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STRUCTURAL AND ORGANIZATIONAL

CHARACTERISTICS OF THE MICHIGAN
FED CATTLE INDUSTRY
presented by

Kent R . Gwilliam

has been accepted towards fulfillment
of the requirements for

Master of Science degree in Agricultural Economics

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Date May 19! 1988

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STRUCTURAL.AND ORGANIZATIONAL
CHARACTERISTICS OF THE MICHIGAN

FED CATTLE INDUSTRY

BY
Kent R. Gwilliam

A THESIS
Submitted to

Michigan State University .
in partial fulfillment of the requirements
for the degree of

Master of Science
Department of Agricultural Economics

1988

/

P

2/ //

(1’

ABSTRACT

STRUCTURAL.AND ORGANIZATIONAL CHARACTERISTICS
OF THE MICHIGAN FED CATTLE INDUSTRY

by
Kent R. Gwilliam

This study investigates the fed cattle industry in
Michigan in an attempt to identify potential means for cattle
feeders to remain competitive. Two surveys were conducted to
collect data, one of Michigan's cattle feeders, the other of
firms purchasing Michigan fed cattle for slaughter.

Typical farmer feedlot traits are exhibited in Michigan,
including low turnover rates, seasonal placement and
marketings, high use of feeds produced on the farm, and
variation in the type, and size of cattle fed. Results include
a description of the facilities, feeds and feeding practices,
marketing, management, and a profile of the farmers feeding
cattle.

Slaughter plants purchasing Michigan cattle are diverse in
products, cattle requirements, plant size and location, and
markets served. Most packers reported plans for expansion.

The competitive position of Michigan's cattle feeding
industry reveals no major advantage or striking disadvantages
relative to other parts of the nation. Slight advantages in
the Mid- and Southwestern parts of the nation precipitated
investment in cattle feeding in these areas. As a result,
cattle feeding in Michigan is limited to the role of a
supplemental enterprise making use of surplus feeds and

available facilities.

To Carol, Julia, Burt, Marilyn, David,
Richard, Maria, and Catherine,
the worlds greatest family.

iii

ACKNOWLEDGMENTS

I extend my appreciation to my committee members, Drs.
Riley;Schwab and Rust for their patience and perseverance.
Their input and encouragement deserve recognition.

The funding provided by the Michigan Agricultural
Experiment Station and the Michigan State University
Agricultural Economics Department is gratefully acknowledged.

Special thanks to other members of the Department of
Agricultural Economics for words of encouragement and having
faith in my success. Appreciation is also expressed to Eldon
Roberts of the Michigan Live Stock Exchange for timely comments
and data.

Most of all thanks to my wife for stalwart support, love

and patience.

iv

List of Tables. . . . . . . . . . . . . . . . . . . . . . .viii
List of Figures . . . . . . . . . . . . . . . . . . . . . x
CHAPTER I
INTRODUCTION . . . . . . . . . . . . . . . . . . . . l
1.1 National Setting. . . . . . . . . . . . . . . . . . . 1
1.2 Michigan Situation. . . . . . . . . . . . . . . . . . . 3
1.3 Problem to be Addressed . . . . . . . . . . . . . . . . 4
CHAPTER II

CATTLE FEEDING IN THE UNITED STATES AND MICHIGAN’S
RELATIVE POSITION IN THE INDUSTRY . . . . . . . . . . . . 8
2A. HISTORY AND SETTING. . . . . . . . . . . . . . . 8
2A.1 Introduction . . . . . . . . . . . . . . . . 8
2A. 2 National Perspective . . . . . . . . . . . . . . 8
2A. 3 Early Cattle Feeders . . . . . . . . . . 9
2A. 4 Migration of Cattle Feeding to the High Plains .11
2A. 5 Concurrent Relocation of Slaughter Facilities. .13
2A. 6 Decline of Terminal Markets. . . . . . . . . . .14
23. CURRENT SETTING . . . . . . . . . . . . . . . . 15
28.1 Geographical Concentration of Cattle Feeding. . 15
23.2 Concentration as a Structural Issue in
Cattle Feeding. . . . . . . . . . . . . . . . . 19
28.3 Overview- Cattle Feeding in Michigan Relative
to the U.S. . . . . . . . . . . . . . . . . . 19
2C. FED BEEF PRODUCTION . . . . . . . . . . . . . . . . 21
2C.1 Case Study in Economies of Cattle Feeding . . . 21
2C.2 Determining Geographically Relative Prices. . . 28
2C.3 Cost of Production. . . . . . . . . . . . . 29
2C. 4 Cattle Numbers and the Cattle Cycle . . . . . . 29
2D FED BEEF MARKETING . . . . . . . . . . . 32
2D.1 Brief Overview of Fed Cattle Markets in the U.S.32
2D.2 Concentration Among the Leading Cattle
Slaughter Firms . . . . . . . . . . . . . . . . 33
20.3 Economies of Size . . . . . . . . . . . . . . . 36
2D.4 The Impact of Labor . . . . . . . . . . . . . . 38
2D.5 Demand and Supply . . . . . . . . . . . . . . . 38
2D.6 Industry Trends . . . . . . . . . . . . . . . . 40
2E SUMMARY. . . . . . . . . . . . . . . . . . . . . . . 41
CHAPTER III
CATTLE FEEDING IN MICHIGAN . . . . . . . . . . . . . . . . . 44
3A INTRODUCTION . . . . . . . . . . . . . . . . . . . . 44
3A.1 Recent Trends . . . . . . . . . . . . . . . . . 45

Table of Contents

BE THE CATTLE FEEDING SURVEY. .
38.1 Motivation and Purpose.
38.2 Survey Procedure. . . .
38.3 The Address List. . . .
38.4 The Questionnaire . . .
38. 5 Accuracy of the Responses

38.6 The Responses as a Basis for Ana

3C RESULTS. . . . . . . . . . . . .
3C. 1 Industry Structure. . . . . .
3C. 2 Profile of the Cattle Feeders
3C.3 Cattle Types and Sources. . .
3C.4 Marketing . . . . . . . .
3C.5 Management. . . . . . I .

3D SUMMARY. . . . . . . . . . . .

CHAPTER IV

MARKETS FOR MICHIGAN CATTLE. . . . . . . .
4A INTRODUCTION . . . . .

4A.1 Trends in Cattle Slaughtering

4A. 2 Michigan Markets. . . . . . .

4A.3 Eastern Packers . . . . .

4A.4 Western Packers . . . . . . .

4A.5 The Canadian Market . . .

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in Michigan

48 THE SURVEY OF SLAUGHTERERS OF MICHIGAN CATTLE

48.1 Purpose . . . .
48.2 Target Population
48.3 The Questionnaire
48.4 Procedure . . . .
48.5 Data Collection. .
4C SURVEY RESULTS . . . .
4C.1 Characteristics and
4C.2 Cattle Types. . . .
4C.3 Cattle Procurement.
4C.4 Sales . . . . . . .
4C.5 Labor . . . .
4C.6 Competitive Position.
4C.7 Outlook . . . . . . .
40 SUMMARY. . . . . . . . . .

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CHAPTER'V

MICHIGAN’S COMPETITIVE POSITION. .
5A Introduction . . . . . .

5A.1 Previous Studies. . .

5A. 2 Basis for Comparison.

SB COSTS. . . . . . . . . . .

58.1 Feed Costs. . . . . .

58.2 Feeder Cattle . . . .

58.3 Climate Related Costs

58.4 Transportation. . . .

58.5 Labor . . . . . . . .

vi

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51
54
55
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68
71

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58.6 Feedlot and Equipment Use

58.7 Economies of Size . . . .
58.8 Summary of Costs. . . . .

5C RETURNS. . . . . . . . . . . .
5C.1 Fed Cattl Prices . . . .
5C.2 Prices and Net Returns. .
5C.3 Marketing . . . . . . . .
5C.4 Management. . . . . . . .
5C.5 Profitability . . . . . .

5D SUMMARY. . . . . . . . . . . .
5E CONCLUDING COMMENTS. . . . . .
CHAPTER‘VI

CONCLUSIONS AND RECOMMENDATIONS. . . .
6A.1 Michigan Cattle Feeders .
6A.2 Markets . . . . . . . . .
6A.3 Competitive Position. . .

6B ISSUES AND RECOMMENDATIONS . .
68.1 Concentration . . . . . .
68.2 Slaughter Capacity. . . .
68.3 Market Coordination . . .
68.4 Management. . . . . . . .
68.5 Consumer Concerns . . . .

REFERENCES 0 ' o o o o o o o o o o o o 0

APPENDIX I .

APPENDIX II. . . . . . . . . . . . . .
APPENDIX III . . . . . . . . . . . . .
APPENDIX IV. . . . . . . . . . . . . .
APPENDIX V . . . . . . . . . . . . . .

vii

.120
.122
.124
.126
.126
.130
.130
.132
.133
.134
.137

.140
.142
.143
.145
.147
.147
.148
.149
.151
.151

O 153

.157
.166
.172
.180
.183

List of Tables

Table 2.1: Annual Marketings of All Cattle and Fed Cattle in

United States, Selected Years. . . . . 9
Table 2.2: Fed Cattle Marketed in Selected Cattle Feeding

States, Selected Years, Grouped by Region. .16
Table 2.3: Number of Feedlots and Cattle Marketed for

13 Major Cattle Feeding States . . . . .18
Table 2.4: Number of Feedlots and Fed Cattle Marketed

According to Capacity, Selected States, 1970 .20
Table 2.5: Approximate Feedlot Production Costs for

Steer Calves With Corn at $2.25 per Bushel .22
Table 2.6: Four Firm Concentration Ratios Selected

Years 1908- 1985. . . . . . . . . . . . . . . . .34
Table 2.7: Average Kill Cost Estimates. . . . . . . . . . .37
Table 3.1: Michigan Annual Marketings of Fed Beef (thousands)45
Table 3.2: Cattle-on-feed: Eastern cornbelt states and

United States as a whole . . . . . . . . . . . . .46
Table 3.3: Cattle Feeders Surveyed, Responded, and Currently

Feeding; Showing Marketings and Capacity . . . .53
Table 3.4: Size Distribution of Cattle Feeders,

1985 Marketings. . . . . . . . . . . . . . .57
Table 3.5. Capacity and Feedlot Use Rates . . . . . . . . .59
Table 3.6. Reported Capacity by Lot Types . . . . . . . . .59
Table 3.7: Use of Various Purchasing Services in

Replacement Buying . . . . . . . . . . . . . .62
Table 3.8: Various Sources of Feeder Cattle . . . . . . .64
Table 3.9: Three Major Categories of Cattle Fed . . . . .65
Table 3.10: Slaughter Destinations of Michigan Fed

Cattle, 1985. . . . . . . . . . . . .66
Table 3.11: Feedstuffs and Reported Use by Michigan
Cattle Feeders. . . . . . . . . . . . . .68

Table 4.1: The Response Pattern of the Firms Surveyed . . .86
Table 4.2: The Mix of Cattle Slaughtered by Responding Firms.91
Table 4.3: Yield and Quality Grade Distribution . . . . . .92
Table 4.4: Distribution of States of Origin of

Cattle-Slaughtered by Responding Packers (1986). .94
Table 4.5: Methods Used By Responding Packers

to Purchase Fed Cattle . . . . . . . . . . . .95
Table 4.6: Information Available From the

Packers to the Producer. . . . . . . . . . . .97
Table 4.7: Distribution of Product Shipments. . . . . . .99
Table 4.8: Responding Packers Perception of Relative

Competitive Position . . . . . . . . . . . 101
Table 5.1: Feed vs. Non-feed Costs on Cattle Feeding Farms,

Michigan . . . . . . . . . . . 113
Table 5. 2: Amount and Source of Labor for Cattle Feeding,

by Type 1980 . . . . . . . . . 120
Table 5.3: Profitability of Cattle Feeding in Michigan. 133

viii

Table

Table
Table
Table
Table
Table
Table

° Michigan Feeder Steer Prices .
° Michigan Fed Steer Prices. . . . . .

Number of Cattle Feeders, Capacity and
Marketings O O O O O O O O O O O O 0

Choice Steer Prices Omaha. .

Feeder Steer Prices Great Plains . .
Feeder Steer Prices Corn Belt. . . .

Choice Steer Prices Texas New Mexico 0'

ix

168
183
184
185
186
187
188

Fig.
Fig.
Fig.
Fig.

Fig.
Fig.

Fig.
FIG.
Fig.

Fig.

Fig.

Fig.
Fig.
Fig.

List of Figures

Cattle Fattened on Grain and Concentrates and

Sold: 1982. . . . . . . . . . . . .12
Steer and Heifer Slaughter Plants (50,000+ head)
Based on 1984 Capacity Estimates. . . . . . .14
Typical Cost and Revenue Curves Associated With
Cattle Feeding and Marketing. . . . . . . .24
Cattle Cycle Shown by the Number of Beef Cows

on Farms January 1,1930 through 1987 . . . . .31
Per capita Consumption of Red Meats and Poultry . .39
Marketing of Cattle Fed in Michigan

Showing Regional Changes. . . . . . . . . . .58
Feeder Cattle Sources Used by Michigan Cattlemen as
Per Lot Size. . . . . . . . . . .64
Canadian Monthly Imports of Fed Beef From the

U. S. 1982-86. . . . . . . . . . . . . . . . . . .68
Michigan Feeder Cattle Prices by Month January 1978
to December 1986. . . . . . . . 115
Plotted Differences in Monthly Feeder Cattle

Prices in Michigan Compared with Corn Belt

Markets 1978-86 . . . . . . 116
Plotted Differences in Monthly Feeder Cattle

Prices in Michigan Compared with Southwest

Markets 1978- 86 . . . . . . . . . . . . 117
Michigan Fed Cattle Prices, Monthly Averages

January 1974 to December 1986 . . . . . . . 128
Plotted Differences in Monthly Fed Cattle Prices

in Michigan Compared with Omaha 1974 - 1986 . . 129
Plotted Differences in Monthly Fed Cattle

Prices in Michigan Compared to Texas New Mexico
Direct Markets. . . . . . . . ... . . . . . . 130

CHAPTER I

INTRODUCTION

For the past several decades, cattle feeding and the fed
cattle industry in Michigan have held an important position in
the state's agricultural economy accounting for approximately 6
percent of farm products sales (Census of Agriculture, Michigan
1982). Despite recent sharp declines in the fed beef
production of other states in the Northeastern Corn Belt,
Michigan cattle feeders have tenaciously maintained output and
consequently increased market share in the four-state region.
Uncertainty with respect to the future profitability of cattle
feeding has prompted inquiry into the industry's productive
capacity, trends, and attitudes of cattle feeders with the hope
that these will prove to be useful indicators of Michigan’s

future in the fed beef industry.

1.1 National Setting

The beef industry is currently faced with some major
challenges. Decreased demand as evidenced by lower prices paid
per pound and declining per capita consumption, has interrupted
the long period of growth in the beef and cattle subsector
(Hilker and Ritchie, 1984). Consumers have turned to poultry

1

as a perceived lower cost substitute for beef. Other changes,
which are often attributed to health concerns and a trend
toward smaller families, have resulted in a shift in consumer
preferences away from beef (Cornell and Sorenson, 1986). Also,
the increase in the number of households with two income
earners has necessitated a move away from meals requiring
lengthy preparation time, a category which applies to many
traditional beef dishes. Fewer meals are eaten at home where
beef has been a staple and more attention has been given to
consumption of foods perceived to be more healthful.

The general image of beef has suffered as the media have
focused attention on medical reports linking cholesterol (a
lipid soluble sterol common in animal tissue) to heart disease.
Finally, beef is seen as being an expensive food, relative to
poultry and pork. Overall, these factors pose threats to the
success and future of the beef industry and cattle feeding in
particular.

Industry organizations, such as the National Beef Council
and the American Meat Institute, have taken positive steps to
reverse some of the negative public opinion resulting from
disparaging reports. But, it is not expected that the decline
in per capita consumption will soon (if ever) return to the
levels of the mid 19705. Innovative efforts of the industry
seek to improve public opinion and enhance the acceptability of

the beef products being offered.

In the face of powerful forces of opposition, beef still
remains the preferred meat. Its popularity is threatened by
changing lifestyles, health concerns and effective competition
from substitute meat products and other foods (Meatfacts,
1984). However, beef still captures the single largest share
of the consumers’ expenditure on meat and meat products

(Meatfacts, 1987).

1.2 Michigan Situation

The stability in fed cattle numbers indicates that cattle
feeding remains a viable option to Michigan farmers. Abundant
feed grain supplies and expectations that world feed grain
surpluses will continue for some time (Insel, 1985) have
kindled renewed interest in cattle feeding. Beef production is
often viewed as a practical means of marketing surplus crops,
harvesting otherwise inaccessible forages, or converting to a
marketable product, those feeds of type and quality that do not
lend themselves to commercial markets. However, investors are
justifiably cautious due to the stressful conditions that were
experienced during 1985 and the early part of 1986 (see per
head losses reported by Schwab, 1986).

Michigan’s strategic location holds several advantages.
Large Great-Lakes population centers of concentration, with
substantial ethnic constituents, offer a diversity of proximate

markets, providing the potential for product differentiation

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and specialization. Michigan feedlots have proven to be a
popular source of cattle to Canadian meat packers to supplement
shortfalls in Canadian supply. Low freight costs due to short
distances for shipping product from packing plants to retail
outlets is also an attractive advantage.

On the other hand the moist climate which provides an
abundance of forages in Michigan also dictates that cattle on
feed be provided with shelter to avoid unprofitably low rates
of gain and feed conversion during the cold, damp winter
months.

While the number of slaughter plants and the slaughter
capacity in the state have both declined, the amount of beef
and beef products imported from out of state sources has
steadily increased. By contrast, the percent of fed cattle
finished in Michigan and exported to out of state slaughter
plants has also increased (Riley and Heimstra, 1982).

Assessing the extent of influence each of these factors
and determining which will play a dominate role in Michigan’s
fed cattle industry, are the key issues in this study. The
information presented here is intended to contribute to the

decision maker’s knowledge base.

1.3 Problen.to be Addressed
What then, will be the future of cattle feeding in

Michigan? Can the recent stabilization and modest expansion be

interpreted as a longer term trend? Producers, industry
leaders as well as research and extension personnel all have a
vested interest in the answers to these questions.
Understanding the structure and behavior of the industry as
presently constituted is essential to evaluation of the
alternatives that will form the industry's future.

The purpose of this study is to reduce the uncertainties
by expanding the pool of knowledge relevant to Michigan’s fed
cattle industry.

The study objectives are to identify and describe the
organizational and operational characteristics of:

1) Michigan’s cattle feeders:

2) The markets available to Michigan cattle feeders;

3) 32d, investigate Michigan's competitive position
relative to major cattle producing areas in the
United States.

As with any problem solving research, it is necessary to
begin with an investigation into the factors that make up the
current environment. Hence, the author endeavors to answer an
array of questions, including: "What is the current situation
with respect to number of cattle feeders, size of operations,
feeding systems and housing? What are the key reasons that
Michigan cattle feeders have continued to feed cattle? In what
areas are there relative advantages? disadvantages? Are the

feeders progressive and to what extent do they make use of

modern management methods in Michigan?" Much of this

information was more readily available prior to 1982 when
budgeting cutbacks by USDA Agricultural Statistics Division
budgets eliminated Michigan in the regular cattle on feed
reports. In response, a survey of cattle feeders was conducted
by the Michigan State University Agricultural Economics
Department in April 1986. The approach, method, procedure and
results of the survey are contained in Chapter III.

Similarly, to address the questions relative to the
adequacy and potential of the markets for Michigan cattle and
salient marketing issues, a survey of slaughterers of Michigan
cattle was conducted in July of 1987. Chapter IV contains the
details and result of this second survey.

Relative to the United States as a whole, the share of the
cattle fed in the Eastern Corn Belt has been diminishing. It
is apparent that the rate of decline in Michigan has been less
than that of the other Eastern Corn Belt states (Gwilliam and
Rust, 1987). These conditions prompted investigation into the
competitiveness of cattle feeding in Michigan relative to other
areas, the treatment of which constitutes the fifth chapter.

In summary the central question, "What is the current and
future role of cattle feeding in Michigan?" will be addressed
as follows:

1) Chapter II gives a historical perspective.

2) Chapter III reports the intent, methods and summary
of the survey of Michigan cattle feeders.

3) Chapter IV focuses on the survey of slaughterers of

Michigan cattle.
4) Chapter V presents Michigan’s competitive position

in cattle feeding by examining and comparing
production factors in major areas of competition.

5) Chapter VI, summary, conclusions, and recommenda-
tions for further research.

The intent of this study is to provide descriptive data
and information about the Michigan cattle feeding industry and
identify some of the strengths and weaknesses inherent in
Michigan cattle feeding. This data will also serve as a base

from which diagnostic, prescriptive and predictive studies may

be conducted relative to this industry.

CHAPTERII

CA'ITLE FEEDING IN THE UNITED STATES AND MICHIGAN'S

RELATIVE POSITION IN THE INDUSTRY

2A. HISTORY AND SETTING
2A.1 Introduction
In order to provide a base from which to assess the
relative position of the cattle feeding in Michigan, it is
necessary to review the industry's characteristics relative to
cattle production across the nation. This chapter is not
intended to be a comprehensive review, but compares essential

elements of the industry nationwide.

2A.2 National Perspective

Beef cattle have long held a 'position as the largest
single component of agricultural cash receipts in the U.S. As
agricultural revenues rose from $34.2 billion in 1960 to $166.6
in 1986, sales of cattle and calves have maintained a
consistent 20-25 percent share of the total (USDA 1).

The number of fed cattle expresses as a percentage of all
cattle marketings has increased from 39.1 percent in 1960 to

69.6 percent in 1986 (Table 2.1).

Table 2.1: Annual Marketings of All Cattle and Fed Cattle in
United States, Selected Years.

Thousands Fed Cattle

Year Fed Cattle All Cattle as a percentage
of all cattle

1961 13,747 35,175 39.1

1966 19,774 45,038 43.9

1971 25,281 49,248 51.3

1976 24,170 55,348 43.7

1981 23,818 34,953 68.1

1982 24,902 35,843 69.5

1983 25,752 36,649 70.3

1984 25,758 37,582 68.5

1985 26,155 36,289 72.0

1986 25,957 37,290 69.6

Source: U.S. Department of Agriculture. Livestock and Meat

MW. selected issues and

WW. selected issues-

2A.3 Early Cattle Feeders
In the early part of the 20th century corn output
flourished in the Eastern corn belt and cattle feeding expanded
as a means of turning. the crop surpluses into a marketable
product. W. D. Farr, a pioneer in cattle feeding in the
Southwest gives the following description (Farr, 1985):
These corn belt cattle feeders were not really cattle
feeders. They only bought cattle to use their own corn
crop. The corn was fed whole and hogs followed the
cattle. Hogs were basic and raised on the farm so the
corn first went to the hogs then the surplus was fed to
the cattle. When a corn belt feeder purchased cattle, he
fed them until he ran out of corn. Maybe the animals
weighed 900 pounds or maybe 1900 pounds [when marketed].
The Corn Belt cattle feeders in the late 1800's and early

1900's were largely responsible for the establishment and

growth of the fed beef industry. Concurrently, the American

10

people acquired a taste, even a preference, for grain fed beef.
As the volume of trade increased the industry saw the
establishment of large terminal markets, with nearby multi-
species slaughterhouses. The terminal markets served to
facilitate access to rail transportation and provided a place
of exchange for producers and packers. This institutional
arrangement formed the foundation of the cattle trading and
packing business in the United States in this era. Most of the
nation's slaughtering capacity was owned by the four major meat
packers (Armour, Cudahy, Swift, and Wilson).

Improvements in storage and handling, largely attributable
to the advent of refrigeration and the refrigerated box car,
made fresh beef more available to the urban consumers in the
Eastern population centers (Hiemstra, 1985). Technological
advances and industrial expansion, particularly during the post
war period of the 40's and 50's, improved the productivity of
the American worker. Disposable income increased and with it
the standard of living. The purchasing pattern of the American
consumer shifted to include more fresh meat. Per capita
consumption of beef increased from 50.1 pounds in 1950 to 64.2
pounds in 1960, retail weight (Hasbargen, 1967). Americans
acquired a preference for the tenderness and flavor of grain
fed beef. Demand for beef expanded.

Chicago became a major center of commerce between the West

where the majority of the food was being produced and the East

11

where most of the nation's population resided. Rail
transportation was constructed to facilitate east west movement
of products. With the railroad as the primary means of
transportation, trade with the major rail linked firms in the
Northern Midwest was active. Consequently, the Corn Belt with
its plentiful supplies of corn and access to the rail head

markets, became the center of cattle feeding.

