provides numbers of those feedlots with 1000 of more head. However, this represents only 7% of the industry\’s capacity. There are just over 30,000 feedlots in 2016, and 93% of them held less than 1000 head. Those 7% however, marketed more than 87% of the total cattle sold.
Smaller sized feedlots did increase capacity adding 2,000 lots (locations) compared to 2015 and increasing the number of head marketed during 2016 by just over 200,000 head year-over-year. This relatively large increase in small feedlots is driven by cheap feed, but is unlikely going to be a long term trend. Over the last decade feedlots with 1000 head or less have fallen by 65%. The largest increases have been in feedlots with 50,000 head or more, up 28% since 2006.
Larger feedlots continued to add both capacity and numbers, increasing the number of lots with 50,000+ by 2, and the number of head marketed increased by 710,000. The number of head marketed in this largest capacity category represents 34% of the total cattle marketed. The smallest proportions of cattle were marketed in feedlots with 1,000-31,999 head capacity. The number of lots increased in several of these capacity categories: 1,000-1,999, 2,000-3,999, 4,000-7,999, 8,000-15,999 each added 10 new lots last year. Feedlots with 16,000-49,999 lost 12 lots total.
Larger feedlots have an easier time weathering negative margins using economies of scale. But, as we saw in 2016, inexpensive feed/ weak calf prices enticed farmer feeders (<1000 head) to hold animals and use their own feed. These facilities on farmer feeder operations are fluid and tend to operate when the market conditions are favorable. When conditions are less favorable those facilities remain empty and producers sell calves and corn. Mid-sized operations have less flexibility. In the smaller mid-sized categories, feedlots added capacity as seen in the 1,000-15,999 head capacity groups. In the larger mid-sized categories (16,000-49,999 head capacity), those that could not grow, exited. These categories are never completely stagnant and change as the markets calls for.