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Agricultural News


Drought Confronts Feedlots with Tough Choices, Offers Opportunities for Cow-Calf Producers, Tom Brink Says

Thu, 07 Feb 2013 17:44:39 CST

Drought Confronts Feedlots with Tough Choices, Offers Opportunities for Cow-Calf Producers, Tom Brink Says
Tom Brink with JBS Five Rivers Cattle Feedlots spoke at the 2013 Cattle Industry Convention in Tampa, Florida, about challenges facing cattle feeders and packers. The liquidation of the domestic cow herd in response to the ongoing drought has decimated feeder numbers and has reduced the number of replacement heifers available at home and abroad. All indications are that things will get worse for the industry before they get better.


Brink spoke with Ron Hays after his presentation and said the competition for feeder cattle among feedyards will force some very tough decisions. (You can hear the full interview by clicking on the LISTEN BAR at the bottom of this story.)


"The feeding industry really has some big challenges- We have about 20 to maybe as much as 25 percent excess capacity depending on how you measure it. And so I think what I see a lot of feedyards doing is they're, in some cases, downsizing their yards. So, in other words, the yard that might be 30,000-head capacity may only be feeding 20,000 cattle. And they're keeping the yard open, but they are downsizing to fit the supply. And that's really what our segment of the industry has to do. It happens very slowly. Sometimes those adjustments happen a lot more slowly than you'd like to see them happen in a way, but it's hard for people to make those decisions because it's downsizing their business and downsizing their opportunity.


"But that's what we're going to see, really, over the next couple of years, I think. And we lost a packing plant, the packing plant at Plainview, Texas. The Cargill plant is not going to be operating for the foreseeable future and that also is a symptom of excess capacity in the packing segment."


Brink says that squeeze on feedlots will lead to decreases in capacity, employees, and efficiency.


"You have to downsize your staff, unfortunately. You have to downsize everything that you can. And you can't change the facility and you can't the mill or some of those fixed aspects very fast. So, yes, a feedyard does run much more efficiently when it's full, but we are faced with--and I'm talking about the whole industry now--we are, as cattle feeders, faced with a challenge of really not being able to stay as full as we'd like to and so we're all searching for ways to run these bigger feedyards probably a little less full and still be as efficient as possible."


He said that not all the news in the industry is negative. With restrictions in supplies of U.S. beef falling in Japan, export demand will stay high, Brink says.


"We expect, over time, to export more beef to Japan. They have the demand for meat protein. Prices for meat are very high in Japan. And I think they will buy more of our beef over time. It'll take time to get that going, but it will be something that over the next one to two years will be very positive for beef producers at all levels of the supply chain."


He says that Japan will prove to be a very strong and profitable market for U.S. beef going forward.


"I do expect that the Japanese may, over time, come back with some type of a premium for source verification because their retail segment likes source verification. They like to know the source of their food. And that's pretty well entrenched in the retail sector in Japan. Though we've lost the age component, it may be that we see, in time, a premium related to source of the animal."


As far as his feeding operations are concerned, Brink says flexibility is the key to weathering the storm. As with all challenges, he says he sees tremendous opportunities for some segments of the industry.


"It's going to be challenging in the cattle-feeding end of things for sure. Our survival is probably the number one goal even above profitability. We will do our best to stay in business and balance our capacity with the animals available and do the best we can there.


"I think our challenge is actually a tremendous opportunity for the cow-calf producer because they are producing the raw product-that calf-that all of us need and there just aren't enough of those animals to go around. So, if you're a cow-calf producer out there, you're very much sitting in the driver's seat for the foreseeable future because there just aren't enough cattle to go around.

"That's why we continue to see very high prices paid for calves and yearlings and so forth even despite the fact that the margins at our level in the business aren't very good at all."


In his presentation, Brink said the drought is the major obstacle to be overcome in the beef industry at the current time. "All the ingredients are there, just add water," he says.


"When we look at our industry in total, we see that we have good demand for our product both domestically and internationally. We see that our supply is extremely tight. We could certainly expand our cow herd and produce more supply to meet that good demand and I don't even think it would hurt prices too much if we did that. But we have been limited and not been able to expand the cow herd because of the lack of moisture and the forage shortage that we've had really in different areas but on the whole we've suffered for two years in that way. We need rain. We need to get the forage base rebuilt. We need, hopefully, lower corn prices. All those things would be extremely positive for the cow-calf producer. Lower his costs. And it would also increase the price of calves. And, so, cow-calf profitability could be set up for a positive run here the next few years if we just have the rain that we need."



   
   


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