2A.4 Migration of Cattle Feeding to the High Plains.

With the expansion of irrigation into the High Plains,
portions of Texas, New Mexico, and Colorado in the 1960s these
areas became highly productive sources of corn and other
feedgrains. New varieties of milo and sorghum were developed
along with milling and processing that rendered these feeds
highly effective as substitutes for corn.

The warm dry climate in the High Plains region was found
to be particularly suitable for cattle feeding, where the
favorable weather required less shelter, bedding, and less
management than the Corn Belt (Hasbargen, 1967). In addition,
the cattle fed in this area achieved better gains and higher
levels of feed conversion. These factors contributed to lower
cost of production and fostered rapid expansion of cattle
feeding. Large cattle feeding companies emerged with annual
production in the tens- even hundreds of thousands. (For a

display of the distribution of cattle feeding see Figure 2.1)

12

 

 

.ousuucwocoo Ho cameo :0 cases 0:0 ummma
um sou cwcmuumu mauumo mm <om= on» an omcfiuwo was manuao ems

 

eating"

 

 

 

, NQGF ”Bow UCG m0~dbc00c8 Us 5th CO UGCOflGl 058

H.N unseen

 

l»

13

2A.5 Concurrent Relocation of Slaughter Facilities.
As observed by Faminow and Sarhan (1983) the expansion of
grain production in the Southwest had a major impact on the

meat packing industry:

Until the 1960s the Midwest had been the undisputed
center of fed cattle production and slaughter. Then,
however, the supplies of fed cattle began to shift to
the Southwest with the great expansion of feed grain
production in that region. As a result of this shift,
new slaughtering and processing plants were established
in the Southwest. These new plants opened with a '
number of competitive advantages relative to older
existing facilities: (1) they were technologically
modern and more efficient; (2) their locations were
often superior to those of the existing plants: and (3)
these new plants frequently had attractive labor
contracts.

Through the 60's and 70's the meat packing industry
experienced an industrial reorganization and emergence of a
"new breed" of meat packers. The new plants were single
storied, single species, technologically advanced, meat packing
factories. The owners were aggressive and progressive and

rapidly replaced the traditional "Big Four". Figure 2.2 gives a

geographical distribution of the major U.S. plants.

14

Figure 2.2: Steer and Heifer Slaughter Plants (50,000+ head)
Based on 1984 Capacity Estimates.

 

 

 

 

 

 

 

8V
no , . I
o "‘v ovp 0°“
gmu ‘1?
8 V
O v70
VII
V
. '3
D 0
Annual Kill
National . Capacities
18 V 500,000 and above
19 D 200,000 - l199,000
39 0 50,000 - 199,000

Source: Loy et al., 1986.

2A-6 Decline of Terminal Markets

The fed cattle industry expanded rapidly after World War
II. Terminal markets flourished with it and served as the
conventional marketing institution of cattle trade. Rockenbach
(1972) reported that,

Throughout the early 1950's, terminal markets received

15

around 75 percent of the cattle marketed in the United
States, ... In recent years there has been a steady
movement away from terminal markets toward auctions and
direct selling. In 1968 only 24 percent of the
slaughter cattle were sold through terminals while 57
percent were sold direct and 18 percent through
auctions.

In the 70's the decline in terminal markets and increase
of direct selling constituted a shift to more efficient
vertical coordination in the industry. This method required
less handling of the cattle and lower transaction costs. Since
then the national trend has continued toward more direct
selling. The USDA reports that 39 percent of the nation's fed
cattle were sold direct in 1960, but by 1982 the percentage of

direct sales had increased to 88 (USDA 2).

28. CURRENT SETTING

28.1 Geographic Concentration of Cattle Feeding

Table 2.2 shows the pattern of the shift in concentration
in the cattle feeding industry. For simplicity and clarity the
states have been grouped to show changes in regional
production. Unfortunately for our purposes state boundaries
were not drawn up with cattle feeding regions in mind and do
not always reflect regional changes. For example, feeding
volume in Nebraska has increased from 1970 to 1985 (table 2.2)
but these figures do not show the shift in concentration from

east to west.

16

Major regions, often referred to by industry personnel,
have indistinct boundaries. The Northwest, Southwest, High
Plains, Cornbelt and Southeast all are referred to loosely and
at times will mean different locations depending on the origin
of the reference. Where regions are specified they often
follow natural dividing lines (Quail, 1986). For example, the
Southwest-Highplains region targets West Texas and New Mexico
but also includes eastern Colorado, the southwest corner of
Kansas, and the Oklahoma panhandle.

Table 2.2: Fed Cattle Marketed in Selected Cattle Feeding
States, Selected Years, Grouped by Region.

1000 head_marketed_esr_xear

 

 

 

Sgaggi 1970 1975 1980 1985
Colorado 1,905 1,838 1,925 2,210
Texas 3,138 3,067 4,160 5,090
Kansas 1,890 2,264 3,015 3,655
Oklahoma 542 515 650 690
SW Total 7,475 7,684 9,750 11,645
8. Dakota 552 561 600 625
Nebraska 3,609 2,795 3,825 4,220
Iowa 4,522 2,645 2,690 1,924
Minnesota 877 762 760 590
Midwest Totals 9,560 6,737 7,875 7,359
Illinois 1,167 805 880 850*
Indiana 517 346 344 338*
Ohio 429 379 244 195*
Machigan 254 244 218 270
NE_IQ§§1§ 2.367 1.774 1.686 11653
Aggregate Totals 19,402 16,221 19,311 20,657
Source: USDA Qattls1_Einal_Estimate§1_Statistical_flulletins

* Estimated using on feed and marketings averages 1978-81.

For purposes of this thesis the Eastern Corn Belt will

refer to Michigan, Ohio, Indiana, and Illinois: the Midwest

17

will include South Dakota, Nebraska, Iowa, and Minnesota; and
the Southwest will refer to Colorado, Texas, Kansas, and
Oklahoma. Since a number of the works cited use other terms,
in general it is intended that "High Plains" be synonymous with
the Southwest, "Corn Belt" with Midwest, and "Northeast" with
Eastern Corn Belt.

The reader must keep in mind that regional trends
discussed here, using state reported data, do not precisely
distinguish the shifts in production. Some states, such as
Kansas, may include portions of both Midwest and Southwest
regions. Interpretation of regional changes using state data
must be viewed as general indicators of the overall rindustry
wide trends.

The transition in Iowa is a prime example of the kind of
reorganization that has led to the decline' in the Midwest
marketings. Much of this decline is the result of farmer
feeders going out of the cattle feeding business. More
specifically, in 1965 Iowa reported 46,939 feedlots with less
than 1,000 head capacity which marketed 96 percent of the
state's fed cattle. By 1984, the number of feedlots with less
than 1,000 head capacity had dropped to 19,496, from which only
50 percent of the state's fed cattle were marketed (Loy et al.,
1986). This decline in farmer feeding is typical of many other
areas across the nation see table 2.3.

Large industrial feedlots have increasingly captured a

18

larger share of the market on a national basis (table 2.3). As

their share has increased,

the feed used is produced on the farm, has declined.

Table 2.3:

the farmer feedlot,

Major Cattle Feeding States

where much of

Number of Feedlots and Cattle Marketed for 13

--------- Capacity Less than 1,000 head-----------

 

 

 

 

 

No. of Percent No. of Cattle Percent
Year F ed ots ot Marketed of Total
1965 149,804 99.03 8,136,000 53.55
1970 119,436 98.47 9,102,000 41.73
1975 90,097 98.36 5,798,000 31.72
1980 76,175 97.57 5,320,000 25.40
1985 49,279 96.84 4,085,000 17.87

---------- Capacity 1,000 head or more-----------

No. of Percent No. of Cattle Percent
Year Feedlots of Total Marketed of Total
1965 1,468 .03 7,056,000 46.45
1970 1,856 1.53 12,708,000 58.27
1975 1,501 1.64 12,478,000 68.28
1980 1,896 2.43 15,626,000 74.60
1985 1,607 3.16 18,772,000 82.13

Source: USDA Agricultural Statistics Board. Cattle on Eeed

Selected years.

Though Michigan numbers of fed cattle marketed have not
suffered the sharp declines observed in the midwest and parts
of the northeast, the state has followed the national trend to
fewer and larger feedlots.

Substantial variation exists between states with respect
to the shift 'to large industrial feedlots. The number of
cattle

marketed from farm feed lots (represented,

19

approximately, by those marketing under 1000 head annually) is
still substantial in some states, particularly in the Corn
Belt. However, the national trend is for fewer and fewer

cattle being fed in farm feedlots.

28.2 Concentration as a Structural Issue in Cattle Feeding
Allen (1983) estimated concentration using capacity
figures reported by Simpson and Farris. The feedlot use ratio
chosen1 was 1.55 or marketings to capacity rate of 155 percent.
The results indicated that the top 20 cattle feeding firms
marketed approximately 16 percent of the total 23 state output
in 1979 (Allen, 1984). The industry was far from where the
collective behavior of the leading 4, 8, 12, or even 20 firms
could have any significant impact on the volume and/or price of
cattle being offered for sale in the national market. Though
actual behavior varies between industries and commodities,
economists usually do not become concerned about single, or

four firm concentration ratios below 40 percent (Marion, 1986).

28.3 Overview- Cattle Feeding in Michigan Relative to the U.S.
As is evident in table 2.4, the number of feedlots has
been declining in all the major cattle feeding states and in

Michigan as well. The data indicate that in Michigan, between

1 For a definition of the feedlot use ratio and how it compares
to the traditional turnover ratio, see Appendix II.

20

Table 2.4: Number of Feedlots and Fed Cattle Marketed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capacity cider Capacity 1,000 Total

1970 1.0003”; um I! as:

Fad cattle Ave. Fad Cattle Ave. Fad cattle

Hater aarketad per W marketed per umber marketed
m of 19;; hm hm lg; 9f 19;; 1,000 hggd lot of lots 1.000 hag
Colorado 654 288 . 184 1,617 835 1,905
Texas 1,300 98 227 3,040 1,527 3,138
Knees 8,868 495 132 1,395 9,000 1,890
m 153 50 47 492 $0 542
80 Totals 11,575 931 no 590 6,544 11,092 12,165 7,475
5. Dakota 9,049 463 51 89 9,11!) 552
Nebraska 18,400 1,636 541 1,973 18,914 3,609
Miami 15,466 617 34 67 15,500 684
lowa 41,829 4,123 171 460 42,000 4,583
Iii 1 1 Q: 38 55 18.200 877
Midwest Totals 87,440 7,044 81 801 2,577 3,217 88,241 9,621
lllinois 23,952 1,064 48 118 24,000 1,167
Indiana 14,473 451 27 66 14,51!) 517
mio 9,472 391 28 38 9,51!) 429
Mann 1&7! 21.9 121 Z? 5‘ hum—g
IE Totals 49.570 2‘116 43 130 251 1 931 49 700 2 367
U. 8. Totals 164,074 10,713 1,600 9,827 165,674 20,540
Cwacity mar Capacity 1,000 Total

1980 LM 0!!! bag I! m:

Fad cattle Ave. Fad Cattle Ave. Fad cattle

miner nrkatad par Huber aarketad per Huber marketed

5.1.01! of log; 1.9m gm [9; of 195; ME 1351 lot of lots 1.000 hm
Colorado 200 116 200 1,809 400 1,925
Texas 931 51 166 4,109 1,097 4,160
Kmaas 3,82 202 248 2,813 3,500 3,015
film—LA! 35 :98 1'5 92
511 Totals 4,663 387 83 649 9,363 14,426 5,312 9,750
3. Dakota 5,951 422 49 178 6,000 600
Nebraska 12,525 1,350 375 2,475 12,900 3,825
lowa 29,532 1,677 468 1,013 30,000 2,690
mm 10491 99L 49 99 10.750 799
Widest Totals 58,689 4,113 70 961 3,762 3,915 59,650 7,875
lllinois 12,410 750 130 12,500 880
lndiana 9,676 301 24 43 9, 700 344
(lilo 5,787 205 13 39 5,800 244
using: 1450 “5 flE_____flLe fl! Lflfl IAEL. 1!
IE Totals 29.223 1.401 48 177 285 1.610 29.400 1.618
U. 8. Totals 97,040 6,045 1,53 13,783 98,893 19,828

Source: USDA Agricultural Statistics gaggle; Selected Issues.

21

1970 and 1980, the number of cattle marketed per feedlot has
decreased but the number of feedlots in the 1,000 head and over
category has increased. The overall average number of cattle
marketed per feedlot increased slightly from 149 to 156,
indicating that the average size of feedlot has increased,

though modestly.

2c. FED BEEF PRODUCTION

The practice of feeding high concentrate rations to cattle
not only enhances the palatability (Schupp et al., 1976) of the
finished product but-constitutes one of the least cost methods
of producing beef. This however depends on the relationship
between feed costs compared to management, facility, energy,
maintenance and other overhead costs. Brokken et al., using a
model with corn prices at $2.50 per bushel (1980) concluded
that, "Feeding to the Choice grade is consistent with
minimizing cost per pound of beef." He also cautioned that
feeding to excessive weights is wasteful and eventually

unprofitable.

2C.1 Case Study in Economies of Cattle Feeding
Table 2.5 shows the break even prices (average cost) and
marginal cost of gain associated with feeding steer calves from

450 to 1050 lbs. as recorded by Brokken et al., (1980).

22

Unfortunately, the experiment ended by slaughtering the cattle

before the data could show the effects of the relative cost
changes of continuing beyond the 1050 weight.

This table was used as an example because the author felt
that it showed many of the typical cost-feed-gain relationships
in feeding cattle. It was adopted from Brokken with only a few
minor changes.

Table 2.5: Approximate Feedlot Production Costs for Steer
calves With Corn at $2.25 per Bushel

 

Days Feed Feed Other Total Ave. Marginal
Wgt Gain 99 Feed Consumed Cos; Costs 3995; Cost Cgst
lbs/

lbs day days lbs ----- dollars ----- ---cents/lb.---

450 270 270 60.00

450 1.98 19 149 7.17 306 312 69.51 28.91

500 2.09 44 372 17.95 308 326 65.29 27.96

600 2.26 89 857 41.37 314 355 59.17 30.01

700 2.37 132 1,402 67.69 319 386 55.18 32.35

800 2.44 174 2,009 97.00 323 420 52.55 34.89

900 2.45 215 2,666 128.77 328 457 50.76 37.59
1,000 2.42 256 3,379 163.22 333 496 49.60 40.52
1,050 2.39 277 3,763 181.73 335 517 49.23 42.12

mm: lrokkn, m 8. ct ol Wile.
09A Agriculttral Eoonoaic Iaport 8459, 1”.

Feed prices used: corn $2.25/bu" silage $16.50/mo, soybean eeal S190/ton.

Other coats include ptrchau coat, 4 cents per thy yardage, 83 per ton feed earktp, 88.55 interest on purchase
costs at 9 percent per Inn.
Marginal cost includes feed, yardage, profit, and interest on pircliaee price did on initial start-q) costs.

By viewing the marginal and average cost data

it appears

that they are converging to a point of equality (intersection),
which is consistent with theory in production economics.

Because of the relationship, typifying theory, the data were

used as a basis for creating a simple graphical model of

23

typical cost-revenue relationships in cattle feeding (see
Figure 2.3). The lines representing the marginal and average
costs were plotted to approximate the values in table 2.5.
Then these values (lines) were extended to show the theoretical
relationship between the cost curves at heavier weightsl. A
line representing marginal revenue or price per pound of the
animal at different stages in the weight gain was added to
depict the expected, or typical price relationships associated
with finishing a pen of cattle under 1987 market conditions.
The low point of the average cost curve is the point where the
marginal cost curve intersects it (point A Figure 2.3). Beyond
this point the cost of adding additional pounds exceeds the
average of preceding pounds thus causing the average cost per
pound to rise.

As mentioned, the marginal revenue (MR) curve shown in
Figure 2.3 attempts to depict the typical relationships in
market value of the live animals per pound as they continue to
gain weight. The price paid for the calves is higher than the
market price for finished steers. This difference is referred
to by cattlemen as a premium. It is expected that the cost of
gain is low enough to compensate for the premium and as the
animal gains weight the premium will be recuperated in low cost
gain. As the animal grows the price per pound drops indicating

that the value of additional potential weight gain is reduced,

1 The slope of the curves shown is consistent with the author's
experience in cattle feeding and slaughtering.

24

reducing the range over which the cattle feeder can profit from
low cost gain. As the steers approach slaughter weight their
value as feeders (what they could be sold for) reaches a low
point reflecting the costs that would be incurred in having the
animals moved and adjustment to new facilities and management.
Or, were the animals sold for slaughter at this point most of

them would grade Good and thus command an inferior price.

Fig. 2.3 Typical Cost and Revenue Curves Associated With Cattle

 

 

s a
70 Feeding and Marketing
p 68
r 66
. 64
' 62
° 60
9 58
56
p 54
a 52
, so
48
46
C 44
w 42
1 4O
38
36
34
32
g TypicalYicldGradcs
26 - - - 1 - - ' " 2 ‘ ' 3 - - 4 - 5
W
Weight in pounds 900 1°00 “00 1200 1300 1400
Chok .
........ Feeder - - -|- - - - - Good- - J -Low- -Me - -High- - l- ane
TypichualityGndes

Source: Modified from data from Brokken et al., 1980.

25

The portion of the MR curve depicting the price change
from feeder cattle to choice beef is indistinct and is
therefore shown graphically as a segmented or dotted line.
However, as the cattle reach the point where most will grade
Choice, the marginal revenue curve again becomes a solid line,
reflecting the higher price that is paid for the cattle of this
grade. This portion of the curve is relatively flat since the
price paid is relatively constant until the cattle reach the
degree of finish corresponding to the Yield Grade 4, at which
point the price begins to fall more rapidly reflecting the
price discounts encountered by over-fat cattle.

Tradition and what may be described as standard operating
procedures in the packing industry have tended to interfere
with the sensitivity of price to small changes in quality.
This has been an issue of debate in the industry because the
Choice, but lean carcass has substantially higher value than
one that is over fat. Resistance to more representative
pricing stems from a preference among cattlemen for selling
cattle live and from the difficulty of identifying, precisely,
the quality and corresponding value of the live animals.
Transaction costs are sometimes blamed, using the argument that
it is too much trouble to price each level of quality
separately. Packers too, when faced with coolers full of over

fat carcasses for which they paid the equivalent of Choice

26

(Yield Grade 2 & 3) price on a live weight basis, are reluctant
to encourage pricing that could result in losses.

The high profit point will occur where the price received
(marginal revenue) is equal to the marginal cost, or cost of
adding another pound. In Figure 2.3 this is represented by
point 8. Though the price per pound received beyond this point
(at slightly heavier weights), is approximately constant, the
cost of adding additional pounds exceeds the value of those
pounds on the market. Often cattle feeders under estimate the
cost of gain and keep the cattle too long resulting in over
finishing.

The cattle referred to in table 2.5 were slaughtered
before they reached the point where marginal and average costs
intersected. Assuming that the price per pound of the finished
animal was higher than the break even cost per pound then
economically, this was an unwise decision since the cost of an
additional pound of gain was still below the average cost. By
adding pounds the break even or average cost per pound at
slaughter could have been reduced.

The model contains at least a partial explanation as to
why cattlemen continue to market cattle that are over fat. As
shown, a large number of the cattle begin to grade Choice at or
near the 1,000 lb. weight range. These cattle would also tend
to fall into the Yield Grade 1 a 2 area of the scale. But,

because the cattle feeder recognizes that he is not penalized

27

With a substantially lower price for adding additional pounds,
and because his marginal cost is still below marginal revenue,
he continues to feed the cattle. This condition may be
compounded if consideration is given to the aspect of the lower
marginal gaziaplg cost associated with a pound of gain, which
may be the only cost the cattle feeder is concerned with in the
short run. Consider also the willingness of the feeder to take
the risk of holding his cattle for another week or two, hoping
that market fluctuation will result in a better price.
Whereas, if the marginal revenue for all the cattle (on
average) may fall slightly, as they approach yield grade 4, a
rise in the market of $1/cwt., could more than compensate.

The primary reason that cost of gain is low on a high
percentage grain diet is due to the low cost of corn and the
adequately high conversion ratio of feed into live weight.
Many other scenarios exist besides the representative example
used here. For example, if the cost of gain exceeds the value
of the finished beef, feeders react by discounting feeder
cattle instead of paying a premium. In this case the incentive
for the feeder to keep his cattle beyond the point where they
will grade Choice is decreased.

The last time cattlemen were faced with this kind of price
relationships was in 1974-75 when the prices were high,
resulting in the cost of a pound of gain exceeding the market
price of the finished beef. Current prospects for feedgrains

indicated abundant supplies and low prices for the foreseeable

28

future. This is due in part to a global condition of surplus
feed grains. Total grain output is increasing and barring
major crop failures, the cost of feed grains should remain low

(Insel, 1985).

2C.2 Determining Geographically Relative Prices

Hasbargen (1967) determined that the prices for cattle in
Michigan markets averaged $.50 per cwt. more than markets in
the Corn Belt or High Plains. Riley et a1, (1984) on the other
hand claimed that prices in the early 80s ranged from $.50 to
$1.50 lower in Michigan than at Omaha. In Chapter V these
differences are studied more closely.

Michigan prices are influenced by a variety of forces.
The large cattle producing areas of the west tend to set the
national price for fed beef and other regions often refer to
local prices as they relate to Omaha. Occasional seasonal
surpluses result in fed cattle from Michigan being shipped west
to plants in Illinois and Wisconsin which, with closer
proximity to the midwestern cornbelt supplies, provide a base
price (less the cost of shipping). The eastern markets, such
as Pennsylvania and New York, are generally higher than the
Midwest and draw cattle from Michigan, Indiana, Ohio, and
Illinois as well as a few from southern states. A third factor
in the Michigan fed beef markets is the intermittent exports to

Canada which are generally viewed as price supportive. (For a

29

more complete discussion see Chapter IV.)

2C.3 Cost of Production

Hasbargen (1967) concluded that feedlots in the Southwest
and High Plains enjoyed relative cost of production advantage
of $1.50 per cwt. primarily due to climate and climate related
conditions.

Trapp (1984) showed that the difference between costs of
production for Corn Belt and Great Plains cattle feeders has
been steadily decreasing. Using figures from USDA data from
1978 through 1983 he demonstrated that in 1978 the High Plains
cattle feeders profits exceeded those of their counterparts in
the Corn Belt by an average of $13.29 per head. By 1983 the
difference had shrunk to $2.22 per head.1 This was primarily
due to changes in costs of feeder cattle and relatively better
fed cattle prices in the Corn Belt. This improvement occurred
despite greater advances in feed conversion and rate of gain in

the High Plains.

2C.4 Cattle Numbers and the Cattle Cycle

The term cattle cycle refers to a recurring rise and fall
in relative cattle numbers as cattlemen invest and dis-invest
in cattle and replacement stock. It may be described by

1- In this year cattle feeders in both regions were suffering
lOsses however the losses incurred in the Southwest were less
than in the Midwest.

30

picking a starting point and following through the events of
investment and disinvestment. For example, when supplies are
low and prices are favorable, producers are inclined to
increase output. However, the decision to expand output
results in removing heifers from the slaughter market. This
compounds the shortage of cattle being offered for sale,
magnifying the rise in prices and further stimulating cattlemen
to retain breeding stock. Slowly the breeding herds expand and
eventually the supply of beef in the market place increases.
Then, prices begin to fall as a result of larger supplies.
Faced with prospects of unprofitable low returns cattlemen will
cull heavily (remove less productive females and sell them),
retain fewer heifers or even liquidate their breeding herds.
-This action increases the volume of cattle on the market and
further depresses prices until the excess supply is depleted,
prices begin to rise and the cycle starts again. As shown in
Figure 2.3 there is a cyclical, or repeating pattern with
cattle numbers reaching a high point and then falling again.
Over the past several decades the overall trend has been
steadily upward until the late 70s. The average cattle cycle

is approximately 10 years.

31

Figure 2.4 Cattle cycle Shown by the Number of Beef Cows on
Farms January 1, 1930 through 1987, U.S.

Tam

134511111

new

3mm

3mm

5mm

22mm

31:11.

31mm

‘3 an ..
19 11 1 , 1- 1 ~ 1m 1:»

Source: Data on file with Dr. J. Ferris Michigan State
University Agricultural Economics Department.

