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Continued: Cargill battles drought in cattle country

  • Article by: MIKE HUGHLETT , Star Tribune
  • Last update: May 11, 2014 - 6:30 AM

The feedlot is an intermediate step between the early part of a beef cow’s life — grazing on pasture land — and the last part, a truck ride to a slaughterhouse. At Cargill’s Dalhart feedlot, steers stay for about 160 days, arriving about 800 pounds and leaving at 1,350.

Almost 90 percent of the cattle processed at Cargill’s four big U.S. beef plants comes from independent feedlots. But Cargill also owns lots, including the one in Dalhart, which covers 500 acres for cattle alone. The Dalhart lot is particularly populated with Black Angus cattle, grist for Cargill’s Sterling Silver premium meat line and other products.

Cargill’s feedlot in Lockney, south of Amarillo, is slated to close this year, a victim of the cattle crunch. A third Cargill feedlot in the Panhandle will remain open.

At a feedlot, the diet is heavy on corn, from kernels to silage. Corn prices are watched closely. “Everything is based off the price of corn,” Cargill’s Schwab said.

That price began rising from historical norms around 2007, a few years before the current drought kicked in. High corn prices stressed feedlots and put upward cost pressure on the entire beef industry.

Over the last six months or so — after corn prices fell below $5 a bushel from over $7 in 2012 — feedlots have finally had some relief from red ink. “We’ve had some short-term profitability in the feedlot industry,” Schwab said.

Tough economics

But a feedlot’s other main economic variable — low cattle volume — will be a big issue until the herd starts growing. When ranchers liquidate their herds because drought has dried up pasture, they temporarily increase the number of cattle they send to feedlots. But that’s only a short-term benefit to feedlots, masking a long-term problem.

The cattle shortfall has been vexing beef processors as well over the past few years. “On the packing side, their margins have really been squeezed,” said David Anderson, a livestock specialist at Texas A&M University.

The price of live cattle has often risen faster than the price of boxed beef churned out by packing plants. “The wholesale market didn’t increase enough to keep up with fed cattle prices,” Anderson said.

The U.S. beef packing industry has had chronic overcapacity for years, and the situation has gotten critical as the cattle supply has dwindled. Cargill was the first to blink in January 2013, when it shut down its Plain­view, Texas, plant.

Big beef plants, where cattle walk in and leave as boxed beef, are labor intensive. Cargill’s Plainview plant had about 2,000 workers, making it the town’s largest employer. When such plants go down, economic decimation can easily follow.

National Beef is slated to close a plant in Southern California this month, wiping out about 1,300 jobs. More casualties could follow if cattle conditions don’t improve.

“I think we are very vulnerable to losing another one or two of these big packing plants,” Peel said. “The real problem for packers is that there is just not enough cattle.”

Mike Hughlett • 612-673-7003
 

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  • Video: Texas drought affecting beef prices and Cargill's feedlots

    Saturday May 10, 2014

    Cargill is set to close another Texas feedlot, and last year it shuttered a mammoth beef packing plant because...

  • On April 30th, 2014 at the Cargill feedlot in Dalhart, Texas, pen riders Raoul Urquijo and Donnie Messick are some of the employees responsible for managing the herd, some 86,000 heads of cattle including sequestering sick animals that will be given medicine.

  • On April 30th, 2014 at the Cargill feedlot in Dalhart, Texas, a detail from one of the cattle pens.

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