The time lapse between investment in breeding stock to
marketing of the finished product is at least 3-4 years.1
Consequently, it appears that the decisions made today to
increase or decrease production depend on the assumption that
current trends and prices will continue. Historically the

1 If the aspect of -retention of female stock with a
predetermined pedigree is considered, the minimum time lapse
may be as much as 5-6 years. For example, commercial breeders
may use a specific breeding program using for their main cow
herd, female stock resulting from a three-way cross. Such a
breeding program would require long term planning.

32

cattle cycle has enjoyed an underlying upward trend. Each
cycle traditionally has consisted of 4-7 years of herd building
and rising prices followed by 2-3 years of liquidation and
declining prices (see Figure 2.3). More recently with the
shift to lower per capita consumption of beef and slowing of
population growth, total demand for beef products has suffered.
The two most recent cattle cycles have been characterized by
sustained periods of liquidation and shorter duration of
recovery (Ritchie and Hilker, 1985).

In the past the cow calf operators were able to withstand
the periods of low returns because the number of expansion
years per cycle were greater (USDA 3). Sustained periods of
less than adequate returns to the calf producers may have a

permanent effect on the industry in the decades to come.

2D FED BEEF MARKETING

20.1 Brief Overview of Fed Cattle Markets in the U.S.

Meat packing in the U.S. has grown from small rural and
urban shops to a multi-billion dollar industry over the past
century. By the early to mid 1900's most large packing plants
were multi-story multi species processing centers. These were
located near the terminal markets and handled the bulk of the
volume of fed cattle.

As cited earlier, in the 60's and 70's the location of

major meat packing firms shifted from the Northeast to the

33

Midwest and Southwest. This was concurrent with the expansion
of the cattle feeding business in these areas and the
improvements in transportation, storage, and handling of fresh

meat products.

2D.2 Concentration Among the Leading Cattle Slaughter Firms

The pattern in the meat packing business has been
inconsistent with that of other agricultural commodities.
Instead of steadily increasing levels of concentration, the
meat packing industry has undergone major changes that have
seen the four firm concentration ratio fall from nearly 50
percent to less than 20 percent in 1975 and 76. Recently,
however, the ratio has been increasing (table 2.6) which is
causing some concern over monopsony power influence in cattle
purchasing.

The four largest firms held a commanding 49 percent of the
market in 1920. Accusations of collusive action on the part of
the "Big Four" prompted an investigation by the Federal Trade
Commission. The commission alleged that these major packing
firms were engaged in anticompetitive practices such as
livestock and meat pools where firms predetermine market shares
to reduce competition. The result of this investigation was
the famous Packer Consent Decree of 1920 in which the major
packers achieved an out of court settlement by stating that
they would: 1) divest themselves of public stockyards,

stockyard railroads, market newspapers, and cold storage

34

facilities: 2) not engage in retailing of meat and other
commodities: and 3) submit to perpetual jurisdiction of the
U.S. District Court (Engelman, 1975).

Table 2.6: Four Firm Concentration Ratios
Selected Years 1908-1985

-------------- Percent-------------
W steemnueifer
1908 45
1920 49
1930 48.5
1940 43.1
1950 36.4
1955 30.4
1960 23.5
1965 23.0
1970 21.3 27.3
1975 22.2 28.0
1976 22.1 29.0
1977 21.9 28.8
1978 24.3- 31.6
1979 29.3 36.5
1980 31.3 39.0
1981 34.2 42.7
1982 35.4 45.0
1983 39.4 50.6
1984 40.6 53.2
1985 41.3 52.3

 

Source: Hiemstra p. 47, Faminow p. 15, American Meat Institute.
For years since 1977 the figures are for P&SA (Packers and
Stockyards Association) reporting firms only.

Though the decree had an impact, resulting in decreasing
concentration, many other forces played major roles in
restructuring the industry. Farr claims that the Big Four used
the supermarket chains as outlets for lower quality products
during the war when meat prices were under regulation. After

the war the imposed regulations were lifted and the chains were

eager to give their business to new companies. Modernization

35

and implementation of modern technology proved to be much less
expensive in the construction of new plants as compared to
remodeling existing facilities. Relocation of the centers of
cattle feeding and the reduction of supplies near the older
plants contributed to higher costs of production. The older
plants were also faced with expensive labor contracts and
benefits packages. All of these factors and possibly others
contributed to the start up of many new meatpacking firms and
reduced concentration in the industry.

Prior to the introduction of grading standards, brand
names played a major role in meat product marketing.
Subsequent to federal adoption of grade -standards and
concurrent with the reorganization of the industry, the
importance and success of marketing brand name products
subsided. Beef products more closely matched the definition of
a commodity where product description is sufficiently accurate
and consistent that buyers may purchase without inspection and
remain confident that the product quality will adequately match
expectations.

Though the figures indicate that concentration began
increasing rapidly since 1978, studies by Ward (1982) and
Williamson (USDA 4, 1982) showed little or no evidence of
monopsony behavior in the market place. However, more recently
a study by Quail et. al. (1986) demonstrated that high levels
of concentration in cattle buying have had an effect of

depressing prices received by producers for fed cattle.

36

2D.3 Economies of Size

A major barrier to identification of benefits of economies
of size as measured by volume of output in the cattle
slaughtering industry has been the lack of data. Plant owners
and managers are understandably very reluctant to release cost
and volume data. Much of the work in this area relies heavily
on the research by Cothern et. al. 1976 which was based on data
primarily from the 1960's and early 70's (Cothern et al.,
1978). Estimated costs for slaughtering and chilling were
approximately $24.91 per head for a plant of annual slaughter
of just over 100,000 head and $18.58 for a plant with annual
volume of over 600,000 head.

A more recent study by Ward and Sersland (1986) evaluated
slaughter and fabrication costs in midwestern slaughter plants.
The study used an interesting technique to get around the
problem of asking firms to reveal actual cost and volume data.
The approach was to describe a variety of hypothetical plants
and then asked upper-level management to estimate costs as
closely as possible based on their knowledge and experience.
This survey of plant managers discovered a division of opinion
with respect to the minimum efficient size:

For slaughter-only plants, the estimated minimum
competitive plant size in 1985 ranged from 100 to 5,000
cattle/day. Responses were bimodal, meaning they were
grouped around the higher or lower end of the spectrum.
Nine respondents said the minimum efficient 'plant in

1985 would slaughter less than or equal to 1,000
head/day. Five other respondents indicated minimum

37

slaughter was 2,000 head/day. There were no responses
between 1,000 and 2,000 head/day.

However, the data in the report show that kill coSt
estimates for plants dressing 25 head per hour were nearly
twice those of plants that had hourly volume of over 200 head
(table 2.7)

Table 2.7: Average Kill Cost Estimates for U.S.
Beef Slaughter Plants

 

-------------------- Hourly Volume---------------------

mam-.3 25 85 145 205 465 325
(Kill cost in dollars per head)

#1 37.71 29.14 25.17 26.39 24.78 22.72
#2 38.80 29.40 24.90 25.25 23.58 21.64
#3 37.60 28.08 24.80 23.97 22.53 20.78
#4 36.00 28.67 24.50 25.56 22.86 21.00
#5 33.00 25.57 22.67 22.50 20.94 19.57
#6 41.70 32.60 28.20 28.17 26.58 24.83
#7 43.80 35.20 30.80 29.47 27.94 26.39

aPlant Descriptions- plants were categorized by having:

#1 one, 8-hour shift, 5 days/week, at 100 percent capacity:

#2 one, 9-hour shift, 5 days/week, at 100 percent capacity;

#3 one, 10—hour shift, 5 days/week, at 100 percent capacity:
#4 one, 8-hour shift, 6 days/week, at 100 percent capacity:

#5 two, 8-hour shifts, 5 days/week, at 100 percent capacity:
#6 one, 8-hour shift, 5 days/week, at 90 percent capacity; and
#7 one, 8-hour shift, 5 days/week, at 80 percent capacity.

Source: Ward, Clement E. and Claudia J. Sersland research data.

Both studies, Cothern, et al and Ward and Sersland,
conclude that there appears to be even greater economies of
scale in boxing of beef. Ward estimates that the plant size
that best realizes scale economies in boxed beef production

approaches annual processing of 500,000 (or more) carcasses.

38

2D.4 The Impact of Labor

Early prosperity in the packing industry engaged a large
labor force. Union organization of the laborers expanded with
encouragement from the War Labor Board, and was successful in
securing "master agreements", or uniform labor contracts with
the major packers. The agreements and settlements reached
resulted in high wages and benefits which later proved to be a
contributing factor to relocation and restructuring of the
packing industry (Hiemstra, 1985).

The "new breed" packers that were responsible for the
relocation of meat packing facilities by constructing efficient
modern plants near the sources of large quantities of fed
cattle in the 1970's managed to avoid the conventional "master
agreements" and enjoyed much lower labor costs as well as lower

per unit overhead costs (Hiemstra, 1985).

2D.5 Demand and Supply

For years (1950-1976) the per capita consumption of beef
trended upward. Beginning in 1976 the statistics show a
downward shift in the trend and a leveling off since 1980.
Consumers appear to have shifted preferences to poultry and
fish with beef consequently losing market share in high protein
food sources derived from animals products.

The recent proliferation of fast food restaurants has
increased the quantity of manufacturing beef consumed. Also,

the health concerns, changes in family size and the age

39

composition of the nation's population have contributed to the
recent decline in fed beef consumption both in total pounds and
as a percent of total meat consumption.

Tradition plays a major role in the cattle business as the
biological process of producing beef is relatively long.
Because of this, there is a partial disassociation between
production and profit levels. Decisions to invest in cattle,
land and equipment are often based on assumptions about the
distant future and on personal preferences. Many feeders and

stockmen are in the business because they like to feed cattle.

Figure 2.5 Per Capita Consumption of Red.Meats and Poultry,
U.S. 1974-87

g.-
8

 

”0'0 (1'08 Hi-“Orfflw

191. 19 '1~ 'la '1» _.

5001'110'0

Source: USDA Livestock and Poultry Situation and Outlook Reports.

40

Still, cattlemen tend to invest in breeding stock when the
prices of fed beef and feeders are high and disinvest when
prices are low. The result magnifies the price swings and
enhances the tendancy to observe the typical shortage and glut

cycle discussed earlier.

2D.6 Industry Trends

Though this report deals primarily with factors that may
influence the production and marketing of fed beef in Michigan,
it is important to note that external forces may have a far
greater influence on the future than the factors discussed
here. For example, there is a trend in the industry toward a
brand name approach rather than commodity marketing of beef.
To consumers this means that packers are encouraging the
association of quality with a brand name rather than a
government grade or standard. To the extent that packers are
able to do this successfully, the potential exists for changes
in the consumer perception and preference for beef which may
have either a positive or negative effect on total per capita
consumption. If a change of this type would result in sustained
growth in the industry over the next decade, it would have a
far greater impact on the success of Michigan's cattle feeders
than the small differences observed in cattle prices and costs
of production.

Slaughter plants are investigating and researching

41

products that can be shipped to the supermarket "case ready",
eliminating the need to process and package at the retail
level. Changes in technology such as this will greatly affect
methods and costs of preparation and packaging of beef cuts and
reorganize labor needs of slaughterhouses and supermarkets.
Pierson and Allen propose that case ready processing,
fabrication and packaging at the slaughterhouse will mark the
next major era in the industry (Pierson and Allen, 1984). The
impact with respect to the cattle feeding business may be in
the kind, size and quality of beef desired to provide oven
ready or table ready products.

The important point here is to emphasize that although
Michigan's competitive position in producing fed beef may be
accurately evaluated in the following pages, the advantages and
or disadvantages may be of little consequence in the wake of
major movements. Having a slight edge in cost of production
does not ensure profits in a declining industry. Conversely,
lack of access to a market niche in which a packer or producer
may receive a premium price for a specialized product does not
necessarily spell failure in an industry experiencing a period

of sustained growth.

23 SUMMARY

The cattle feeding industry in the U.S. has seen a shift

from numerous small farmer feeders scattered across the

42

Cornbelt to a concentration of large industrial cattle firms in
the Southwest-High Plains region of the U.S. Although the
number of feedlots finishing cattle has declined and the
average output per feedlot has risen, the percent of cattle
marketed by the leading firms is still not sufficient to cause
concern about oligopolistic behavior. More recently,
concentration has been increasing rapidly but is far from
levels where a single cattle feeding company or small group of
companies has sufficient market share to have influence on
prices or quantity.

By contrast, in the cattle slaughtering industry, there
has been a shift from high concentration to greater competition
with the advent of the "new breed" packers. More recently,
however, there has been a trend to rapidly increasing
concentration of market share held by the leading four firms.
Indications are that the beef packing industry will surpass
previous levels of concentration.

Per capita consumption of beef rose rather steadily
throughout the 19503 and 19603 peaked in 1977 and subsequently
dropped sharply until 1980 when it leveled off at approximately
83 pounds per person. The proportion of fed beef (compared to
all beef and beef products) consumed increased from less than
40 percent in 1961 to an average of around 70 percent in the
1980's, where it appears to have leveled off.

Cattle feeding has become a more specialized business with

an increasing number of cattle being fed by large industrial

43

feedlots. The trend toward fewer farmer feeders will likely
continue. The Southwest with its temperate climate, abundant
supplies of feed grains and close proximity to sources of
feeder cattle has proven to be the preferred location for the
largest feedlots. The midwest is still characterized by many
small farm feedlot operations but these have decreased in
number. However, these small lots still account for a

approximately 50 percent of the cattle sold in the Midwest.

CHAPTER III
CATTLE FEEDING IN MICHIGAN
3A INTRODUCTION

Farmers are currently experiencing plentiful supplies of
feed grain, general farm product surpluses and low
profitability. Relatively few alternatives exist for many
farmers. Success lies in finding crops that will result in a
reasonable return to their investment in time and capital.
Cattle feeding found its beginnings as an alternate means of
marketing surplus grain. It is still a logical option to be
considered and for the same reason-- to transform crops into a
marketable product.

Whether a potential cattle feeder is considering entering
the business or established feeders are weighing the
alternatives of expansion or reduction there is a constant need
to reevaluate the short term conditions and long term trends to
assist in decision making. Changing conditions require not
only constant review of the situation but also demand that
those making or maintaining an investment in a business such as
cattle feeding, adapt and progress, innovate and adjust.

This chapter begins with a discussion recent trends in the
cattle feeding industry in Michigan based upon secondary data.
This is followed by a summary of information obtained from a

survey of cattle feeders conducted in April of 1985. The basis

44

45

for the survey of Michigan cattle feeders and methods used in

gathering the survey data are also explained.

3A.1 Recent Trends

Cattle feeding in Michigan grew during the 1960s and early
19708 from annual marketings of 200,000 head to a peak of
277,000 in 1977. The subsequent four-year decline in annual
marketings appears to have bottomed out in 1982 at just over
170,000 head, then rebounded to 224,000 thousand head in 1984

and 1986 (Table 3.1).

1ab13_1‘13,Annual Marketings of Fed Beef iniMidhigan (1962-86)

 

Year Thousand Year Thousand
Head Head
1962 208 1974 242
1963 214 1975 244
1964 208 1976 271
1965 219 1977 277
1966 230 1978 271
1967 240 1979 219
1968 243 1980 218
1969 244 1981 197
1970 254 1982* 173
1971 251 1983* 192
1972 251 1984* 224
1973 244 1985* 211

1986* 224

Source: Michigan Livestock Statistics, 1962-81.

*Figures for these years were estimated by multiplying the
reported cattle on feed (Jan 1) quote by 1.28 (the average
ratio of marketings to cattle on feed from 1977 to 1981). No
official figures are available since the USDA cattle on feed
and marketings reporting services were cut back in 1982.

Not only did fed cattle numbers decline in Michigan after

1977, but the Eastern Corn Belt's share of the national market

46

also diminished (Table 3.2). Concentration of cattle feeding
shifted to the Western Cornbelt and Great Plains where the mild

climate, lower feed costs, plentiful supplies of feeder cattle

Table 3.2: cattle-on-feed and Marketings: Eastern Cornbelt
States and united States.

 

Percent
Number of head in thousands change

§§§£§ 1971, 11976 1981 .1986 1971-86
Michigan

On feed Jan 1 225 210 160 175* -22

Marketings 251 271 197 225 -10
Ohio

On feed Jan 1 308 320 160 160* -48

Marketings 431 387 235 205 -52
Indiana

On feed Jan 1 314 285 280 250* -20

Marketings 476 365 348 320 -33
Illinois

On feed Jan 1 649 630 519 460 -30

Marketings 1049 935 925 815 -22
Eastern Cornbelt

On feed Jan 1 1496 1445 1119 1054 -30

Marketings 2207 1958 1705 1565 -29

Percent of

U 8 Total 8.7% 8.1% 7.4% 6.0%
United States

On feed Jan 1 12770 12941 11593 11497 -10

Marketings 25281 24170 22894 25957 + 2.7

Source: USDA Statistical Reporting Service.

* These figures are estimated, using reported Jan. 1, 1986,
cattle-on-feed estimates and average turnover rates for the
years 1977-81.

and concurrent relocation of slaughter capacity contributed to

the development of massive feedlots. Growth and expansion led

to the development of an infrastructure of industrial cattle

47

feeding in the Western plains, resulting in further cost
reductions due to greater specialization and efficient use of
resources.

The post 1977 decline prompted concern about the future of
the industry in Michigan. Rising production costs and an
apparent downward shift in national demand pointed to a need
for reevaluation of traditional positions. Clearly the Western
cornbelt had gained a strong advantage in production and
processing costs and was using this advantage to capture an
increasingly larger portion of the market.

In the midst of this competitive adjustment, Michigan and
Eastern Cornbelt fed cattle marketings decreased in both total
numbers and U.S. market share, falling from 9 percent of the
U.S. total in 1971 to approximately 6 percent in 1986. It is
evident from Table 3.2, however, that the extent of the
decrease has not been as great in Michigan as in the Eastern
Cornbelt as a whole. Consequently, Michigan's share of Eastern
Cornbelt fed cattle marketings has increased from 11 percent in
1971 to 14 percent in 1986.

Michigan's fed beef production amounts to only 25 percent
of the quantity consumed within the state (Allen, 1984). The
population provides the potential demand for many more fed
cattle than Michigan cattle feeders produce.

A further unique characteristic is that a significant
number of cattle finished in Michigan are shipped out of the

state for slaughter -in fact, Michigan is a net exporter of fed

48

cattle (see Table 3.10). These combined phenomena prompted
industry and government officials to encourage research into
the feasibility of additional slaughter plant capacity. It was
felt that increased cattle slaughter capacity would enhance the
prospects for cattle production and improve the competitive
position of Eastern cornbelt producers (Allen, 1984). However,
according to a study conducted in 1982 by the Michigan State
University Agricultural Economics Department, supplies of fed
beef in the Eastern cornbelt were deemed insufficient to
support a new, cost-competitive plant that would process more
than 200,000 head of cattle annually. The study recommended
that the best alternative would be to modernize and expand
existing facilities (Riley. et al., 1984). Though major
investment in larger sized slaughter plants did not seem to be
feasible, keen interest remained with respect to the future of

Michigan's fed cattle industry.
33 THE CATTLE FEEDING SURVEY

38.1 Motivation and Purpose

When the USDA cut back on the number of states included in
the quarterly Cattle on Feed Report in 1982, Michigan was one
of the states dropped from the regular service. Since then
detailed, current information on the number of cattle on feed
and future intentions of cattle feeders have been drastically

reduced. In an effort to partially compensate for this lack of

49

information, the survey that is described in the following
pages was conducted in April 1986.
The objectives of the 1986 survey were to identify and

describe:

1. The structure of the Michigan cattle feeding industry
including the various sizes and types of operations.
2. The current characteristics of the cattle feeders with
respect to,
a) age
b) experience (both in farming and cattle feeding),
c) intentions (i.e. plans for the future), and
d) outlook.
3. The types and sources of cattle being fed.
4. The marketing practices currently in use.
5. Current feeding practices, feeds being used and
6. Management practices and facilities being employed,
including cattle handling equipment, basic health
maintenance procedures, and record keeping.

38.2 Survey Procedure

The source of names and addresses of cattle feeders in
the state of Michigan came from a list compiled in 1983 by Dr.
John Waller, former a professor in the MSU Animal Science
Department and Jim Robb formerly an Agricultural Economics
graduate student at MSU. The first listing was compiled by
simply recording names and addresses from the notes, files, and
memory of university faculty and staff and industry personnel.
This information was then sent to the various county agents
with requests to update it from the county records. Some time
was also spent in visiting farms and gleaning information about

the names and addresses of others in the business.1

1 Procedure as it was explained by Jim Robb during a telephone
conversation.

50

A survey was conducted by Jim Robb and a set of data was
compiled. Unfortunately no summary of the results of the Robb
survey is on file in either the MSU Agricultural Economics or
Animal Science Departments, nor was the raw data available to
this author. Consequently, trends, changes and comparisons
with the previous work are limited to the information that was
contained in the address list itself.

The Robb questionnaire was used as a guide in developing
the set of questions contained in the 1986 questionnaire.
Modification and changes were first made by the author and then
copies of the revised questionnaire were circulated to selected
Agricultural Economics, Animal Science, and industry personnel
for comments and suggestions. Upon integrating these suggested
changes into the questionnaire a final draft was tested by
sending a copy to a local cattle feeder, asking him to fill it
out and then visiting him the next day to go over the
questions, his interpretation, and answers. After this
exercise a few changes were made.1 The questionnaire was then
printed and prepared for mailing.2

The survey was directed to 39 Michigan counties which
reported total marketings of approximately 2000 or more head of
fed cattle according to the 1982 Census of Agriculture. These
counties accounted for 91 percent of the total reported
marketings in 1982. The intention was to survey all the known

1 See Appendix II on survey procedure.
2 A copy is included in Appendix I.

51

cattle feeders in those counties. Nine hundred and twenty-
eight copies of the questionnaire were mailed to the cattle

feeders whose names appeared on the address list.

38.3 The Address List

Interpretation of the results of the survey depend heavily
on the accuracy of the information gathered and the extent to
which the information is representative of the population as a
whole. The difficulties encountered in securing an accurate
list of cattle feeders in the state left some question with
respect to the achievement of this objective.

Where there exists a cattle feeder that markets a large
number of cattle, the chances are that he is known and that his
name and address was on the address list and he received a
questionnaire. By contrast, a feeder that has marketed only a
small number of cattle per year and has been in and out of the
market (i.e. some years he may not feed any) is not as likely
to have his name on the address list and may or may not have
received a questionnaire. Following this logic the results of
the survey may not be as representative of the smaller cattle
feeders as it is of those who are more active in the business.
Thus the relative importance of the smaller feeders may be
greater than that indicated.

The small or intermittent feeders may also represent an
important part of the marginal ability of the Michigan cattle

feeding industry to respond to changes in the market. However,

52

it is necessary to note that those feeders that responded as
marketing 100 head or less in 1985 accounted for only 5.3
percent of the total cattle sold by all feeders returning the
questionnaire. Even if the number of small feeders responding
were doubled the relative impact on the whole would still be
small, provided the distribution was the same. There was no
convenient way to estimate the existing capacity on farms where
no cattle were being fed or where new facilities were under
construction or consideration.

Updating of the original list was undertaken by repeating
one step of the Robb approach- sending a .copy of the
Waller/Robb working list to appropriate county agents
requesting that they review the list, and add or delete names
accordingly. Most county agents responded but the corrections
were few, and did not satisfy the author that the questionnaire
would consistently reach a high percentage of cattle feeders in
every county surveyed.

Table 3.4 displays a county by county breakdown of the
cattle feeders surveyed and the corresponding responses.
Included also is capacity and marketing information from Census
data, the Robb/Waller address list, and the survey respondents.
It is obvious that in some cases there is wide discrepancy
between the sources. Appendix II addresses these concerns in

further detail.

53
Table 3.3: Cattle Feeders Strveyad, Responded, and Currently Feeding; Showing Marketings and Capacity

 

 

CGJNTY CATTLE FEEDERS MARKETINGS REMTED CAPACl TYc REMTED
Now 1982' maniacs” CAPACITYd
surveyed_Reepot'dad_Feedi ng
Al legan 39 14 8 9100 483 7592 748
Barry 7 5 4 2899 630 1 150 965
Branch 11 5 2 10661 5000 4925 4350
Calhom 6 2 2 7526 587 2950 620
Cass 16 4 4 3441 165 1767 110
Clinton 23 8 8 4840 1806 5175 2535
Eaton 50 13 9 3514 1726 3782 2070
Cariessee 7 3 3 8404 3143 9400 5500
Cratiot 11 4 4 9513 4797 9050 3900
Ilillsdsla 4 2 2 $29 1103 1100 900
Huron 98 33 27 41736 12091 33545 9550
lnghas 5 2 2 3053 155 565 200
loni a 9 5 4 5247 485 1330 660
lsoco 13 5 5 0 4597 2500 3116
lsabel la 1 1 2 2 8238 515 4300 650
Jackson 5 2 2 10859 8410 4400 5250
Kal aaazoo 14 6 6 4873 2406 5150 2975
Kent 17 11 10 4916 1243 3111 2020
Lapeer 13 3 2 8969 1300 7935 1200
Leelansu 9 3 1 2449 40 2200 50
lanawee 17 12 12 11438 4231 8565 4230
Livingston 5 3 2 6438 989 2800 1900
Macoso 2 2 2 3440 4110 2020 2230
Mason 7 2 2 E58 450 1170 400
111le 99 11 2 6657 110 ME 445
Monroe 12 8 8 6232 2876 3757 2915
Montcalm 1 1 1873 1!) 200 350
Muskegon 1 1 1 2917 1300 700 1200
ileuaygo 1 0 2484 I 700 ll
Oceans 14 6 5 2936 945 2450 1240
Ottawa 23 6 5 11361 3710 3500 2845
Saginaw 21 6 4 3327 388 2500 370
Sani lac 57 13 11 7449 3140 6&5 3730
Shi awassae 115 23 10 3194 457 I016 980
St Clair 4 1 3 6566 964 2750 7125
St Josed‘l 3 3 2963 ' 1651 1330 1500
Tucola 1 1 1 2989 10 11110 14
Va luran 10 1 0 2326 Ii 2875 M
Bechtel-tam 165 50 32 7407 2394 5409 3933
W 3 1 111 199.—
Totals 928 283 212 252122 78767 160458 82956

Source: 1986 survey list and data. U.S. Department of Cos-arcs, Bureau of Census,
Census of Agriculture, lichign 1%2.
a: Fr:- Census of Agriculture 1%2. These marketing figtres consistently exceed those quoted
by Michigan Agricultural Statistics. There seem to be sue differmce in classification.
0: Frm the sum. Actul reported marketings.
c: Frm capacity figures in the Robb/Heller address list.
d: From the survey. Actual reported capacity.

54

It is the author's opinion that the number of cattle fed
by dairy farmers is under represented. Michigan sustains a
milking dairy herd of about 400,000 head of cows (Michigan
Agricultural Statistics). A 75 percent annual calf crop would
yield 150,000 bull calves. Even if 100,000 (estimated by Allen
1984) were slaughtered as veal- the remaining 50,000 would
constitute 20-25 percent of the fed beef annually (assuming
they all remained in the state). However, it is not certain
that all of the bull calves end up in Michigan feedlots nor was
the author able to determine how many Holstein feeders are
shipped into the state. Nevertheless, respondents to the 1986
survey reported Holsteins accounting for only 13 percent of the

annual kill. (See Table 3.9)

38.4 The Questionnaire

A copy of the questionnaire is found in Appendix I. _It is
comprised of seven sections covering the subjects of feeder
profile, feedlot characteristics, feeds and feeding, marketing,
the purchase of feeder cattle, selected management issues, and

the responding cattle feeders' comments about the future.

33.3 Accuracy of the Responses

Even in formulating the questions there was a problem in
terms and language as attempts were made to specify wording
that would determine clearly just what practices were being

followed. For example, in the section under feeds the

55

cattlemen were asked what terms best described the way in which
the feed was presented to the cattle. One of the possible
responses was listed as "a complete mixed ration." In a number
of cases the cattle feeder chose both this and the response
that he provided free choice roughage to the cattle. The
phrase was intended to mean that the roughage was included in
the mix. Evidently some cattlemen interpreted the phrase to
mean that only the grain portion of the ration had been
balanced. Further, the term concentrate in ration formulation
refers to all feeds high in total digestible nutrients, but
locally in some circles it is apparent that the term is used to
refer to a blended protein supplement. Though every effort was
made to clarify the questions in as simple and precise language
as possible, judging by the responses, interpretation of some
of the questions was inconsistent and consequently some of the

resulting data was limited in its usefulness.

33.4 The Responses as a Basis for Analysis

Though the preceding discussion raises some doubts about
the reliability of the data, the author has attempted to
present the facts as clearly, accurately, and completely as
possible.

The major flaws reported here have to do with the
representativeness of the survey results as they pertain to the
individual counties. However, the sample size and the number

of responses are sufficiently large as to be reasonably

56

representative of the characteristics of the cattle feeders of
the state as a whole. Also, the major cattle feeding counties
in Michigan do not have significant regional conditions with
respect to climate or feedstuffs used so as to make the
inaccuracies observed within any one county bias the data with
respect to cattle feeders as a group within the state. The
analysis did not involve comparisons between counties or groups
of counties.

The focus will be to summarize the survey information from
those feedlots in the industry reporting more than 100 head of
cattle fed annually. Due to the nominal contribution of the
smaller cattle feeders (see following section on industry
structure) and the intention of this report to describe the
characteristics of those cattle feeders who are feeding cattle
as a business, the analysis was restricted to this group.
Hence, throughout the text, reference to respondents identifies
those feeders who reported marketing in excess of 100 head of
finished cattle in 1985. Data relating to the feeders
marketing fewer than 100 head annually will be included in
selected tables and occasionally in the text for comparative
purposes, but such cases will clearly specify that the

information refers to all feeders.

57

3C RESULTS
3C.1 Industry Structure
Forty-seven percent of the 283 responding cattle feeders,
those who e91g__ne;e_§gen_;gg_heeg in 12§§, accounted for £5
pezeeng of all fed cattle sold. In contrast, 53 percent of the
feeders (described as those who "marketed less than 100 head

annually") account for only §_nereen§ of the cattle sold (Table
3.4) 0

Table 3.4: Size Distribution of Cattle Feeders, 1985 Marketings

 

Category by Percent of Number Percent of Total
Member Sold Cattle Eeegeze e: gaggle Marketings
0-50 37 1,440 1.8

51-100 ' 16 2,751 3.5
101-400 29 14,017 17.0
401-1000 9 13,160 16.7
1001-and up 9 47,494 60.1

Source: 1986 Survey data.

The southern half of Michigan has traditionally served as
the site for most of the state's feedlots (Figure 3.1). A
shift in concentration has seen a modest decrease in the
southeastern and southern counties and a significant increase
in the east central ”thumb" area of the state.

Feedlot capacity does not appear to be limiting production
of fed beef within the state. Table 3.5 shows the reported
capacity and relative use. Feedlots reported significant
amount of unused capacity. For the most part, only the larger
feeders fill their lots more than once a year, as indicated by

the capacity used in excess of 100 percent.

58

Figure 3.1: Marketing of Cattle Fed in Michigan
Showing Data on Regional Changes.

    

 

(ZESDUGPF§IXIL

 

 

 

u’
ITIILJBIEB

 

 

 

 

SBCDLJT?FI
1

¥§§;_ _
Region 1969 1974 1978 1982
North 12063 10997 11800 9952
Central 43298 47713 47105 45779
Thumb 57156 66878 83995 80817
South 162386 133797 141309 133366
Totals 274903 254385 284209 269914
Source: Census of Agriculture, U.S. Department of Commerce,

part 22- Michigan, 1982, 1978, 1974.

59

Table 3.5. Capacity and Feedlot Dee Rates.

 

Category by Capacity Cattle Percent of capacity
Ne, geld-1285 {energeg selg-lggfi gseg 13 1285
* --- (No. of head)---
0-100 16,231 4,194 _ 26
101-400 19,120 14,019 73
401-1000 16,700 13,160 79
1991-§ up 30.050 47.494 158
Totals 82,191 78,867 (ave.) 96

Source: 1986 survey data.
* Included here for comparison only.

As reported earlier, the average turnover rate for
Michigan from 1977-81 was 1.28, which was similar to that for
Indiana (1.3) and Ohio (1.28). These figures contrast with the
rate reported by the 13 leading cattle feeding states in the
United States, which was 2.2 (calculated from USDA 13-state
cattle-on-feed reports, 1982-85). Possible reasons for the
lower rate in Michigan include the seasonal nature of cattle
feeding, the kind of cattle being fed, and the fact that cattle
feeding in Michigan is usually combined with other major farm
enterprises.

Most of the feedlot capacity fits the description "open
lOt with partial cover." Table 3.6 gives a breakdown of the lot

types used and the estimated capacity attributed to each type

 

 

of lot.
Table 3.6. Reported Capacity by Let Types.

Percent of one time

Let_:xne feedlet_saeasitx

Open lot 20.0

Open lot with partial cover 42.5

Covered lot w/out slotted floor 25.5

Cexered_let_xitn_ele§ted floor 12-0 _

Total 100.0

Source: 1986 survey data.

60

More of the cattle marketed were fed under shelter and on
slotted floors than the initial inspection would suggest,
because the use rates were much higher in these lots. It is
not uncommon for a feeder to start cattle in one lot and then
move groups of them onto slotted floors for the last 60 days as
they approach market weight.

Custom feeding is not a common practice in Michigan-- only
11 percent of the survey respondents were custom feeding at the
time of the survey. Forty percent of those who were custom
feeding used a feed-plus-yardage1 method of levying charges,
while others based their fees on cost of gain, flat yardage
rates or a share of the gain. Comments from survey respondents
indicated a recent growing interest in this practice. Custom
feeding reduces demands on feedlot operators' short-term

capital and helps transfer risk in a volatile market.

3C.2 Profile of the Cattle Feeders

The following characteristics of the individuals feeding
cattle (and marketing more than 100 head in 1985) in Michigan
serve to describe the population surveyed.

Survey respondents ranged in age from 22 to 77 (average
age, 49), with the vast majority being between the ages of 36
and 65. Michigan cattle feeders average 28 years of farming
and 23 years experience in feeding cattle. Ninety-one percent

1 The cattle owner in this case pays the actual feed costs plus
a yardage charge to the feedlot owner. There may or may not be
a markup on the feed. The risk associated with animal
performance is borne by the owner of the cattle rather than the
feedlot owner.

61

reported being full time farmers.

Perhaps because of the many stressful conditions
confronting farmers in general and cattle feeders in
particular, approximately 25 percent of ell those surveyed
(including those who marketed less than 100 head in 1985)
responded that they were not feeding cattle at the time of the
survey. However, none of those "currently feeding and who sold
more than 100 head in 1985" indicated an intention to
discontinue. Nine percent planned to expand, 7 percent to
reduce, 16 percent were undecided and 67 percent planned to
maintain their current level of production.

The above indicates that a turning point from the recent
liquidation has been reached and, at least temporarily, the
active cattle feeders are determined to hold on. Liquidation,
however, is not always by choice. Though this data points to
stabilization in the cattle feeding numbers, more than two
thirds of the farmers questioned said that they were not
optimistic about the future. It should also be noted that at
the time of the survey (April, 1986), cattle prices were very
depressed and the author believes that the mood of the industry
was particularly negative.

More than 90 percent of the cattle feeders reported that
in addition to cattle feeding, cash crops were a major farm
enterprise. Other major farm enterprises included hogs, dairy
and other livestock, reported by 18, 11 and 10 percent
respectively. The fact that a large majority of Michigan's

cattle feeders produce all or most of their own feed indicates

62

that Michigan cattle feeders use cattle feeding to market their

corn or other grain and forage crops.

3C.3 Cattle Types and Sources

Nearly two thirds of the cattle fed in Michigan come from
out of state sources. The beef type breeds have undergone such
extensive cross breeding and change in frame type and muscling
selection that it has become very difficult to distinguish
individual breeds. Consequently, the industry has adopted the
term "colored" cattle for those of beef type breed descent to
distinguish them from dairy type cattle.

Table 3.7 shows the breakdown of the purchasing practices
of the responding cattle feeders.'

Table 3.7: use of various Purchasing Services
in Replacement Buying.

Feedlot size by marketings-1985

 

Segree 101-400 401-1000 1001 §_ep
------------ Percent-------------

Auction or

personal arrangement 41.4 28.2 11.0

Commission buyer -MLSE 31.4 53.8 30.5

Orderbuyer -independent 20.1 18.0 58.0

Raised on farm 7.1 0.0 0.5

Source: 1986 survey data.

The smaller cattle feeders (those marketing less than 100
head annually are included for comparison) purchased their
stock locally, while, those with larger lots purchased most of
their cattle from the states south and east of Michigan and, to

a lesser extent, from the West. (Figure 3.2)

Figure 3.2 shows that the geographical

63

sources for

feeder

cattle used by owners of different sized feedlots were markedly

different. In comparison, Table 3.8 shows the relative numbers

of cattle that come from each region.

reason for the differences.

A possible explanatory

is that Southern and Western

producers' ability to assemble large groups of cattle that

appeal to the operators of the large lots.

 

FIG 3.2: FEEDER CATTLE SOURCES USED
BY MICHIGAN CATTLEMEN AS PER LOT SIZE

 

”4'

‘L A A A
' V V T

A
V

amen REPORTING EACH souncs (x)

 

 

§

AL
V

 

u. ”?’% ’ 4“ i an
0-100 101-400 401-1000 TOOl-UP
FEEDLOT SIZE BY SALES 1985

LEGEND

I'll“
I'ISE
Ives:
lam

 

 

 

Source: 1986 Survey Data.

64

Table 3.8: various Sources of Feeder Cattle

 

 

Source Percent Number
Michigan 38 29,970
Southeastern states 55 43,377
Other states 7 5,521

Source: 1986 survey data.

Table 3.9 gives a general breakdown of the kind of cattle
fed.

Table 3.9: Types of Cattle Fed

 

 

 

Txns_2f_sattls3 Numbsr_§old Percent
Beef steers 53,604 70
Beef heifers 13,760 17
Dairx_stesrs 194764 13
Total cattle fed by

the survey respondents 78,867 100

Source: 1986 Survey data.

Entry weights of cattle varied from approximately 100
pound deacon calves to over 850 pound steers. The most popular
placement weight was in the 450- to 650-pound range for both
steers and heifers. Lightweight feeders were more common among
the smaller producers. Larger feedlots specialize in finishing
and therefore concentrate their efforts on heavier cattle that
have been grown or backgrounded elsewhere, rather than placing

young calves or light feeders.

3C.4 Marketing
The topics discussed here deal with the data from the

cattle feeder survey. For further details with respect to

65

markets for Michigan cattle see Chapter IV.

The larger feedlots tended to market cattle of lighter
finished weight, which may indicate that they fed primarily
beef type cattle which descended from British breeds rather
than Holsteins or exotics. More than 70 percent of the fed
steers were marketed between 1,050 and 1,250 pounds, whereas 77
percent of the heifers weighed between 950 and 1,150 pounds
when marketed.

The Michigan cattle marketing structure is characterized
by the large percentage of the sales volume handled by a
livestock marketing cooperative identified as the Michigan Live
Stock Exchange (MLSE). In this survey, the MLSE accounted for
nearly 75 percent of all fed cattle sold.1 Services were
provided in the form of either auction yards or direct-to-
packer sales on a commission basis.

Michigan fed cattle go to a variety of slaughter
destinations (30 or more), both in and out of the state (Table
3.10). No one market consistently takes a majority of the
cattle offered for sale. This presents a problem to feeders as
they attempt to target their feeding program to match the
demands of the market.

Table 3.10 shows a significant number of cattle going to
Canadian markets. The Canadian purchasing pattern is

characterized by wide variations in volume and, consequently,

1 This figure corresponds with estimates by the Exchange
obtained by personal communication with Eldon Roberts of MLSE.

66

it is difficult to predict. Michigan cattle are imported only
when the price differential is sufficient to compensate for the
shipping costs and $1 per hundredweight (cwt.) tariff. Several
forces tend to influence this movement. In some cases, the
Canadians import to fill gaps in their production. At other
times, shifts in the exchange rates will make importation
profitable for a short time until local prices adjust to the
change (Figure 3.3). Although a significant number of Michigan
fed cattle go to Canada, the sporadic purchasing pattern makes
it difficult to anticipate when the Canadian buyers will be in
the market. Nevertheless, when they are, Michigan producers
realize about a $1 to $2 advantage per cwt., which can
represent a substantial profit margin for cattle feeders. For

more on the Canadian market see Chapter IV section 4A.7.

Table 3.10. Slaughter Destinations of Michigan Fed Cattle, 1985

 

 

No. of
2QQL2I_lQQiEiQn______2§12§n§_9£_25§§l§, slaughfsr_nlant§
Michigan 32.5 16
Out-of-state (U.S.) 45.0 9
Canadal 22.4 5
Totals 100.0 30
Source: t o att ' M'chi . S.

Rust et al., MSU Animal Science Mimeo 105, October 1986. Data
supplied by Michigan Live Stock Exchange.

67

Figure 3.3: Canadian Monthly Imports of Fed Beef
From the 0.8. 1982-86 -

 

fl

fi- H

N
g u
. 8

 

 

Ufitflfin "IO ”NUSGZ

 

mm 192 193 191 195 1986
9 Michigan supplies 95 to 98 percent of the fed beef imported
into Canada from the U.S.

Source: Agriculture Canada, Agricultural Statistics, solicited
data.

3C.5 Management

Good management is crucial to the success of farming and
business endeavors but is very difficult to measure. A number
of managerial techniques used by the responding cattle feeders
to transfer risk and to improve performance were probed by the
survey and are reported here.

Just over 20 percent of the responding cattle feeders
reported making use of the futures and/or options markets as a
tool to manage risk exposure by forward pricing cattle or feed.
Those making use of this management tool were primarily the

larger (more than 1000 head annual marketings) feeders.

Sixty-eight percent of the respondents indicated that they

68

fed their cattle "to appetite" (ad libitum) or "all the feed
they would eat". The remaining 32 percent use a variety of
methods, ranging from requiring that the cattle "clean up" the
ration offered within a predetermined length of time, to
combinations of self feeding part of the ration and measuring
the balance. Twenty-six percent of the responding cattle
feeders routinely weighed the amount of feed delivered to the
bunk daily. Of the approximately 59 percent of the respondents
who utilize feed mixer wagons, about 64 percent had working
scales.

Table 3.11 summarizes the various common feedstuffs used

in Michigan and the percentage of cattle feeders reporting use

Table 3.11: Feedstuffs and Reported Use by Michigan Cattle
Feeders and the Percent of Feeders Using the Indicated Feed.

Primary feeds ‘Byproduct feeds
Corn silage 70.7 Brewers grains 11.1
Haylage 36.4 Corn gluten feed 13.1
Alfalfa hay 56.6 Distillers grains 4.0
Mixed and/or grass hay 9.1 Other grain byproducts 7.1
Dry shelled corn 34.3 Potato byproducts 7.1
High moisture corn 54.5 Apple byproducts 4.0
Ground ear corn 22.2 Beet pulp 9.1
Other grains 7.1
Protein Supplements

Soybean meal 33.3

Ammoniated corn silage 26.3

Liquid supplement 6.1

Protein blocks 5.1

Other protein sources 21.2

Source: 1986 survey data.

of each type. A majority of Michigan cattle feeders rely on

corn silage as the main source of roughage. Corn fed as grain

69

appears in three standard forms- dry shelled, ground ear and
high moisture. The most popular form used was high-moisture
corn, which was fed by as many feeders as the other two forms
combined. Brewers', distillers' and other byproduct grains
were fed by 10 percent of the responding cattle feeders. Those
reporting the use of these feeds represent some of the largest
feedlots.

Other byproduct feeds, such as potatoes or apple pulp,
were also used primarily by the larger producers. This can
probably be attributed to economies of scale in handling and
efficient use of perishable products. Use of these products is
also limited to product availability and proximity to
processing plants.

Soybean meal appeared to be the most popular protein
supplement, followed by anhydrous ammonia treatment of silage.
A few of the smaller and medium-size lots relied on blocks and
liquid supplement as supplemental protein sources.

Sixty percent of the cattle feeders added salt, minerals
and vitamins directly to the ration, while 18 percent provided
these nutrients free choice. The remaining 22 percent supplied
them free choice in addition to adding them to the ration.

Nearly 80 percent of the cattle feeders said they had
their feed analyzed at least annually. Twenty-five percent
reported that the analysis is done at least quarterly.

Rumensin was reported as being fed by 83 percent of
feeders while some used Bovatec (24 percent) and MGA (9

percent).

70

Compudose and Ralgro appeared to be the most popular
implants. They were reportedly used by 63 percent and 56
percent of the feeders, respectively. Synovex-S & Sinovex-H
were used by 21.5 percent of the feeders, and Steeroid and
Heiferoid by 6.3 and 1.3 percent respectively.

Headgates were reported by 77 percent of the feeders as
part of their livestock handling equipment. Livestock scales
were conspicuously absent, with only 19 percent reporting them
as part of their equipment.

Concern for disease control was evident. Approximately 70
percent reported having either a separate hospital area or a
chronic (sick) pen; 33 percent had both.

Approximately 20 percent of purchased feeder cattle
arrived preconditioned or vaccinated prior to shipping.
Another two- thirds were vaccinated upon arrival, so a large
majority of the cattle received preventive treatment for
disease.

About 63 percent of the cattle feeders said they kept some
kind of performance records on their cattle. In most cases,
this amounted to rough estimates of total gain and days on feed
for entire pens of cattle. In some cases average weights of
cattle placed on feed, market weights, and total feed consumed
would provide approximate performance information. Records on
the performance of individual animals were rare. This
observation is consistent with the relative absence of feed and

livestock scales.

71

30 SUMMARY

The recent stability, as evidenced by increased placement
of cattle on feed in Michigan, suggests that cattle feeding is
a viable alternative for Michigan . farmers. This is
substantiated by the fact that fed cattle marketings in
Michigan have declined at a slower pace than reported for the
Northeastern Cornbelt as a whole over the past two and a half
decades.

A desire to investigate the reasons for the resistance to
decline and a quest for understanding as to how these and other
factors might indicate future trends in cattle feeding in
Michigan motivated the survey of Michigan's cattle feeders
conducted in April of 1986. The nearly three hundred responses
received form Michigan cattle feeders supplied a substantial
base from which to evaluate the characteristics of the
industry. The data was analysed focusing on the aspects of
those respondents who reported marketing in excess of 100 head
of finished cattle in 1985.

The vast majority of the feedlots are located in the
Southern, central and "thumb" areas of the state. Most of the
lots are small- only nine percent reported marketing in excess
of 1000 head in 1985. Feeding tends to be intermittent or
seasonal which is explained by the low turnover rates reported.
Michigan's cattle feeders are typically "farmer feeders",
growing and harvesting all or part of the feed used on land

owned and or operated by the cattle feeder over 90 percent of

72

whom are full time farmers.

Some of the cattle fed are raised in Michigan,
constituting the major source of cattle for the smaller
feedlots. The larger lots however obtain the majority of their
cattle from the states to the south and east of Michigan.

Though few of the responding cattle feeders reported
making use of the futures or options markets as a tool to
transfer risk, modern practices were evident in the feeding
techniques, facilities and equipment, and health care
exhibited. A number of comparisons and further analysis is

made in Chapter V.

CHAPTER IV

MARKETS FOR HICHIGAN CNTTLE

4A INTRODUCTION

An integral part of the fed cattle industry is the
availability of markets for the finished cattle. The
structure, conduct and performance of the institutions
comprising these markets impact on the efficiency and quality
of service provided. This chapter will focus on the markets
serving Michigan feedlot operators. Included are brief
historical setting, some comments comparing markets in Michigan
to other parts of the U.S., and the results of a survey of
slaughterers of Michigan cattle conducted in the summer of

1987.

4A.2 Trends in Cattle Slaughtering in Michigan

Total Michigan cattle slaughter (excluding veal) peaked in
1976 at 827 million pounds per year and subsequently dropped to
a low of 545.4 million pounds in 1980. Output then returned to
a higher level, fluctuating between 600 and 700 million pounds
per year until 1985 when another sharp drop occurred, down to
519.7 million pounds (Michigan Agricultural Statistics,
selected issues).

As the volume of slaughter declined, the type of cattle

73

 

bear

sel
(re
Pe‘

RA!-
but

C!
It

in

th
oh
mc
Ma
ca
P:
St

it

74

being slaughtered also changed. Steer and heifer slaughter
accounted for 81.5 percent of the total kill by weight in 1962,
falling to a low of 59 percent in 1982 and rebounding slightly
to 64 percent in 1985 (Michigan Agricultural Statistics,
selected issues). The shift to a higher percent of cows
(relative to steers and heifers) slaughtered in the state
reflects the decline of the fed cattle industry in the state
concurrent with the expansion of cow slaughter. An example of
this change is the large cow slaughtering plant at Plainwell
which draws a large number of cows from out-of- state and
Canadian sources.

The number of federally inspected plants slaughtering
cattle in Michigan has also been declining, particularly
recently. For example, in 1981 the USDA reported 121 federally
inspected plants slaughtering cattle in Michigan but by January
1, 1987, the number had fallen to 80.

Most of the packing plants that served the Detroit area in
the 1950’s and 60’s closed as they reached the point of
obsolescence where the cost of renovations to upgrade and
modernize made such efforts no longer economically feasible.
Market prospects and a general decline in the supply of fed
cattle in the region have had a negative influence on the
prospects for investment in a large modern facility. A recent
study found that existing supplies were insufficient to support

the volume necessary to realize the economies of scale required

75

to make such a plant viable. The study recommended that
existing facilities be encouraged to investigate the
opportunities for expansion.

Michigan's remaining plants tend to seek out and orient
themselves to serving specialized markets or niches.
Specialization has followed the lines of product
differentiation and added service in order to establish local
clientele loyalty. The emphasis of product differentiation is
away from the main-line-Choice-boxed-beef that competes as a
commodity with product from major Midwest packers.

The decline in local slaughter volume has caused
wholesalers and retail chains to turn to purchasing beef from

large Midwest packers.

4A. 1 Michigan Markets

Cattle marketing in Michigan is unique in several ways.
For one, the Michigan Live Stock Exchange, one of the largest
live stock cooperatives in the United States, plays a dominant
role in livestock marketing in the state, handling an estimated
70 percent of all of Michigan’s cattle sales.

Michigan is strategically located close to the markets
associated with the large population centers of the Eastern
United States. These provide both a large market volume and
broad diversity in products demanded, by a variety of ethnic

sectors.

76

Moreover, Michigan’s borders Ontario Canada where several
of the larger Canadian slaughter plants are located. It has
been estimated that more than 95 percent of the fed cattle
imported into Canada from the U.S. come from Michigan feedlots.
Though the amounts vary substantially from year to year, as
much as one third of Michigan’s fed cattle are sold live into
Canada. Also, Michigan based packers export fresh and
processed meat products to major Canadian population centers

along the Great Lakes.

4A.5 Eastern Packers

The diversity of the eastern market allows for a number of
niches that are served with specialized products. Ethnic
populations, the largest of which is the Jewish sector which
requires "Kosher" slaughtering, make opportunities for specific
services and products. Institutional needs also vary and the
size and stratification of the population provide demand for
specialized products in sufficient quantities to sustain
production. An example is the elite restaurant trade. Packers
in the New York area report a significant demand for Prime and

Choice Yield Grade 4 cattle.

4A.6 western Packers
The beef packing industry to the west of Michigan moves

closer to the heart of the nation's cattle feeding and

77

slaughtering regions where the focus has been on volume and
producing beef as an undifferentiated commodity. Because of
this, western markets have become established. in a price
setting role (i.e. Omaha). For cattle feeders in Michigan,
plants to the west serve somewhat as the buyer of last resort.
However, this outlet provides an important base price and a
market for surplus volume.

There are a number of packers on the western shores of
Lake Michigan that cater to markets similar to those serviced
by the Michigan packers. One such area of specialization is in
the slaughtering and processing of Holstein steers.
Consequently there has been growing .interest in, and demand
for, well fed Holstein steers. Due to the volume of dairy
cattle in Michigan, one packer in Wisconsin, Packerland, has
begun to actively solicit ties with feedlots in Michigan that

will custom, or contract feed cattle of this type.

4A.7 The Canadian Market

Because of its impact on Michigan in particular, and the
lack of familiarity of many readers with differences in
specification of Canadian markets, a more thorough discussion
will follow.

Total movement of cattle and calves between Canada and the
United States has seen substantial growth in net imports by the

U.S. from Canada over the past decade. Canada moved from a net

78

importer of cattle from the U.S. in 1974 to a net exporter of
$275 million (Canadian Funds, approximately equal to $200
million U.S.) in 1985 (Pugh, 1987). During this time period,
total trade volume in cattle between the two countries
increased.

Restrictions on movement of slaughter cattle between the
two countries is minimal. Health regulations do not pose a
significant barrier on cattle destined for slaughter, so the
only other major cost is freight. A token tariff of $1 per
hundred weight is levied by both governments against slaughter
steers and heifers entering each respective country.

Since Canada produces only about 10 percent as much beef
as the United States the U.S. market consequently fills a price
setting role, setting both a floor and a ceiling to the
Canadian prices after adjusting for freight, the exchange rates
and tariff. If beef is in short supply in Canada and the price
begins to rise, movement of cattle into the country will begin
as soon as the price difference is sufficient to offset
freight, tariff, and transaction costs. Similarly, an
abundance of cattle in Canada will depress prices until
movement of cattle into the U.S. reduces excess supplies
sufficiently to curtail further price reductions.

Nearly all of the exports from the U.S. into Canada are
composed of fed beef moving into the Southern Ontario region

from Michigan. The content of the U.S. cattle imports from

79

Canada leans heavily to cows and bulls. More recently there
has been an increasing amount of fed cattle imported from
Western Canada into the state of Washington (Statistics Canada,
1986). Over the past several decades the U.S. has consistently
been a net importer of cattle from Canada. This condition
constitutes a strong disincentive for Canadian producers to
pursue the imposition of more border restrictions for
importation of fed cattle.

A prime reason for the increase of movement of fed beef
into the Western United States results from the change in
Canadian policy regarding the Crow's Nest Pass freight rates
that were in effect since the late 1800's. Years ago rates were
frozen as part of an agreement between the government and the
railway in which the government provided funding for the
construction of a link through the Crow’s Nest Pass in exchange
for freight rate agreements.

One of the agreements fixed the rate for transporting
grain from Canada’s prairie provinces, Alberta, Saskatchewan,
and Manitoba, by rail to ports for export (Tychniewicz, 1984).
Recent Canadian policy has increased the transportation rates
charged to farmers for grain shipment to Canada's ports to
reflect current cost structures. This adjustment made the
feeding of livestock more attractive in the areas of grain
production in Western Canada (Kirk, 1983). The end result is

fewer feeder cattle are moving from the west into Ontario

fe

it

ta

in

In

80

feedlots. More western farmers and feedlot operators are using
their own feed grains to feed and finish cattle in the West.
The effect has been to decrease the supply of feeder cattle to
Ontario and other parts of Eastern Canada. This condition
enhances the prospects for exportation of Michigan fed beef
into Ontario, Canada.

The Canadian beef cow herd reached a twenty year low in
January 1 inventories in 1985 (Statistics Canada, 1986).
Though rebuilding has commenced, as it also has in the U.S.,
the volume of feeder cattle available to feedlots in Ontario is
expected to be limited for several years. The Canadian
importation restrictions on feeder cattle have been relaxed
slightly so Michigan cattle feeders could expect greater
competition for the purchase of local feeder cattle, calves and
yearlings, in Michigan and other northeastern states.

Where conditions of trade between countries are concerned,
it is always important to entertain the possibility of
political action that may result in tariffs, quotas, closure of
borders, or agreements that interfere with the movement of
commodities between countries. In this case, given that the
volume of cattle moving into the U.S. from Canada far exceeds
reciprocal movement, it is unlikely that any action will be
taken by the Canadians ~to limit imports. A "Section 332"
investigation into the U.S. imports by the United States

International Trade Commission found no grounds upon which to

48.

de:
ple
de:
Mic
am

Val

81

issue a ruling of unfair competition from Canadian sources
(U.S.I.T.C. 1984). Consequently, there is no reason to expect
trade limiting action from the United States.

This observation is strengthened by an agreement reached
in the fall of 1987 between the U.S. and Canada calling for
elimination of restrictions and tariffs. Cattlemen and industry
personnel should keep advised, however, of any changes in
cattle movement that could result in new positions developing

that could cause changes in political attitudes.

43 THE SURVEY OF SLAUGHTERERS OF MICHIGAN CATTLE

43.1 Purpose

Because of the diversity of the markets serving as final
destination for Michigan fed cattle and the key role markets
play in the industry, this study was undertaken to identify and
describe plants engaged in purchasing and slaughtering of
Michigan fed cattle. In particular, it was felt that an
analysis of the markets for Michigan cattle would provide
valuable information to cattle feeders on the short- and long-
run prospects for the cattle feeding industry in the state.

A survey conducted in the summer of 1987 served to provide
useful data. Objectives of the survey were to identify and

describe:

82

1.3asic characteristics of the plants including, age,
capacity, and species of livestock being slaughtered;

2.Methods of procurement and sources of cattle;

3.Type of cattle in demand and the degree of preference
for Michigan cattle3.

4.Marketing methods;

5.Competitiveness of packers using Michigan cattle;

6.Labor costs in slaughtering plants;

7.Attitudes of the packers with respect to outlook for
the future.

43.2 Target Population

The address list was compiled using a USDA listing of
Michigan inspected plants and comparing names and addresses
solicited from industry and university sources. Out of state
and Canadian packers were identified with the assistance of the
Michigan Livestock Exchange. The intent was to survey all
slaughterers of Michigan fed cattle with annual fed beef
slaughter in excess of 1,000 head. The author felt that a
minimum annual volume of 1,000 head of fed beef was necessary
for a plant to be considered as having any significant
contribution to the industry and to warrant participation in
the survey.

Relative to the survey of Michigan cattle feeders, fewer
problems were encountered in preparing the questionnaire and
address list for the survey of slaughterers of Michigan Cattle.
Identification of the slaughtering facilities was easier due to

the small number.

83

43.3 The Questionnaire

The questionnaire was prepared by the author in
Consultation with Dr. Steve Rust of the MSU Animal Science
Department. Following an initial review in which the
objectives of the survey were listed to identify the main
points to be covered, first draft was written and circulated
amongst several professors for comment and correction. The
resulting comments were integrated into the questionnaire.
After the first draft, it was determined that important
questions would be compared to those in a questionnaire
prepared by Mark Jackson and Dr. Harold Riley for a survey
that was conducted in 1983. Where possible the questions were
modified in order to facilitate comparison of the results.

The second draft was then submitted to Dr. Price of the
MSU Meats Laboratory. Several questions were clarified and
some reorganization of the order of the questions resulted.
This third draft was then tested by delivering a copy to Tom
Fulton, the MSU Meats Laboratory manager, verbally
familiarizing him with the approach and intent of the survey,
and requesting him to review the questionnaire. An appointment
was then set for a telephone interview a few days later
simulating the survey procedure. This test proved very useful
as it revealed minor areas where further rewording of questions
would improve the speed of the interview and facilitate the

recording of the responses. Several questions were

84

subsequently revised and clarified to improve the flow of the
interview. Final testing and critique of content came from an
appointment with Dr. Al Booren, also of the MSU Meats
Laboratory, resulting in the rephrasing or deletion of several
questions. A copy of the questionnaire is found in Appendix

III.

43.4 Procedure

An initial phone call was made to each plant to identify a
contact person, verify the address information, and determine
the best time to call to fill out the questionnaire over the
phone. Following this initial phone call a questionnaire was
sent by mail to each contact person in advance of the telephone
survey in order to allow the contact person to familiarize
himself with the information that was being requested.

Of the 34 firms that received initial contact, six were
dismissed as having insufficient volume of fed beef slaughter
to include in the study. Only one of the firms contacted by
phone expressed a reluctance to participate in the survey.
This firm did respond, whereas several others did not (see

table 4.1).

43.5 Data Collection
The telephone interviews met with varying degrees of

success. Some of the contact persons were ready at the

85

appointed time: others were not. Some had carefully researched
their answers: others merely estimated their responses in an
impromptu fashion. An advantage, however, of the telephone
interview was that in the case of misinterpretation of a
question, clarification could be made immediately. Also, it
was helpful to be able to monitor unexpected responses and
avoid accidental omission of questions. Some respondents chose
not to respond to selected questions citing company policy or
unavailability of information as reasons for declining. The
firms seemed to be the most sensitive to questions dealing
directly with their costs.

Every effort was made to assure the firms that individual
responses would be entirely confidential. Unfortunately,
however, eight of the firms refused to respond. One plant in
particular had recently been involved in a study that was done
out of the University of Wisconsin (Quail et al., 1986). The
published findings were unfavorable to the firm’s image in the
industry leaving the management displeased with the outcome of
their cooperation. One other firm claimed that the information
would be sent by mail and though contact has been made in the
form of reminders the information has not arrived. Also, one
firm closed between the time of initial contact and the
proposed telephone interview.

After completing the interviews with those firms that

agreed to participate, each of the firms that had declined to

86

participate were contacted again with a final request to
respond to selected questions. This effort was entirely
unsuccessful.

Of the 29 firms surveyed, nineteen responded. One of these
had insufficient volume of fed cattle to be included in the

analysis. The distribution is shown in table 4.1.

Table 4.1: The Response Distribution of the Cattle
Slaughtering Firms Surveyed

 

 

Included
in the
Leeetion Surveyed Beepgnded Anelysis
Michigan 11 11: 12
Canada 5 3
Q§h§I_HI§i_§&§§§§, l3 6 -
Total 29 20a ‘

Source: 1987 survey data.
a One plant not included in the analysis due to insufficient
golume of fed cattle slaughtered.

One plant closed between the time of initial contact and the
telephone interview.

All eleven of the Michigan firms surveyed, participated.

Of the five Canadian firms contacted, three responded, one
closed and one refused. Non-response was a problem with the

larger out-of-state packers with only six of the 13 surveyed

responding.

.87

4CSURVEYRESULTS

Analysis was carried out based on the responses as
received. Unfortunately, non-participation in the_ survey by
several of the large out-of-state plants in the U.S.
restricted the interpretation of the resulting data. The data
collection was done with the intent of supplying industry,
extension, and research personnel with information relative to
cattle markets available to Michigan producers. Consequently,
the analysis and results focus on the aspects of the surveyed
slaughter plants from this viewpoint.

Annual slaughter levels varied among the responding firms
from approximately 1,000 to over 200,000 head. Due to the
large differences in volume, many of the figures reported have
been weighted by the volume estimates of the responding firms
in order to reflect the reported data in terms of relative
cattle volume. For example, if a small plant reports an annual
volume of 1000 head of fed cattle and markets 80 percent
through its own retail outlet, in determining the percentage of
all fed cattle marketed through plant owned retail outlets,
this plant’s volume must be weighted by the percent indicated
in order to determine the contribution to the overall slaughter

volume.

88

4C.1 Characteristics and Operation of the Plants

Over 70 percent of the plants surveyed were originally
constructed before 1960. However, the same percent had
undergone major renovations within the last 10 years. All but
one of the plants had maintained or increased capacity since
1960. In the single case where capacity was reduced,
management had reduced the labor force because of reduced
sales.

Only four of the responding plants indicated having
changed management, either through ownership or personnel
changes, within the last ten years. Many of the plants have
been owned and managed by the same family for two and sometime
three generations.

The respondents reported a total annual capacity of over
3.5 million head (for all cattle). This figure exceeded the
1986 slaughter volume reported for the state by 1.5 million
which amounted to unused capacity of nearly 43 percent
(Michigan Agricultural Statistics).

All but one of the plants had increased capacity within
the last ten years. And, despite this evidence of excess
slaughter capacity, nearly 40 percent of the plants reported
plans to expand their facilities within the next three years.
Expansion plans were most common among the newer plants.

A key item in analysis of market performance is the

estimation of the volume of production. From the reported

89

volume and estimates of categories such as the percent of cows
slaughtered or average number of workers, it is possible to
calculate aggregate totals and percentages for the firms
surveyed. In recognition of the sensitivity that firms may have
in responding to direct questions regarding volume, and in
order to maintain some consistency with a previous survey, the
question simply asked the respondent to estimate the plant
output in an eight hour shift and to indicate the average
number of shifts per week.

It seems that by using this method, the packing firms
responding to the survey over estimated the volume of Michigan
fed cattle processed in 1986. If volume is calculated by
multiplying the estimated shift output1 by the number of shifts
per week and then by 52 weeks in a year the eighteen responding
plants reported handling a volume of 210,000 fed beef in 1986.
Total Michigan fed beef marketings in 1986 were estimated at
224,000 head. '

It is the author's opinion that the packers were overly
optimistic in reporting these figures since this would leave a
remaining volume of only 14,000 for the nonresponding plants.
For the purposes of this study however, these estimates are
assumed sufficiently close to actual volume to be used in the

1 This figure is derived by multiplying the total volume
estimate by the percent of fed colored steers, colored heifers,
and Holstein steers, respectively, then summing these to arrive
at a fed cattle volume and dividing by the total volume to get
a fed cattle percent.

9O

analysis, particularly in estimating relative percentages of
subgroups such as in calculating the proportion of the fed
cattle slaughtered originating from Michigan feedlots.

Cooler space and kill floor capacity were cited as primary
physical factors limiting production. However, in response to
this question on production limitations, a large number of
respondents claimed product markets and availability of cattle
as the most limiting factors in their production volume.

Only one of responding slaughter plants reported
processing a small number of hogs and sheep (on a custom basis)
in addition to cattle.

One third -of the respondents routinely electrically
stimulate the carcasses prior to rigor formation to enhance
muscle relaxation and improve tenderness. Only one plant was
currently doing a small amount of hot processing. Several of
the contacts responded by asking how the hot processing
procedure works and what the advantages are. None of the
remaining plants said they were considering integrating hot
processing into their operation.

Most of the plants reported using on-the-rail systems for
skinning and eviscerating. However, six or one third, of the
slaughter facilities were still using cradles or beds for
skinning the cattle. These plants accounted for only three
percent of the total volume of fed cattle processed by the

responding packers.

we

ef

4C

91

Four of the responding packers performed some Kosher
slaughtering. (No reports were received of other types of
ethnic slaughter such as Muslim.) Several packers commented
that the higher prices received for Kosher slaughtered cattle
were barely sufficient to compensate for the added time and

effort involved.

4C.2 Cattle Types

Table 4.2 shows the distribution or mix of cattle killed
by the responding packers, with comparative estimates to 3
years ago. The steer slaughter is comparable to that reported
by Faminow (1984) for the U.S. if the percentages shown for
colored and Holstein steers are combined. Heifer slaughter is
lower and cow slaughter is 50 to 60 percent higher (Faminow,
1984), which may be explained by the prominence of the dairy
industry in Michigan.

Table 4.2: The Mix of Cattle Slaughtered in 1986 and 1983
as Reported by Responding Firms

 

 

Kind Percent

1986 1983
Colored Steers 41.0 28.6
Colored Heifers 17.4 24.6
Holstein Steers 8.3 8.5
Cows 32.0 36.4
B9115 1"; 1.7;
Total 100.1 99.8

Source: 1987 survey data
* Does not add to 100 due to rounding.

Nationally the portion of slaughter cows runs about 20

92

percent of the total kill and steers and heifers combined
account for approximately 75 percent (American Meat Institute,
1987). It should be noted that plants that claimed to be
strictly cow slaughterers were not include in the survey. The
slaughter plants in the Northeast region of the U.S. slaughter
a disproportionately large number of cows.

The yield and quality grade distribution for fed cattle
slaughtered by the responding meat packing firms is showg in
table 4.3.

National averages shown indicate that the yield grades for
cattle slaughtered by the responding packers were similar to
the nation as a whole. However, with reSpect to quality
grades, the responding packers reported a significantly higher
number of cattle grading "Good". (American Meat Institute,

1987).

Table 4.3: Yield and Quality Grade Distribution for
Responding Firms that Slaughter Michigan Cattle

Quality U.S. Yield U.S.
Trade BQSRQDQEDSS Aye, firege Beepengenee Ave,
-- Percent -- ---- Percent ----

Prime 3.2 3.1 One 5.0 3.9
Choice 84.0 94.0 Two 33.9 41.8
Good 12.7 2.9 Three 54.9 49.0
Standard 0.0 0.0 Four 6.0 4.8
Five .3 .4

Source: 1987 survey data

The higher percentage of cattle filling the Good category

reflects the relatively high percentage of Holstein cattle

93

being killed, particularly by several of the larger plants.
Plant managers commented that well fed Holsteins consistently
have a greater percentage of Good carcasses compared to the
beef type (colored) cattle. However, the quality is quite
acceptable. As a result they have sought out and developed some
specific markets for Holstein beef.

The quality, type, and size most in demand by the
responding packers is a Choice beef type steer, yield grade
two, with carcass weight between 580 and 670 pounds. Holstein
steers are very marketable at dressed weights between 650 and
750 pounds.

Over 70 percent of the packers responded that their major
procurement problem was the availability of cattle. Eighteen
percent cited consistent quality as their major concern.
Properly finished Holsteins of consistent quality were
reportedly hardest to get followed closely by top quality beef
type steers.

Only 17 percent of the cattle slaughtered by the
responding packers came from within a radius of 50 miles of the
plant. Twenty-nine percent came from between 50 and 100 miles
and another 34 percent from between 100 and 200 miles. The
remaining 20 percent came from areas further than 200 miles
away, with a few of the largest packers reported some cattle
traveled distances in excess of 500 miles.

The distribution of the sources of the cattle for the

94‘

responding plants is shown in table 4.4. Michigan feedlots

were the primary source of cattle for all of the plants located

in Michigan. However, 27 percent of the total volume of fed
cattle slaughtered by Michigan packing plants came from outside

the state.

Table 4.4: Distribution of States of Origin of Cattle
Slaughtered by Responding Packers (1986)

 

 

§§§§§, APQIQQDE
Michigan 15.3
Ohio 7.4
Indiana 5.5
Illinois 9.9
Wisconsin 3.8
Iowa 27.9
Pennsylvania 6.3
Canada 18.2
Other 5.3
Total 100.0

Source: 1987 survey data.

All but one of the responding packers reported that
Michigan cattle exhibited either "fewer" or "no difference" in
the number of bruises compared with cattle from other sources.
This may be attributed to proximity and shorter length of haul.
Nevertheless it also indicates that Michigan cattle feeders and
transporters are at least as careful in cattle shipping and
handling as other competing sources. ‘

Table 4.5 displays the relative extent of the different

purchasing methods used by the responding packers.

95

Table 4.5: Methods Used By Responding Packers
to Purchase Fed Cattle

 

W Percent
House Cattle Buyer Direct 31.7
Independent Order or Commission Buyer Direct 17.4
Other Purchases Direct 4.1

Total Direct 53.2
Auction Sale 32.4
Independent Order or Commission Buyer Indirect 12.4
Other Indirect 1.5

Total Indirect 46.3*
Total 99.5

*Does not total 100% due to rounding.

Sixty-nine percent of the cattle purchased by the
responding packers were bought on a live weight basis, 18.2
percent on a grade and yield basis and 12.8 percent "in the
beef“ or on a hot dressed weight without grading.

A few of the packers responded that occasionally the
seller or feedlot operator, is required to specify that the
cattle being bought on a live weight basis meet certain minimum
standards or percentages of quality and yield grades or
dressing percent. The packers seemed reluctant to use this
approach and tended to rely on it only when the quality of the
cattle offered seemed questionable. Several commented that
where the quality was lacking they preferred to buy beef
elsewhere rather than stipulate requirements in the agreement.

The direct sales of only 50 percent of Michigan cattle
contrast sharply with data reported in the Midwest and

Southwest where direct sales account for 80 to 95 percent of

96

the cattle marketed (Van Arsdall, 1981).

Most of the volume reported under "other" in direct
purchases was due to an electronic marketing system used by the
Canadian packers. The system was a form of tele-auction where
packers bid on cattle that were displayed in the feedlot via
video camera. Participating packers can access the display
through the use of a terminal in their place of business. The
bidding works like a Dutch Auction where the price is allowed
to fall at time intervals until a bid is received. The
producer is then contacted and is allowed several minutes to
refuse the offer and keep the cattle or sell them. This gives
the producer a tremendous advantage in increasing the exposure
to potential buyers without moving them. This method reduces
transaction costs and avoids the risk of being required to geke
an inferior price rather than returning his cattle to the farm.
The Canadian packers seemed pleased with this service and the
concomitant arrangements.

Only one of the responding meat packing firms engaged in
forward contracting of cattle, and in that case, such contracts
were only occasional. Three of the packers actively contract
cattle feeding, however, the numbers involved were so small as
to be insignificant with respect to their total volume.

Another form of vertical coordination is for the packing
firm to own or maintain partial ownership in a feedlot and

cattle. Four of the smaller slaughter plants each reported

97

feeding from 25 to 200 of cattle annually. Again, this amount
is insignificant with respect to the total reported volume.

The information that the responding packers make available
to the producers is displayed in table 4.6.

Table 4.6: Information Available From the Packers
to the Producer.

Provided-
------ by Lot ------- ------ by Animal -----
On a On a
W‘ PresentlxfieeueetL A-
Carcass Weight 76.5 17.6 5.9 11.8 47.1 41.2
Quality Grade 64.7 11.8 23.5 11.8 41.2 47.1
Yield Grade 58.8 23.5 17.6 11.8 41.2 47.1
Back fat 0.0 23.5 76.5 0.0 23.5 76.5
Rib Eye Area 0.0 17.6 82.4 0.0 17.6 82.4
KPH fat 0.0 17.6 82.4 0.0 17.6 82.4
Liver Abscesses 5.9 29.4 64.7 0.0 29.4 70.6
Liver Flukes 5.9 23.5 70.6 0.0 29.4 70.6
Trim Loss 5.9 5.9 88.2 0.0 17.6 82.4

a N/A- information is not made available to producers.
Source: 1987 survey data.

As shown in table 4.6 most of the packers provide or are
willing to provide the basic essential data with respect to
carcass weights and quality and yield grades. However, fewer
will provide this data on an individual animal identification
basis.

When asked what Michigan cattle feeders could do to make
improvements, the most common answer was, "Feed more cattle."
This comment was often qualified by requests for more
consistent supply both in quality and quantity at all times of

the year.

98

4C.4 Sales

Forty-one percent of the responding packers reported using
a method of formula pricing of products based on the National
Provisioner’s "yellow sheet". Forty-seven percent use "other"
sources of information. Several of the larger responding
packers make use of ”in house" computer generated information
to price their products according to inventory and product
movement. The remaining 12 percent use the "blue sheet"
published by the National Association of Meat Purveyors.

Canadian packers make extensive use of private brands.
Two of the responding packers in the United States market
products under private brand name or label. However, only a
small amount of total volume went into these products. The
packers were hesitant to reveal details about grades of beef
used in specific products, saying only that they were very
selective in the quality of the house named products.

The responding packers shipped 71.5 percent of fed beef
volume as boxed beef; 20.6 percent was shipped as "swinging"
sides and quarters: and the remaining 7.9 percent was processed
further into portion fresh cuts, chipped and formed cured
meats, or other processed and cured products.

Table 4.7 shows that over one third of the products are
shipped to supermarket chains. In addition, over 20 percent

are shipped to other packers.

99

Table 4.7: Distribution of Product Shipments
by Responding Packers

 

 

Destination Percent
Supermarket Chains 35.7
Other Retailers 10.7
HRI (Hotel, Restaurant

and Institutional outlets) 16.5
Other Packers 21.3
Purveyors 15.2
Plant’s own retail outlet .4
Other .2
Total 100.0

Source: 1987 survey data

4C.5 Labor

Six, or one third of the responding plants reported having
a labor union representing workers. Of these six, half were
the three plants from Canada that participated in the survey.

Average starting wages reported by the responding firms
were $7.08 per hour compared to average top wages of $9.95 per
hour. By comparison the U.S. overall average wages for meat
packing and meat processing firms is $8.24 and $8.74
respectively. Compared to averages for all manufacturing, meat
packing employees receive almost $1.50 per hour less than other
workers. This is a significant change from 1980 in which meat
packers were paid an average of $1.22 an hour more than the
national average manufacturing worker’s hourly rate (American
Meat Institute, Meeefeege 1987).

Technological advances have reduced the skill level
required to work in meat packing plants, consequently lowering

the functional pay scale. The availability of employees

100

willing to work for these lower wages will impact on the
ability of the packing plants in the Northeastern Corn Belt to
stay abreast of their competitors.

Five of the responding firms conducted some form of profit
sharing benefit program for the firm’s workers. Two of the
firms offered volume bonuses for the shift as a group and only
one of the smaller firms paid kill floor workers on a piece
work basis.

Fifty percent of the firms guaranteed a weekly number of
hours.

All but one of the responding packers offered time off
with pay as part of their benefits package. All but two paid
part or all of some type of health insurance. Only 57 percent
of the U.S. firms offered employees retirement benefits (in
Canada, contributions to the Canada Pension Plan are

mandatory). Less than half participated in a dental program.

4C.6 Competitive Position

Table 4.8 gives a breakdown of how the responding packers
viewed their position relative to other major packers,
particularly those of the Midwest and Great Plains. The
numbers shown represent an evaluation of perception not

positive measurement.

101

Table 4.8: Responding Packers Perception of Relative
Competitive Position

 

--------------- Percent-------------------

Item WW
External costs

e. g. taxes, permits 0.0 73.3 26.7
Labor Costs 0.0 46.7 53.3
Scale (size of plant) 14.3 42.9 42.9
TCattle Availability 20.0 46.7 33.3
Cattle Quality 46.7 13.3 40.0
Cattle Consistency 26.7 33.3 40.0
Market access or

availability 73.3 0.0 26.7
Market Diversity 46.7 20.0 33.3
Fabrication Ability 0.0 40.0 60.0
Kill Cost 6.7 60.0 33.3

Source: 1987 survey data.

The questionnaire did not probe directly for a response on
kill cost. However, during the phone interview the author posed
it in conjunction with the estimate on kill cost shown in the
table above. Many of the contact persons either refused to
respond or used evasive terms, such as "a little more than the
drop value", when asked to give the kill cost per animal.
Also, after reviewing the amounts, it seemed that some were
inordinately high. Upon reflection the author has determined
that where a figure was quoted, the amount may sometimes have
included both the kill and the cost of processing the carcass
into boxed beef. Consequently the data reported corresponding
to this question is not considered reliable.

Most of the packers quoted a figure for the value of the

102

dropl, the average being $67.93. The value varied widely,
particularly with the smaller plants. This can be attributed
largely to the size, quality and handling of the hides- the
single most important item in the "drop". Plants killing a
high percentage of Holsteins generally reported higher values
for the drop.

Of those packers who responded to the question, "What is
your key to remaining competitive?" most maintained that. the
quality of their product was of primary importance. Cattle
feeders should recognize the emphasis placed on this factor by

management of slaughter facilities.

4C.7 Outlook

Seven of the packers said they had intentions to expand
their operations within the next three years. The remaining 11
planned to maintain their current levels of production. None
of the packers indicated that they expected to reduce business
or close.

Only fourteen of the packers expressed an opinion on the
issue of changing grade standards. Most, 71 percent, were not
in favor of changes that would replace the Federal Good grade
with the name Select. Several commented that the current
grading system allowed inferior cattle into the low Choice

The drop includes everything that is removed during slaughter
to leave the hanging carcass. It includes the head, hide,
viscera, feet and sometimes even the blood.

103

grade.

None of the responding packers felt that the Northeast
region would regain a major role in the national production and
processing of beef. Many commented that serving niches in the
market was the only means of securing a position.

Though no specific research problems were identified by
the meat packers who participated in the survey, several
indicated that the most valuable service the University could
render would be continued education of cattle feeders in

selecting and feeding cattle to a high standard of quality.

4D SUMMER!

Though the survey was unsuccessful in obtaining 100
percent participation by all the slaughterers of Michigan fed
cattle, all the packers located in Michigan responded. The
resulting data is consequently highly representative of the
cattle slaughtering industry in Michigan.

Most of the plants have undergone remodeling to modernize
which indicates that they are progressive, attempting to avail
themselves of modern technology. The low number reporting
changes in senior management suggests stability.

Given the large amount of under utilized capacity reported,
Michigan cattle feeders could confidently double, or even

triple their annual output without worrying about lack of

104

slaughter capacity. As mentioned earlier, many of the packers
have plans to expand and are anxious about the lack of cattle.

Michigan cattle seem to be well received. Nearly 50
percent of the responding packers claimed that the quality of
the available cattle provided an advantage over other packers.
With an established foundation of confidence, it would seem
that Michigan producers could benefit from efforts to promote a
quality image, not only to meat packing firms but also to the
public in the local market area. The key is to provide the
products or services for which there is a demand, but in which
the market is not large enough to entice exploitation by the
larger firms.

It seems that progress could be made in the area of
forward contracts which could reduce transaction costs. There
appears to be a reluctance on the part of both the producers
and packers to establish relationships that could improve the
consistency of the supply of fed cattle, assure a market and
transfer risk, and reduce marketing costs. It may be that the
small size of the Michigan cattle feeding operations limits the
level of commitment that could be achieved.

Overall, the attitude of the slaughterers of Michigan

cattle was progressive and positive.

CHAPTER‘V

MICHIGBN'S COMPETITIVE POSITION

5A INTRODUCTION

Chapters III and IV described the structure, production
practices, and various other characteristics of cattle feeders
and slaughterers in Michigan. This data and related discussion
serve as a background for a summary assessment of the
strengths, weaknesses, and future prospects for Michigan’s fed
cattle industry. It is also intended that the findings will
contribute to the pool of knowledge about Michigan's
diversified agriculture and thus assist those interested in
further research into Michigan's future position in cattle
feeding and the fed cattle industry.

In this chapter, the focus will be on major factors that
determine the competitive position of cattle feeders in
Michigan relative to other regions of the U.S. The degree to
which cattle feeders in Michigan can remain competitive with
those from other parts of the country, will enhance the
probability of the survival of Michigan cattle feeders and

determine the success of the industry in the state.

105

106

5A.1 Previous Studies

Paul Hasbargen (1967) developed a linear programming model
which he used to compare the economics of feeding cattle in the
Eastern Corn Belt, Midwest (particularly Minnesota his home
state), and the Southwest. Using primarily secondary data, he
compared feed, shelter, and labor costs for feedlots in the
Midwest, Southwest, and Northeastern Cornbelt. Included also
in his study was an evaluation of feeder cattle costs and fed
cattle returns. His findings showed that the Southwest enjoyed
several significant advantages over other regions, including 1)
favorable climate which resulted in more efficient feed
conversion, lower overhead costs, and lower labor costs: 2)
lower feed costs: and 3) lower feeder cattle costs.

The continued expansion and concentration of cattle
feeding in the Southwest (High Plains) supports his work and
substantiates his findings. The trends that he identified,
indicating that cattle feeding would become more specialized
and concentrated in regions of favorable climate and supplies
of feed grains, and that feedlots would become larger and more
industrial certainly have been borne out by the past two
decades.

More recently, research by G. M. Clary et al., (1980,
1986) showed that the Southwest continues to hold economic
advantages in cattle feeding. But, as he aptly states,

The economies of cattle feedlot and slaughter plant
location are extremely complicated as many tradeoffs

107

exist between the shipment of feed grains, feeder
cattle, fed slaughter cattle, and fed beef. Optimum
feedlot and slaughter plant locations generally are
considered to be near regions with substantial feed
grain supplies. However, this is an over-
simplification, since changes in absolute or relative
transportation rates can change the competitive
advantage of particular activities or regions.

Clary’s main research dealt with transportation related
concerns but he also identified and evaluated other realistic
scenarios which would cause shifts in costs of cattle feeding
inputs. These included 1) the reduction in feed grains
available to Southwest feedlots as a result of depletion of
ground water reserves for irrigation, 2) cyclical or structural
shifts in the traditional sources of feeder cattle, 3) dramatic
energy cost increases, and 4) increases in variable slaughter
costs such as labor and waste disposal. He also examined the
alternate outcomes using several combinations of these factors.
His model demonstrated the relative advantages of feeding
cattle in the Southwest and tends to favor this region even
under the effects of adverse variations (scenarios) of the
model cited above.

Relevant to cattle feeders in the Northeastern Cornbelt is
the conclusion reached by Clary that, in order for the
concentration of cattle feeding to shift away from the
Southwest and High Plains, major disruptions in transportation

costs, feeder cattle supplies, feed costs or returns on fed

cattle must occur. The favorable conditions for cattle feeding

108

in the Southwest and High Plains, and consequent expansion in
volume, have resulted in the concurrent growth of a supporting
superstructure of industrial cattle feeding, slaughtering,
processing and marketing institutions. In order for relocation
to take place at this point, major price, supply, or
technological incentive must prevail.

A study by Van Arsdall and Nelson (1981) provides some
useful data for comparison of the traits of the Michigan cattle
feeders with their counter parts in the Midwest (Corn Belt)
states. Their study, hereafter referred to as the ERS study,
was based almost exclusively on a cattle feeder survey similar
to the one conducted by the author in Michigan in 1986.
However, it contained more detail and targeted specifically
farmer feeders- selling no more than 1000 head annually. (Van
Arsdall 1981).

Many of the characteristics of the cattle feeders in the
ERS study (1981) are very similar to those describing Michigan
cattle feeders in Chapter III. One particularly important
common denominator is that the Midwest cattle feeders surveyed
are categorized in the ERS study as farmer feeders or those who
sold less than 1000 head annually and produced all or most of
their own feed on the farm. Michigan cattle feeders surveyed
in 1986 were also characterized by this same trait with a few
exceptions. Some of the respondents in the Michigan survey

reported selling more than 1000 head of cattle in 1985, the

109

Iowa and Michigan samples are considered to be sufficiently
similar so that direct comparison of the described traits will
be made without resorting the Michigan data by size of feedlot
to remove the larger lots. In other words, the results of the
analysis on all feeders (and feedlots) that reported marketing
more than 100 head of fed cattle in 1985 will be used in

comparison.

5A.2 Basis for Comparison
The criteria for evaluating Michigan’s fed cattle industry
will focus on the following areas:

Costs
1. Feed Costs
2. Feeder Cattle
3. Climate
4. Transportation
5. Labor
6. Feedlot and Equipment Use
7. Economies of scale
8. Summary of Costs

Returns
1. Fed Cattle Prices
2. Prices and Net Returns
3. Marketing

4. Management
5. Profitability

SB COSTS
58.1 Feed Costs
Cattle can be successfully finished on a variety of diets
and feeding programs. For example, Brennan et al., (1987)

studied the effects of different proportions of corn grain and

110

corn silage in the diets of steers on feed and found no
significant difference in the yield and quality grades, nor in
the eating quality of the beef (panel tested, Brennan et al.,
1987).

The value of a high silage ration in Michigan cattle
feeding enterprises was cited by Hasbargen in 1967. He
concluded that,

Relative to ration selection, it was found over a wide
range of planning situations on Michigan farms, the

high silage ration will give ehe__§ig§ee§__;e§g;e__pe;
head fed as well as ene_hignee§_zeeg;n_per_eezee
It should be noted however that this observation is conditioned
on the raising of the feed on the farm.

Where cattle feeding is done in large industrial feedlots,
and most or all of the feed is purchased, least cost rations
are determined by the cost and quality of the available feeds
and will not vary greatly among feedlots in the same locale.
Under such conditions variations in costs of gain between
feedlots within a given geographical area can be attributed
primarily to management and facilities.

The segment of the industry that is most typical of
Michigan feeders is the farmer feeder who uses cattle as a
means of marketing feeds produced on his farm. In the farm
feedlot the ration fed is often higher in roughage, due to a
higher percentage of corn silage in the diet, than that fed in

the large industrial feedlots (Van Arsdall and Nelson 1980).

111

The farmer feeder is also limited in facilities for ration
processing, mixing, testing and balancing. His feed cost
advantages lie in areas associated with use of seasonally slack
labor, and low cost (surplus) roughage (Weimar et al., 1986).

There also exist isolated local conditions in which a
cattle feeder, either industrial or farmer, has an advantage in
being able to supplement the ration, and reduce feed costs,
with surplus and salvage feeds from his own or neighboring
farms or food processing plants. For example, a neighboring
farmer may be experiencing partial crop failure and be willing
to sell at very low (salvage) prices shrunken, barley, frozen
beans, moisture discolored and slightly spoiled corn, or other
feeds that have suffered damage from any number of agents.
Food processing plants supply a wide variety of possible feeds
ranging from beet pulp, cull potatoes, and beverage grains, to
such things as broken jelly beans and off-quality breakfast
cereal. In some cases the market value of such feeds for other
purposes is very low or non-existent. Consequently, cattle
feeding remains the only means of salvage. The potential
exists, under such circumstances to significantly reduce feed
costs. However, such situations are limited to locally unique
conditions.

As noted in chapter III a wide variety of feeds were used
by Michigan cattle feeders including a number of byproduct

feeds. The percentages of Michigan feedlots utilizing

112

byproduct feeds show that only a limited number of cattle
feeders are able to take advantage of these feeds (Table 3.11).
However, use of byproduct feeds by Michigan cattle feeders is
substantially higher than in the ERS study (1981) which
reported that less than one percent of midwest feeders reported
use of byproduct feedstuffs.

In 1967 corn prices in Michigan were essentially the same
as in Northeastern Colorado (Hasbargen p. 94) but the High
Plains had access to sorghum grain at lower prices. Feed cost
structures have shifted to favor the Corn Belt in more recent
years. Loy et al. (1986) reported that the geographical low
point for corn prices shifted from eastern Iowa and was now
centered in northwestern Iowa and eastern Nebraska.
Unfortunately, detailed evaluation of the relative prices paid
by farmers was not included in the literature consulted.

In Michigan corn is fed to cattle primarily as ensiled
high moisture grain. High moisture corn has advantages in
lower harvesting risk and slightly higher nutritional value but
is limited in versatility and requires specialized storage.
Once it is harvested and stored on the farm it is suitable only
as animal feed as it is not of the type and quality to be
readily marketed even as a feedgrain. Its perishability and
bulk also restrict the marketability to nearby cattle feeders.

Because the focus of this study was primarily to report

and expound on the results of the two surveys, the author did

113

not pursue a comparative evaluation of feed costs within the
various regions under consideration. Comparative feed cost data
for Michigan feedlots is sparse. The author has chosen
therefore simply to present actual cost budgets from Telfarm1

data which may be useful for future cost and trend comparisons.

Table 5.1: Feed vs. Non-feed Costs on Cattle Feeding Farms,

 

‘Michigan
1971 1979 Am 1&1 J91 M 19§4 198i
Michigm
lonFeed 813.88 817.79 821.28 817.84 $20.62 $19.97 $20.65 521.25
1 4 4 4 4 . 4
Ave. Cost

per cwt.gain45.72 54.13 63.18 63.30 60.47 60.04 74.73 63.61
Source: Business Analysis Summary for Cattle Feeding Farms,
Telfarm Data, MSU Ag Econ. Reports, 1977-85. '

Table 5.1 presents Telfarm cost of production data for
cattle feeders in Michigan. Nonfeed cost have held relatively
stable from 1979 to 1985 but feed costs have risen

intermittently.

53.2 Feeder Cattle

As noted in Chapter III, according to the survey of
Michigan cattle feeders, nearly 40 percent of the cattle placed
on feed originated from within the state. The states to the

south and east of Michigan supply over 50 percent of the

1 Telfarm is a computerized book keeping service operated by
the Michigan State University Cooperative Extension Service.

mHflil-‘HOU

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114

remaining feeder cattle with less than 10 percent coming from
the West. Michigan feedlots compete with Midwestern and
Southwestern cattle feeders for cattle from the South, but may
have a slight advantage in transportation costs on cattle
coming from such states as Virginia and the Carolinas.

Figure 5.1 shows the monthly prices for feeder cattle paid

by Michigan feedlot operators from January 1978 to September

Figure 5.1 Michigan Feeder Cattle Prices by Month
January 1978 to December 1986

 

9O ‘1

68*

v

50"

a J ".1

1900 1902 1964 ' 1966

 

 

 

YCCI‘

Source: MLSE Weekly Quotations.

1986. These prices were taken from individual weekly
quotations from the MLSE weekly newsletter for semi-loads
delivered directly to Michigan feedlots. The quoted prices for

1 See Appendix IV for details on the method of calculation and
resulting numerical data.

NHDHHOU

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115

beef type feeder steers were used to generate a weighted
monthly average price that is graphed below. The method of
calculation is explained in greater detail in Appendix IV.l

Comparisons of prices paid for feeder cattle are given in
Figures 5.2 and 5.3. Price quotations for Omaha and Texas-New
Mexico direct buying were taken from USDA Meat and Poultry
Situation and Outlook Reports for 600 to 800 pound beef type
feeder steers. The feeder cattle prices from the MLSE included
quotations for all beef type steers averaging 600 to 900 lbs.,

however, very few of them exceeded 800 lbs.

Figure 5.2 Plotted Differences in.Mbnthly Feeder cattle Prices
in Michigan Compared with Corn Belt.Markets 1978-86

 

2.5
0.0 y 1"
W

19 9 1931 1913 1935

Source: MLSE weekly quotations and USDA data.

 

 

 

 

 

 

Over the period of eight plus years since January 1978,

WHOHl-‘OU

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116

Michigan cattle feeders paid approximately $.50/cwt. less on
average for feeder cattle than corn belt cattle feeders but
$.70 more than cattle feeders in the Southwest. These
differences in average price are small and, as the graphs show,
the prices fluctuate significantly. Visual appraisal of the
graphs indicates that comparative feeder cattle prices appear
to be tending slightly lower in Michigan since 1978 relative to

both other regions.

Figure 5.3 Plotted Differences in Monthly Feeder Cattle
Prices in Michigan Compared with Southwest Markets 1978-86

7.5

5.8
2.5

 

 

i
a a u u- b- ----- - '-- n 1 n a c- u ' ‘ I
' T

-2.5
-5.0
'7.5
-10.0

 

 

19 9 19=1 19=3 19=5

Source: MLSE weekly quotations and USDA data.

The prices quoted and graphed here are for heavy feeders.

117

Comparable data for lighter weight calves was more sparse and
insufficient for comparison. The 1986 survey data indicated
that Michigan cattle feeders preferred to place calves of
lighter weight which is consistent with the use of high
roughage diets.

Hasbargen concluded that for farmer feeders who placed
cattle on feed only once a year that feeding calves yielded the
best return to time and investment. The ERS study (1981) shows

that his conclusion still holds on farmer feedlots.

53.3 Climate Related Costs

The humid conditions that make large amounts of feed
available for feeding cattle have a negative effect on the
animals themselves in the winter. Michigan's cold damp winters
make it necessary to provide some shelter for the cattle to
avoid unprofitably low levels of feed conversion and rates of
gain during periods of inclement weather. However, Michigan’s
location between several of the Great Lakes results in some
tempering of the severe winter temperatures that are
experienced in other areas of the same latitude. Hasbargen
argued that these conditions increased the requirements for
bedding as well.

Fall harvesting of corn is often difficult in Michigan
both from the standpoint of getting equipment on and off the

fields as well as getting the grain dry enough to store.

117

Comparable data for lighter weight calves was more sparse and
insufficient for comparison. The 1986 survey data indicated
that Michigan cattle feeders preferred to place calves of
lighter weight which is consistent with the use of high
roughage diets.

Hasbargen concluded that for farmer feeders who placed
cattle on feed only once a year that feeding calves yielded the
best return to time and investment. The ERS study (1981) shows

that his conclusion still holds on farmer feedlots.

53.3 Climate Related Costs

The humid conditions that make large amounts of feed
available for feeding cattle have a negative effect on the
animals themselves in the winter. Michigan's cold damp winters
make it necessary to provide some shelter for the cattle to
avoid unprofitably low levels of feed conversion and rates of
gain during periods of inclement weather. However, Michigan’s
location between several of the Great Lakes results in some
tempering of the severe winter temperatures that are
experienced in other areas of the same latitude. Hasbargen
argued that these conditions increased the requirements for
bedding as well.

Fall harvesting of corn is often difficult in Michigan
both from the standpoint of getting equipment on and off the

fields as well as getting the grain dry enough to store.

118

Feeding of high moisture corn provides an alternative to
farmers, allowing them to harvest earlier and providing a means

of marketing their crop.

53.4 Transportation

The increased cost of energy during the late 1970’s, and
the prospects for continuation of this condition, led a number
of researchers to conclude that transportation costs would be a
significant factor contributing to decentralization, or at
least an inhibitor to further concentration, of the cattle
feeding-beef-packing industry. However, the inability of OPEC
to maintain control of the output of oil and the subsequent
price decline due to ample supplies has reduced the impact of
transportation costs as a deterrent to concentration and
centralization in the meat packing business.

In addition, Poole attributes freight rate ~cuts and
increased competition to deregulation following the Federal
Motor Carrier Act of 1980. In Michigan, the Michigan Public
Service Commission Public Act 399 (1982) resulted in "Motor
carriers transporting meats, frozen foods or dairy products ...
[being] forced to reduce rates in response to increasing
competition.” (Poole 1985). Though the impact has been less
dramatic than other forms of freight Poole reports that, ". . .
[nominal] rates for hauling livestock have held steady since

1980, suggesting a decline in real rates." (Poole 1985). Since

119

1980 there has been little change in livestock hauling rates.

The rule of thumb for semi-trailer loads of $1.75 per
loaded mile has been steady or even declined in some cases
since 1980. Eldon Roberts of the Michigan Livestock Exchange
reported bargain rates (summer 1986) as low as $.80 per loaded
mile back-hauling cattle into IBP (Joslin, Ill.) for trucks
delivering of hogs into Detroit.

Livestock hauling requires specialized equipment that does
not easily accommodate other freight. Consequently, back hauls
are generally limited to other livestock which restricts
versatility and reduces the potential of back haul
availability.

58.5 Labor

Table 5.2 is a reproduction of table 46 in the Van
Arsdall-Nelson ERS study (1981) which displays the distribution
of labor use in different sized farmer feedlot operations. The
author is not aware of data for comparison but includes this
information for future reference.

Hired labor in Michigan has historically been more
expensive than in either the Southwest or the Corn Belt. In
addition the cold damp winter climate requires more labor for
management, maintenance, and chores such as spreading bedding

and plowing snow (Hasbargen 1967).

120

Table 5.2: Amount and Source of Labor for Cattle Feeding in
Iowa, by Type 1980

Feedlot ml ------------------ Labor per head2 ---------------------------- Source of Labor3 ---------
sale; (hag) All mtermisg Qlf Prggrg Yearling Pregrgg grater maid Family Hired
------------- hours per head ............. ............ Percent ----------°

20 to 99 11.6 11.8 ~ 11.5 74 16 10
100 to 199 6.0 6.3 5.7 66 15 19
200 to 499 4.3 4.7 4.1 62 16 22
500 8 Over 3.0 3.7 2.8 45 17 38
All Sizes 6.1 6.3 5.8 66 16 18

1 Labor includes all time spent on work related to the cattle feeding enterprise including buying

and selling of cattle. Time for nintenance of nchinery and facilities, and prodaction and harvesting
of feed crops is not included.

2 Approximately two-think of all feeder cattle were yearlings or older. Gains per head were about 530
pomds for all cattle coabined, 475 pounds for yearlings, and 640 pomds for calves. Calf lid yearling .
program included far. URI“. 75 percent or are of the cattle placed on feed were of the specified kind.
3 The distribution of labor along the various sources applies to all cattle feeding enterprises.

Source: Van Arsdall and Nelson 1981.

53.6 Feedlot and Equipment use

Van Arsdall and Nelson (1980) demonstrated that the cost
structures related to the different kinds of feedlots vary
greatly. Primarily they were concerned with differences
between the farmer feedlot and the industrial feedlot. It
appears that per unit feed costs are generally lower for farmer
feeders but fixed costs are higher.

On-farm feedlot facilities include a wide variety of
structures, equipment, and capacity. There are a number of
facilities that have been constructed specifically for cattle
feeding. These include everything from simple lots- with or

without shelter- to total confinement structures with varying

121

levels of automation in feeding and handling equipment and
waste removal. In many cases the farmer has converted shelter
and facilities from some other storage or livestock use to
cattle feeding. For example, many converted farm feedlots were
once dairy facilities. Occasionally, one finds farmers feeding
cattle in open lots with no shelter and limited facilities.
Consequently, the methods employed in cattle feeding often
result from attempts to make use of, and accommodate, a wide
variety of existing buildings and equipment.

Compared to the ERS study of Midwest cattle feeders,
Michigan cattle feeders make greater use of shelter, reporting
greater use of both partial and full confinement. Whereas over
50 percent of the capacity reported in the farm feedlots had no
shelter, only 20 percent of the Michigan capacity fell in this
category. Michigan producers consequently invest more in
shelter but also may benefit through improved performance of
the cattle.

As discussed in Chapter III Michigan feeders report a
substantial amount of unused capacity. Where fixtures and
equipment go unused, or only partially used, the fixed costs
per unit of output rise. The alternative is to increase the
output and spread the fixed costs over a larger number of units
produced.

The use of feedscales in the Midwest was more prevalent

than in Michigan. Nearly 50 percent of the feeders in the ERS

122

study (1981) weigh the feed delivered to the bunk compared to
approximately 35 percent in Michigan. As a management tool,
feed scales can be an effective aid in controlling the quantity
of feed delivered. This is important not only from the
standpoint of waste but also avoiding the event of cattle going
"off feed” due to fluctuations in quantity. Cattle feeders
should not overlook the importance of this tool in knowing and

controlling costs and maintaining cattle "on feed".

53.7 Economies of Size

Economies of size refers to a disproportional increase in
output as the size of the plant increases. Such economies have
the effect of decreasing cost per unit of output due to changes
in the mix of inputs required or to changes in the cost of
inputs or price of outputs. For example, costs per unit of
output will decrease as the firm expands due to spreading lumpy
fixed costs over increased volume and increased efficiency in
the use of resources. The firm may enjoy advantages associated
with purchasing in bulk or be able to command a premium price
for large, uniform quantities of product as in the case of fed
cattle.

In opposition to this cost reducing phenomenon, is the
aspect of increasing assembly, transportation, and marketing
costs as the firm is forced to go farther and farther from the

point of manufacture to find raw materials and markets. Where

123

these costs begin to outweigh the gains from increased size,
the optimum size of the firm is found. Any of the many factors
of production can become limiting as the firm expands.

Economies of size in cattle feeding occur as a result of
specialization in technology and management (Loy et al., 1986).
Larger lots have advantages in being able to utilize on site
feed processing and precision mixing and weighing equipment.
Large lots can also employ, and benefit from, highly trained
technicians to regularly test feeds and balance rations using
sophisticated computers and 'software. This advantage is
particularly useful when feed prices are changing and regular
adjustments in the ration will ensure balanced, least cost
formulation. Similarly, technicians can perform other tasks in
determining performance of cattle from different sources, feed
efficiency, and optimal feeding schedules and recommending
alternatives to reduce costs. Costs can also be reduced by
volume buying and direct selling.

The smaller feedlot operator may recognize that there are
potential. gains to be made by more accurate evaluation of
feeds, feed use and cattle selection, but cannot justify the
costs of obtaining this information with a small number of
cattle being fed.

The margins, or differences in costs, of cattle feeding
between various regions around the U.S. are small. The margin

of profit is also small. Investment in plant and equipment is

124

substantial and requires a large and sustained volume in order
to realize a profitable return. The evidence of economies of
size discussed in Chapter IV, both from the standpoint of the
feedlot as well as the packing plant, constitutes a strong
deterrent to mobility of cattle feeding and processing

facilities.

53.8 Summary of Costs

Telfarm data was consulted for some of the comparisons,
but lacked, in most cases, the needed common denominators to
accurately compare important cost and production
characteristics. For example, USDA budgets referred to in this
report are based on costs and returns in feeding beef type
steers: the Telfarm data did not distinguish between steers and
heifers or the breed type of either of these. Consequently, no
clear evaluation of competitive position with regard to feed
costs will result.

Suffice it to say that, even if an exhaustive report on
regional costs of common feeds were available, it is unlikely
that we could determine accurately, the actual relative costs
of feeding cattle in the different regions. This is due to the
variation in diets fed and feedstuffs available between regions
examined. For example, we cannot simply assume that the cost of
feed grade corn is the opportunity cost to the farmer of high

moisture corn. For, we cannot measure the enhanced probability

125

of total (or partial) crop failure as the farmer waits for
favorable harvesting conditions. It is plausible that one
might attempt to evaluate the value of the crop less the costs
of mechanical drying, but we are still faced with the problem
of measuring accurately the weight and moisture content of the
ensiled corn. Certainly, reasonable estimates could be
proposed and tested but to do this was not the object of this
study.

The differences in feeder cattle costs studied,
demonstrated only slight average deviation from zero (less than
5%) between regions cited for the Southwest, Corn Belt and
Michigan. No single region has a decided advantage in the cost
of feeder cattle.

Michigan's climate requires greater expenditure on shelter
and bedding compared to the Southwest, in particular, and to a
lesser extent, the Corn Belt. The work done by Loy et al.
(1986) revealed that the costs associated with construction and
maintenance of shelter were nearly offset by the gains in
efficiency up to the point of total confinement. Under total
confinement conditions, the added costs of construction for
automated feeding systems, slotted floors, and manure handling
systems added $2 to $3 dollars per hundred weight (net) to the
cost of feeding cattle.

Transportation costs have stabilized in recent years and

show no trends of expected change at present. Consequently,

126

titrese costs are not expected cause a change that would
lilafluence, either favorably or adversely, any particular region
1111 production of fed cattle.

The information provided by the ERS study - shows
substantial differences in the amount of labor required per
laead as the size of the feedlot changes. Small farm feedlots
ihave a decided disadvantage in this regard.

The actual reduction of costs associated with economies of
size, though apparent, have not been sufficiently evaluated in
the literature consulted. This area holds potential for further

research.

5C RETURNS

5C.1 Fed Cattle Prices

Just as the packing plants to the west of Michigan
establish a base price for Choice fed cattle as the buyer of
last resort, "western" beef prices also maintain an upper limit
on the amount that beef packers in Michigan can pay. One would
not expect the price in Michigan to differ significantly from
prices observed in the Midwest after adjusting for freight,
marketing and slaughter costs (Riley and Heimstra, 1982).

For comparison to other cattle producing regions, Michigan
fed cattle prices were taken from weekly Michigan Live Stock
Exchange (MLSE) newsletters. The method of calculation of

weekly and monthly averages is shown in Appendix IV and is

127

identical to the method used in calculating the monthly feeder
S"tleer prices. It is noted that the quotations for Michigan are
bilssed on actual lots sold by auction. The comparative prices
cIl-lcoted by the USDA for Omaha and the Southwest are based on
direct sales. .

Figure 5.4 shows Michigan prices for choice steers from
CTanuary 1974 to December 1986. The quotations come from two
Sources. For January 1974 through December 1977 were taken

from prices on file with Dr. John Ferris of the MSU

Figure 5 . 4 Michigan Fed Cattle Prices, Monthly Averages
January 1974 to December 1986

 
     

on
D
‘1’ 70
l
a
r so
2 so
r
c u
w
t
30
194 19: 190 1902 1984 1906

Source: MLSE Weekly Quotations.

Agricultural Economics Department. The quotations for January

1978 through December 1986 were calculated from weekly market

mHflll-‘HOU

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128

reports obtained from the Michigan Livestock Exchange.1

The difference between Michigan and Omaha choice steer
prices is plotted in Figure 5.5. It seems that the data
sources are not entirely consistent as shown by the increase
and higher average of the post January 1978 prices compared to
the earlier period. The author did not have access to the
original source of the 1974 -1977 data and is unable to comment

on its authenticity.

Figure 5.5 Plotted Differences in Mbnthly Fed Cattle Prices
in Mishigan Compared with Omaha 1974 - 1986.

“NC-’0‘

 

 

 

 

 

i'1
-2

-3
1974 19 6 19 I 19 I 19 2 1994 19 6

Source: MLSE weekly quotations and USDA data.

1 See Appendix IV for details of the calculations and actual data
used.

WHWHHOU

”0’6

"‘0

129

Figure 5.6 shows the plotted difference between the
Michigan price for choice steers and the price quoted for
choice steers in the Southwest. The fluctuating pattern seems
to be fairly consistent from April 1981 to August 1986. Over
this period the Southwest price averaged $1.16 higher than the
Michigan price. By comparison the Michigan price averaged $.67

higher than Omaha for the same period.

Figure 5.6 Plotted Differences in.Monthly Fed Cattle Prices in
Michigan Compared to Texas New Mexico Direct Markets 1974 - 86

 

3

2‘“ TA A
-1 ‘1.

.A.
W

 

 

19 9 1901 1913 1985

Source: MLSE weekly quotations and USDA data.

 

130

5C.2 Prices and Net Returns

On the national level, net returns were down sharply in
1985 with losses that averaged $4.24 per cwt. compared to
average losses of $1.55 per cwt. in 1984. Lower feed costs in
1985 helped push the overall average cost of gain nationally
down $3 per cwt. from 1984; although fixed costs and costs of
feeder cattle were slightly higher than the previous year (USDA

ERS, 1985).

so. 3 Marketing

Lack of direct selling increases the transaction costs and
reduces returns to Michigan cattle feeders. With respect to the
volume of direct sales, Michigan feedlots differ significantly
compared to- their counterparts in the Midwest. Direct
marketings accounted for 64 percent of the Midwest volume
compared to less than 40 percent for Michigan fed cattle. This
translates into lower returns per head for Michigan cattle
feeders. As Eldon Roberts of the Michigan Livestock Exchange
observed, the prices realized on direct sales through the
Exchange are consistently higher than for cattle sold through
the auction ring.

The difference in prices may have several explanations.
For one, it is common for cattlemen to attempt to group their
cattle into uniform ”liner-loads", when marketing direct, by

sorting off cattle of less desirable weight and finish. Packing

131

plants prefer uniform loads and cattlemen can use the appeal of
cattle sorted in this way to bargain for higher prices. In
addition, larger groups of cattle result in lower transaction
costs for the packing firm, increasing their willingness to pay
slightly more. For example, less time is required to establish
a price and strike an agreement. Also, there is a more subtle
problem related to the subjective aspects of live cattle
evaluation. Repeat transactions between a feeder and a packing
plant help to establish a reputation of quality and reliability
of the producer’s description of the cattle being offered. If
the packer can depend on the cattle feeder’s description and
the feeder can depend on the packer to honor the agreement, a
contract can be made "over the phone" substantially reducing
transaction costs for both parties.

Producers who market smaller lots of cattle tend to use
the auction more often as a marketing avenue. The larger
feedlot operator will also take the remaining cattle (sorted in
the above example) and offer them for sale at the auction as
well. Either way, the cattle appearing at auction sales are of
less uniform (and often of less desirable quality) and are
associated with higher transaction costs.

Both the ERS study (1981) and the MSU survey (1986) found
that smaller cattle feeders sold cattle of heavier slaughter
weights. Van Arsdall and Nelson attribute this to a tendency

for small feeders to target the middle rather than low Choice

132

grade. Also they propose that where the small cattle feeder
fills his lot only once a year, the opportunity cost of the
value of gain on the new pen of cattle refilling the feedlot is
not a factor. The 1986 survey data showed that in Michigan the
smaller feeders place a larger percentage of large framed dairy
or dairy cross cattle. Another consideration is that the
farmer may feel he has less to lose if he keeps the cattle a
little too long than if he sells them a little too soon. If he
markets them too soon, he foregoes the potential profits from
added weight gains as well as the ever anticipated higher
price. If he waits too long, his penalty is a lower price, but
on more pounds so total revenue is not significantly diminished

until the cattle become excessively over finished.

5C.3 Management
Researchers almost unanimously recommend improvements in
management as a key to improved profits. This translates into
higher performance, efficiency, and output from owners and
operators through maintenance of control on variables and
achievement of goals. This precept is aptly stated in an
unpublished undated working paper by Weimar et al. as follows:
Improving feeding management in all cases improves
investment returns. ... Feeding cattle at higher rates of
gain and reducing the number of days on feed reduced the
fixed costs sufficiently to improve investment returns.
This would indicate that the management system has perhaps

more impact upon investment than the feedlot facility or
type of cattle fed.

133

An exception to Weimar's conclusion might be the case
where the farmer feeder's opportunity costs in other
enterprises on the farm are greater than the opportunity cost
of keeping the feedlot full year round. In this case he may be
able to reduce feedlot overhead costs but may rationally forgo

so doing because of alternatives.

5C.5 Profitability

According to the Telfarm data summaries (Schwab 1977-85),
Michigan feedlots experienced more profitable years over the
past decade than did either the Corn Belt or High Plains
feedlots (see Table 5.3).

Table 5.3: Profitability of Cattle Feeding in Michigan

1977 1978 1979 19130 TNT 1982 1%} 1984 1%5

Profit per cwt.

of Beef produced. --------------------------------- dollars -------------------------------------
Michigan (Telfarm) - 8.47 - 9.03 12.99 8.15 1.19 3.89 1.89 .8.26 -4.16
Corn Belt - 4.96 4.33 1.76 - 4.58 - 8.99 - 1.99 - 3.62 - 4.01 - 9.40
Ilidl Plains - 5.31 2.60 .81 - 5.32 - 9.46 - 1.99 - 3.86 - 3.57 - 8.65

Source: Michigan State University Cooperative Extension
Service, Telfarm data. USDA Livestock and Poultry Situation and
Outlook Reports, selected issues.

As one may observe from the table, there is substantial
deviation in profitability in Michigan compared to other areas.
Even though profits may be considered a common denominator for

comparison there are several possible explanations for the

differences. For one, the Telfarm data is based on accrual

134

cost-revenue relationships. Changes in inventories and carry
over of high or low cost feeder cattle and feeds affect the
calculated profits. Also, as noted earlier, the Michigan
feedlots are farmer (as opposed to industrial) feedlots and
consequently face a different cost structure. Feed costs are
generally lower and fixed costs are higher on a farm feedlot.
Where prevailing national or local conditions cause one or the
other of these categories to deviate from the norm, the result
may be seen in the resulting profits. Further, the Telfarm
data is very thin, representing a small number of Michigan
cattle feeders. Deviations within the sample may distort the
picture. Finally, the comparison of actual farm data, as in
the case of the Telfarm data, with calculated or "engineered"
cost budgets, as in the case of the USDA data, may not be
legitimate. However, the author is not aware of better

comparative data.

Summary
The advantages of fed cattle production in the Southwest

leave it as the undisputed center of the U.S. fed beef
industry. Recent increases in relative feed costs in this
region are still outweighed by economies of size, lower
transaction costs, the existence of the infrastructure of large
industrial feedlots and packing plants, and efficiency of gain

achieved in the High Plains feedlots.

135

Virtually all of Michigan’s cattle feeders qualify as
farmer feeders and produce most of their feed on the farm.
Home production of feeds has several advantages. For one,
demands on cash flow are reduced. Also farmer feeders reduce
risk due to feed price fluctuations by limiting feed purchases
and taking advantage of crop residues. Total crop output can
be increased by harvesting silage rather than grain and
ensiling high moisture corn requires less harvesting costs in
drying the crop. The disadvantage is that the majority of
feeds used in cattle feeding have ready markets if harvested
and stored in marketable forms. That is, these crops have
positive opportunity costs, represented by their cash market
value. If the crops are harvested for cattle feed they do not
lend themselves so readily to cash markets.

Where existing facilities and family labor can be used to
generate income, particularly during the off season, the farmer
can benefit from allocation of time and investment in cattle.
There are some disadvantages however. Seasonal use of
facilities means higher per unit fixed costs associated with
the cattle fed. However, most of these fixed costs exist
whether cattle are fed or not, giving the farmer feeder a sense
that the fixed costs need not be charged against the cattle
feeding operation per se. Creating additional demands on
family labor at peak times can result in costly misallocation

of resources. Infrequent buying and selling of livestock

136

increases the risk due to fluctuations in the market. If the
cattle reach market condition and weight when prices are
depressed, the farmer feeder does not have the advantage. of
offsetting losses with profits realized on previous and/or
subsequent pens of cattle sold in the same year.

Prices paid by Michigan farmers for feeder cattle compare
favorably to those paid by Corn Belt farmers. However, High
Plains cattle feeders appear to have an edge in this regard.
But since the real source of competition for Michigan feeders
is the Midwest, the slightly lower cost in feeder cattle is
important.

Relative to the Corn Belt (the primary source of competing
beef for Michigan markets), it has been demonstrated that
Michigan has an advantage in the prices received for fed
cattle. Intuitively, it seems that having a large efficient
packing plant in the area could contribute to the prog-
ressiveness of the industry. Lower processing costs could
result in the packer being able to pay more for the cattle.
However, the lack of a single major packing facility may
actually enhance the competition for cattle by maintaining a
larger pool of buyers. A problem associated with this
advantage is that when feeding for specialized markets, the
finished product needs to be targeted to the characteristics of
that market. Presently, cattle feeders are tempted to play the

field-- an approach that requires substantial knowledge and

137

experience. There is always the risk of having cattle ready
for a specific market that is not in a position to use them
such as is the case when the Canadian packers are not buying.
The overall result is greater price instability which can be
devastating to feeders who market intermittently.

Where cattle are auctioned, feeders may end up receiving
decidedly mixed signals depending on who is buying at the time.

The foregoing translates into short term price instability,

thin markets and lack of coordination.

CONCLUDING COMMENTS

Compared to the other states in the Eastern Corn Belt,
Michigan’s production of fed beef has remained relatively
stable. Even though the survey was conduCted during a time of
particularly low prices, nearly all of the producers who were
feeding at that time indicated that they expected to continue
with their feeding operations. The continuation of a
consistent level of output in the presence of a less than ideal
cattle feeding and marketing environment indicates that many
Michigan cattle feeders have been successful in keeping input
costs down and finding satisfactory markets for their cattle.

From the supply standpoint, Michigan’s primary advantage
lies in the availability of low cost feeds such as corn silage

and high moisture corn. These are primarily the result of the

138

often unfavorable fall harvesting conditions. When properly
managed, they provide high quality sources of energy. However,
they are not readily transported. In addition, the
availability of lower quality grains and byproduct feeds
enables feeders to choose alternative sources of inexpensive
nutrients for cattle feeding. Michigan cattle feeders will
succeed in turning out quality, marketable beef using the
available resources, provided they can reduce production costs
sufficiently to compete with producers in other parts of the
country.

On the demand side, the Canadian market and other local
specialized markets provide the potential for profit to cattle
feeders who can produce the desired quality and degree of
finish required. Local centers of population also provide the
potential for expansion of slaughtering and processing
facilities in the event that sufficient supplies of fed beef
become available to sustain them.

Michigan cattle feeders have much of the experience,
technology and facilities to efficiently convert available
feeds into a high quality, marketable product. Innovations in
cost reduction and improved management practices have been
substantial, but there is still much to be done in this area.
The recent interest in custom feeding attests to the commitment
of some cattle feeders to find new ways to make current

conditions work for, rather than against them. Aggressive cost

139

reduction efforts will play a major role in their remaining
competitive and possibly capturing an even greater share of the
regional market. Cattle feeding remains one of the best
alternatives for marketing the Michigan corn crop, particularly

when corn prices are depressed.

CHAPTER.VI

CONCLUSIONS AND RECOMMENDATIONS

The availability of livestock feeds and the market
opportunities for beef products are the two driving forces that
will ensure a place for cattle feeding in Michigan for some
time to come. The fed cattle industry was built around the
prospect of converting surplus feeds (primarily corn) into
beef. To a great extent cattle feeding will continue to play
this same role.

The economics of cattle feeding have centered around the
costs of feed, beef slaughtering, and transportation as well as
relative prices of products. As the machinery of competition
has moulded the path of progress, farmers and packers have
relentlessly pursued ways to reduce costs and improve
performance through more efficient use of resources. The
outcome has been the concentration of investment in cattle
feeding in the areas where the combination of factors involved
in fed cattle production result in the most favorable cost
price relationships. Economies of scale has enhanced the
potential for growth. The evidence of these phenomena is the
concentration of fed cattle production and processing in the
Southwest. As discussed in Chapter I, history has shown that
the nucleus of the fed cattle industry has gradually shifted

140

141

from concentration around the terminal markets of the Corn
Belt, to areas of lower cost feed and more favorable climate in
the Southwest.

Faced with the reality that the mainstream of the nation’s
cattle feeding industry was increasingly dominated by the
volume of low cost beef from the Midwest, Michigan packers and
cattle feeders have felt the competitive pressure. However, as
demonstrated in Chapter II, the relative decline in cattle
feeding in the Northeastern Cornbelt has been less pronounced
in Michigan than in some of the other states such as Ohio.

This study has attempted to examine the reasons for the
survival of the Michigan fed cattle industry and to identify
potential means for remaining competitive.

In the context of this setting, the study objectives were
to identify and describe the organizational and operational
characteristics of:

1) Michigan’s cattle feeders;

2) The markets available to Michigan cattle feeders;

3) ng’investigate Michigan's competitive position
relative to major cattle producing areas in the
United States.

A clearer understanding of the current profile of
Michigan’s fed cattle industry should prove useful to industry
leaders and extension personnel seeking answers to decision

making questions in management and investment planning. This

chapter will focus on conclusions from the study and

142

application of the findings to industry issues.

6A.1 Michigan Cattle Feeders

Michigan's fed cattle industry is characterized by small
"farmer" feedlots and numerous, diverse markets. Much of the
feeding is undertaken as a means of transforming surplus feeds
into quality fed beef, which, in most cases is a more
marketable product. In addition to utilizing available or
surplus feeds, the farmer feeder often engages in cattle
feeding to realize greater returns from labor during the "off"
season and make use of available (existing) facilities.

However, many of the disadvantages associated with farmer
feeding originate as closely related to the advantages. For
example, seasonal feeding (and therefore seasonal marketing) of
fed cattle not only subjects the producer to seasonal
vicissitudes of the marketplace but also frustrates packers who
need a relatively uniform flow of live cattle. Surplus or
"salvage" feeds may contribute to relatively low cost rations
but may lack essential nutrients, resulting in lower than
expected feed conversion and actually higher costs of gain.
Harvesting of corn as silage or high moisture grain may reduce
the risk of crop failure, but it also limits the versatility
and thus marketability of the crop.

The fine line of success in cattle feeding depends heavily

on excellent management which is the key to converting

143

tentative advantages into profitable results. Skillful
managers will tend to choose to produce commensurate with their
comparative advantage and expand to the level of output that
maximizes profits. By default one might conclude that the
absence of large "industrial" feedlots in the state indicate
that climate, feed costs and markets are not conducive to

cattle feeding on a large scale.

A.2 Markets

As indicated by the survey of slaughterers of Michigan
cattle, the fed cattle produced within the state are well
received. The number and diversity of the markets allows for a
wide range of cattle types and qualities. In many ways wise
management can capitalize on the variety by working the cattle
to fill the market where they "fit" the best. For example, the
opportunity may exist to select from a mixed pen of cattle, the
larger framed lean animals that may run the risk of not grading
Choice until they reach excessive weights, and shipping them to
a Canadian packer. Other cattle showing excessive finish may
be best received by an Eastern packer: Holsteins to yet another
plant and the more traditional type, well finished types to yet
another. Such a scenario is only hypothetical and requires
that the cattle of various grades and types finish rather
uniformly. In addition, a substantial volume would be

necessary to make a plan of this type feasible.

144

There are other advantages. With such diversity of cattle
types in demand, the cattle feeder may be able to purchase "off
type" feeder cattle that are not well received in some markets
at a discount. With proper nutrition, he may then create a
very acceptable product for some specialized market. The
potential exists for feeders to feed specifically for a
differentiated product such as "natural beef" or "tender and
lean" and thus strike a working relationship with a small
packer that could result in added profits for both.

Where specialized products and feeding to target a
specific market prevail, the potential exists for undesirable
outcomes as well. Just as a cannery may entice farmers to
expand their orchards by offering to pay a "fair" price for
"all they can produce" and then, when the market is flooded,
become very liberal with the interpretation of "fair"; a beef
packing plant can imply, by encouraging cattle feeders to
increase output, verbal agreements with feedlots during times
of short supply. Later it may be impossible to honor such
implied commitments when there is a glut of fed beef on the
market.

Packers often contend that contracts with feedlots for
delivery of cattle, at a prearranged price and date, result in
reduced quality of the cattle on delivery than would otherwise
be expected. Because of these kinds of coordination problems,

cattle feeders and. packers tend to revert to traditional

145

marketing strategies where live cattle evaluation is much more
subjective.

In order for any kind of coordinated marketing scheme to
work effectively, communication of market signals must improve.
Packers could begin by pursuing the potential for price
incentives corollated to carcass quality. Producers could
investigate means of improved evaluation of live animals. Both
parties must overcome the barriers to greater acceptance of on
the rail evaluation and pricing in order to make significant
strides in genetic improvement. For, only when the proper
signals filter down through the system to the cow calf

producers will major improvements in quality be achieved.

6A.3 Competitive Position

Cattle feeding in Michigan fills the role of a
supplemental industry. There is no major factor or natural
resource that favors cattle feeding in the state, decidedly,
over all other agricultural (or non agricultural) alternatives.
However, there is annually a residual of feeds and feed
byproducts that can be utilized effectively as nutrition for
finishing cattle. Similarly, demand for cattle fed in
Michigan, as opposed to those fed in other parts of the
country, does not offer definite incentives in terms of price
or volume to attract specific investment in fed cattle to trade

the Michigan marketplace. On the other hand, though demand

146

does not constitute a major overriding factor stimulating
expansion it has been sufficient to encourage continued
production.

It is the author's opinion that cattle feeding in Michigan
will continue to hold a position similar to that which has been
experienced over the past several years. Michigan cattle
feeders’ ability to compete will be determined by use of their
natural resource base combined with a progressive business
approach that identifies and responds to the need for change.
Identification and control of costs, management of resources,
and improved efficiency are major areas where strong business
skills are needed.

Several times in this thesis the author has referred to
the importance of niches in the market and the advantages these
provide for investment. Michigan’s geographic location on the
eastern edge of the Corn Belt and near to centers of population
provides entrepreneurs with fertile opportunity for the full
exploitation and servicing of many of the market niches that
exist. To the extent that specialized products can be marketed
not as commodities, but as luxuries, status symbols, or
otherwise conspicuous consumption, the potential for profits
increases. Discovering and serving market niches seems to be
the most promising avenue for the Michigan cattle feeding

industry to pursue.

147

GB ISSUES AND RECOMMENDATIONS
63.1 Concentration

Since the early part of the century the cattle
slaughtering industry has seen a wide swing from relatively
high to low levels of concentration. More recently, the trend
has been to return to higher concentration. Steer and heifer
slaughter estimates indicate 60 to 70 percent of the national
output being slaughtered by the four largest firms. The new
high levels of concentration in steer and heifer slaughtering
firms signals that new challenges will be presenting themselves
to the fed cattle industry in the near future.

The author would expect however that if any behavior to
extract monopoly profits does occur, the consumer will be the
first target through monopoly pricing of products rather than
overt monopsony purchasing behavior. Much of this action may
be disguised as new products are developed which will be
marketed in much the same way as breakfast cereals which are
extensively advertised, brand name identified, and relatively
expensive.

It would seem the current transformation of the packing
industry provides a rich opportunity for a case study in firm
behavior as concentration ratios rise. More specifically,
research of this case may produce valuable empirical data with
respect to firm strategy toward input and product markets. For

example, concentration is low in the cattle feeding sector but

148

non existent at the consumer level. Will the packers focus
their attention on consumer market exploitation, or will they
collude to drive the price of fed beef even lower?

Of concern to Michigan markets is the' potential for
predatory behavior to force Michigan packers out of business.
This would ‘increase transportation distances and possibly
interfere with a specialized market orientation. On the other
hand, to the extent that Michigan packers differentiate their
products and, indirectly, their clientele, and thus decrease
the degree to which they compete directly with the larger
Midwest packers, the less the chance that they will be viewed

as a competitive threat.

63.2 Slaughter Capacity

Two major problems would have to be overcome in order to
attract investment in a new, large, cost competitive slaughter
facility. Both have to do with the supply of cattle. First,
it is essential that a sufficient quantity of cattle be
available. Secondly, volume must be relatively consistent year
round in order for the plant to be competitive.

A prevailing attitude among packers centered around the
intention of many to expand. Packers considering new
construction are aware of the displacement effect that any new
plant would have on the many small packing plants in operation

in the state. A plant killing 250,000 head per year would

149

require a high percentage of the Michigan, Ohio, and northern
Indiana annual production, depending on the number of cattle
that could be drawn from more distant sources. Such
displacement is considered to be an important barrier to entry
and must be considered carefully.

Michigan producers should move with caution in seeking the
establishment of a large slaughter facility, particularly one
owned by a major packing firm. Obvious advantages include
efficiency of processing, increased capacity and added
competitiveness for cattle in the short run. However, if the
firm is successful in capturing sufficient market share to
begin to have an influence on the market, the historical and
economical pattern has shown that the firm will begin to
exercise monopsony control through price leadership. The
result could be a marginal decline in the prices paid to
producers which would consist mainly of the offsetting freight
costs associated with the potential of shipping cattle out to

competing markets.

63.3 Market Coordination

During the survey of slaughterers of Michigan cattle, one
of the responding firms expressed interest in some source of
information with respect to the number of cattle that would be
on the market in the near future. Apparently discovery of

available cattle would cut his purchasing costs and assist in

150

planning. The author would recommend that local cattlemen’s
associations address this issue and investigate its
feasibility. Obviously the Michigan Live Stock Exchange plays
an important role where market coordination is concerned.

Michigan cattle feeders and packers should investigate the
alternatives of increased direct selling and forward
contracting as a means of reducing risk, cutting transaction
costs and stabilizing supply. Improvements could be made in
information feedback to ensure that the correct signals with
respect to the desired quality were being sent.

Another alternative that Michigan producers may wish to
pursue is a form of electronic marketing. As stated in Quail
et a1 (1986), ”most forms of electronic marketing broaden the
geographic scope of markets and reduce the level of buyer
concentration." Other reasons for engaging in an electronic
marketing scheme include lower transaction costs both in
commissions and in physical handling of the cattle.

Another option under investigation by the Michigan Live
Stock Exchange involves selecting cattle for elite restaurant
trade, aging the high priced cuts and marketing them at prices
which reflects a substantial premium. In some ways the effort
is similar to the Certified Angus Program without licensing of
dealers. The continuation of progressive thinking of this type
will have positive results on the future of the cattle feeding

industry.

151

63.4 Management

The problem of holding cattle too long in the feedlot
might be an issue of further education to both feeders and
packers. An appropriate item of instruction would be to
demonstrate the importance of those costs that are not so
readily visible such as returns to time and investment and
opportunity costs. Packers may find that there is a greater
incentive to pay a premium for leaner cattle which have been
proven to yield a substantially higher percentage of saleable
retail cuts.

Michigan Live Stock Exchange has become involved in some
major efforts to maintain and promote cattle feeding in the
state. They have engaged in a form of cattle leasing or custom
feeding in order to place cattle in feedlots where they feel
that management is sound but financial resources are limited
and credit is restricted. This is no small effort. In 1986
their placements amounted to 10 million dollars worth of
investment and preliminary estimates for 1987 indicate nearly

double that amount.

63.5 Consumer Concerns

The abundance of feed grains is expected to continue for
the foreseeable future and cattle feeding constitutes an
important alternative for converting these resources into a

saleable product. However, the feeding of grain to acquire a

152

desirable, marketable product has met with some opposition and
resistance from some consumers who are concerned about the
healthfulness of consuming animal fats. Balancing these
concerns and finding acceptable solutions will be a major task
for the industry in the future.

The position of beef as the preferred meat has been
threatened by an increase in popularity of poultry and to a
lesser extent pork. In a world of changing lifestyles, vendors
of beef and beef products are faced with the challenge of
finding ways to make home preparation of beef simpler, faster
and more convenient, while countering the negative impacts
resulting from health charges against beef. The cattle
production sector of the industry is faced with adjusting to
little or no growth and can no longer depend on underlying
upward trend in demand that prevailed over the previous several
decades (1950 - 1977).

As the industry moves to improve its competitive position
in the red meat sector and enhance demand for beef products,
and as trends in consumer preferences continue to develop,
changes will occur in packaging, processing, and marketing.
Cattle feeders must be alert to changes that influence market
preferences which need to be reflected in the age, size, and
degree of finish of the cattle entering the slaughterhouse.
Even small changes in these areas will influence the overall

competitiveness of Michigan fed cattle.

 

LIST OF REFEREN“

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Slaughter Cattle and the Potential for Expanding Slaughtering
Facilities in Michigan" Master’s Thesis 1984 Michigan State
University p. 9.

American Meat Institute, Meatfacts 1984, 1985, 1987

Brennan, R. W., M. P. Hoffman, F. C. Parrish, F. Epplin, S.
Bhide, and E. O. Heady, EffeQEe efi Qiffiegigg Begios of Cogn

‘ ..e e ‘-e_ - 0,111.

Qhareeter1_t1ee1_ene_Ereleetee_Ee_nemle_Eetureer Journal of

Animal Science, January, 1987.

Brokken, Ray F., Carl W Connor, and Thomas L. Nordblom: Qosts
o USDA Agricultural
Economic Report No. 459 August 1980.

Clary, G. M., Raymond A. Dietrich and Donald E. Farris, Effects
. -as-- . ‘oo - 'o -s s on -a {.7 ° ' - !if - -1 es
{IQ Os ll u e 1 a. e ‘ra‘le .‘ e . e, - gs

Agribusiness: An International Journal, 1986 vol. 2.

Cole, David L. "Marketing of Fed Beef Cattle in Michigan, 1966."
Michigan State University Agricultural Economics Report No. 63,
April 1967.

Cothern, James H., R. Mark Peard, and John L. Weeks, "Economies
of Scale in Beef Slaughtering- Northern California 1976." Beef
Cattle Economics Series, Leaflet 21040, 1978. Division of
Agricultural Sciences, University of California.

Cornell, Laurence D. and Vernon L. Sorenson, 1mgliee;iene_ef
1 96.10: D‘ 0. 0 se.. 09 U V S 001 -. 0. ain
MQIBQES MSU Agricultural Economics Report #477, May 1986.

Engelman, Gerald. v

,- 01“! -- ee 0 ° 0 .nd t; °a ers and - l a -s
A§I__Q£_12211 U. S. Department of Agriculture, Subcommittee on
SBA-SBIC Legislation, House Small Business Committee, June 23,
1975. As reported by Kenneth Nelson.

Farminow, M. D., and M. E. Sarhan Beenemie_Anelyeie_efi_§he

-. '0! 0 1.09121: 9° 'r- e S 01_t1‘ ' ed
§;QEee, Agricultural Economics Research Report, Department of
Agricultural Economics University of Illinois at Urbana-Champaign
August, 1983.

Farr. W- D. Hieterx_ef_tee_eettle_£eesine__leeeeerxr Speech
given at the Great Plains Cattle Feeders Conference, May 8-9,
1985.

154

Gwilliam, Kent R. and S. R. Rust, A Bretile 9f geegle Feeding
in_MiehigenL Michigan State University Extension Bulletin No.

E-2105, January 1988.

Haidacher, R. C., J. A. Craven, K. S. Huang, D. M. Smallwood, and
J- R- Blaylock. WW
ERS, USDA, 1982.

Hasbargen, Paul R. "The Competitive Position of Cattle Feeding

in the Northern Corn Belt" Ph.d. Thesis 1967 Michigan State
University.

Hiemstra. stephen Wayne (1985) MW
0. I ’. 9 ‘. I ° 1 I . Ph' d0
Dissertation, Michigan State University.

Insel, Barbara "A World Awash in Grain" Foreign Affairs 63:892-
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Kirk, Bruce,
Agriculture Canada Special Report, February 1983.

Loy, Dan, Marvin Hayenga, Arne Hallam, Steve Sapp, Stewart
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Marion. Bruce w. W
Eeeg_§ye;eme N.C. 117 Committee. Lexington Books, D.C. Heath and
Company 1986.

Michigan Agricultural Statistics, selected issues.

Pierson, Thomas R. and John W. Allen, "Marketing Challenges
Confronting the Beef Industry." Presentation to the 1984 annual
meeting of the Beef Industry Council of the National Live Stock
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Poole, Jeffrey "The impact of Trucking Deregulation on the
Transportation of Michigan Agricultural Products." Masters Thesis
Michigan State University 1985. p.84

Pugh, Gordon B.
Agricultural
Canada Policy Branch, Working Paper, September, 1987.

Quail, Gwen, Bruce Marion, Frederick Geithman and Jeffrey
Marquardt. WM
Q;§§le_£:ieee N. C. Project 117 Working Paper Series, May 1986.

155

Riley, Harold M., and Stephen W. Heimstra, Mienigen'e Qompetitive
o ' , MSU
Cooperative Extension Bulletion E-1557, September 1982.

Riley, Harold, Kris Allen, and Mark Jackson, Agricultural
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° W IV U‘! I .9! , I° a f t _es
in_Mien;gen, March 1984.

Ritchie, Harlan D. and James H. Hilker A_Qeee§e__1_fieenemi_
DeeleeatieanJheiattleJneuetu Agricultural Economics Staff
Paper No. 85-99 Michigan State University December 1985, p.11.

Rockenbach, Roy H, USDA Agriculture Handbook No. 365 Meier
‘ ‘ O I "9:, Melt °’ 1° ' - ure 1972,
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Schwab, Gerald D., ' o C edin
Ferme, Telfarm Data various issues 1974-1986.

Statistics Canada data solicited from Mike Rosien 1986.

Trapp, James N.,

Paper presented at the
20th Annual Oklahoma State University Cattle Feeders’ Seminar
March 1984.

Tyrchniewicz E W, W ' o ' t’v 5.
Canadian Journal of Agricultural Economics, July 1984.

USDA 1 U.S. Department of Agriculture. Agxiegleggel_§eeeieeie_.
U.S. Government Printing Office. Washington, D.C. Selected issues.

USDA 3: Qa3Ile_QYEl2Si__HQ!_§2_EI2£1£_EIQE_IDQE USDA
Miscellaneous Publication Number 1430, 1983.

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USDA ERS WM
Ereeuetienr_12§§1

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Van Arsdall, Roy N., and Kenneth E. Nelson, Chagee§ezis§ics of
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Ward Clement E. WWW.

I- ° ‘ ' . . = ' a I a - ' -, I: .- Western
Journal of Agricultural Economics. Vol. 44, No. 4, Nov. 1982. pp.
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Weimar, Mark R., Arne Hallam, and Larry Trede, fieenemiee_efi

{-‘oqu I- . . I ern _v- I72 -st
Eeegle§_§ye§eme, unpublished working paper Iowa State University,
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Zafiriou, Margaret (1986) d '
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in Charleston, 8. Carolina. Oct. 1986.

APPENDIX I

QUESTIONNAIRE FOR THE SURVEY OF MICHIGAN CATTLE FEEDERS

The Cattle Feeders’ Questionnaire

As discussed in Chapter III this questionnaire is included

here for reference as well as a possible guide for future

studies.

157

158

MICHIGAN STATE UNIVERSITY

 

DEW OF AGRICULTURAL ECONOMICS EAST LANSING ~ MICHIGAN - 48824-1039
AGRICULTURE RAH.

April l, 1935

Dear Cattle Feeder:

The Department of Agricultural Economics, with funding from the Michigan Experiment
Station, is undertaking a systematic survey of cattle feeders in the State of Michigan.
The industry has been undergoing significant adjustments in response to declining demand
for beef and rising costs of financing feeding operations. Many feedlot operators have
been forced out of business. Meanwhile, the Michigan Department of Agriculture's
statistical services have been substantially reduced as a result of budget cuts.

The proposed survey will be conducted to provide accurate, up-to-date information on
the changing su'ucture and operational characteristics of the cattle feeding industry. We
will also identify problems in the area of feedlot operations, feeder cattle procurement
and marketing of fat cattle.

The survey results will be used by research and extension specialists in the Departments
of Agricultural Economics and Animal Science to plan and carry out programs that will
meet the needs of individual cattle feeders and industry organizations.

The survey has been planned collaboratively by staff members in the Departments of
Agricultural Economics and Animal Science. A mailing list of cattle feeders has been
developed with the assistance of field extension staff.

We would greatly appreciate your filling out the attached questionnaire. It Shouldn't take
more than 15 to 20 minutes. A return envelope is provided.

Could we have your response by April 25?
Sincerely,

%w€¢( )Z 182:}

Harold M. Riley
Professor

Enclosures
(Questionalre-Return Envelope)

HMR/en

MSU is an Affirmative Action/Equal Opportunity Institution

159

CATTLE FEEDING SURVEY
Departments of Agricultural Economics and Animal Science
Michigan State University

This survey is an attempt to evaluate the current cattle feeding situation in Michigan.
The information will be used to develop more effective extension and research programs
for Michigan cattle feeders. Your individual response will remain confidential.

Farm Name

 

Owner or Manager
County
Telephone No.

 

 

 

I. FEEDER PROFILE
A. BaCKground

1. Age

a) Years farming—

 

b) Years feeding .cattle
2. Do you consider yourself. a:
a) full time farmer

__ b) part time farmer (other job )
B. Current Involvement
I. Are you currently (or will be) feeding any cattle during 1936? Yes No

2. Over the next 3-5 years do you intend to

__ a) expand?
_ b) reduce?
__ c) maintain current level?
__ d) discontinue feeding cattle?
_ e) undecided
3. Major Farm Enterprises (check all that apply)
_ a) cattle feeding
b) dairy

_ c) hogs
d) crops, specify

 

 

 

e) other

 

160

14. Do you custom feed cattle? _ Yes _ No
If yes,
a) What percent of the cattle fed last year were on a custom
basis? 96

b) What method do you use for determining what to charge?
__ i) cost of feed plus daily per head rate
ii) cost of feed plus share of gain
iii) flat rate per day

iv) price

v) other

 

II. CHARACTERISTICS OF YOUR F EEDLOT

A.
B.
C.

One time capacity of your feedlot
Number of cattle sold during 1935
Feedlot facilities

1. Housing - flcent of total
feedlot capacity

 

a) open lot

 

b) open lot with partial cover
c) covered lot without slotted floor
d) covered lot with slotted floor

2. Working -- Do you use

_ a) squeeze chute
_ b) headgate
_ c) livestoCK scale
__ d) separate hospital area
__ e) chronic pen
3. Do you use
_._ a) a mixer wagon
_ (i) with scales that work
_ b) an auger system
__ c) a conveyor belt system

d) hand feed method
e) other

 

III.

161

FEEDING PROGRAM

 

 

Cattle
Total Beef Dairy Approx. Approx.
1. Sex of cattle fed Percent Type Cross Entry Wt. Exit Wt.
a. steer _% __96 _96 _lbs _lbs
b. heifer _% _96 _% _le _lbs

Current Feeds Used

Please try to estimate the approximate percentage of those feeds that you

purchase:

. Corn silage

. Haylage

. Hay a) alfalfa
b) other

14. Corn a) dry shelled
b) high moisure

. c) ground ear
5. By product grains

8.
9.
10.
I l.

a) brewers grains
b) corn gluten feeds
c) distillers grains
0') other
Protein source
a) soybean meal
b) liquid protein suppl.
c) protein DIOCKS

d) anhydrous treatment
of silage

e) other
Potato by products
Apple pulp
Beet pulp
Other grains (specify)
Other feeds or supplements

 

yes
yes

yes

yes
yes

yes

yes
yes

yes

yes
yes

yes

yes

yes
yes
yes

no

no

no

no

no

no

no
no

no

no
no

no

no

no
no

no

% Purchased

C.

F.

162

Implants and feed additives (circle ones being used)
1. Implants (a) ralgro, (b) synovex-S, (c) synovex-H
(d) compudose; (e) Steeroid, (f) heiferoid
2. Additives: (a) MGA, (b) Rumensin, (c) Bovatec, (d) Other

 

Do you have your roughage analyzed? yes no
I. __ annually

2. _ semi-annually

3. __ quarterly

ti. _ other '

 

Feeding Methods (the term concentrates includes grain 6c supplements)
1. How do you control the amount of feed per head per day?
a) all they will eat

b) actually weigh out amount fed per pen

c) measure by volume amount fed per pen

__ c) intuitively, by watching the cattle's daily reaction to the amount
fed and adjusting (a little less or a little more) accordingly

2. Which of the following best describes your feeding program?

_ a) complete mixed ration

_ b) complete ration roughage is top dressed with concentrates

__ c) complete ration with roughage and concentrates fed separately

_ d) concentrate ration with free choice (may check more than one)
i) silage

ii) haylage

iii) pasture

iv) hay

3. Do you

a) add salt and minerals to the ration?

b) provide them free choice?

c) both (free choice in addition to amount added to the ration)?
To reduce risk, do you
a) forward price or contract feed?

b) hedge using the grain futures markets?

163'

IV. MARKETING
A. Marketing methods over the last 2 years Percentage
1. Sales

a) livestoCK auction

b) direct, through livestock agency

c) direct, by personal (or independent
order buyer) arrangement with
Michigan Packers
Out of state packers
Canada
Other

 

100%

2. Do you feel there are adequate outlets for your cattle? yes no
3. How do you decide when to sell? (cneCK all that apply)

__ a) Personal evaluation of the condition of the cattle

_ b) Joint evaluation of the condition of the cattle with a colleague?

_c) Joint evaluation with a cattle buyer, livestOCK exchange
representative, etc.

_ d) Rely on the judgment of a buyer or market representative
_;_e) By monitoring dry matter intake

_ f) Days on feed
_g) Other (specify)

 

4. Do you feel that the market adequately reflects (or rewards the cattle
feeder for) the quality of cattle offered?

i.e, do buyers pay an adequate premium for:

 

a) high yielding cattle yes no
Do buyers discount appropriately for:

b) overfat cattle yes no
c) overweight yes no

d) over mature _ yes no

164

5. As a method of price protection do you
_ a) forward contract cattle (with a livestock agency)?
__ b) hedge using the cattle futures market?

_ c) trade livestock options?

V. FEEDER PURCHASING

 

 

 

 

 

 

Percent
A. How did you purchase feeders over last 2 years?
I.
2. livestock agency
3. independent order buyer
4. purchase your own
5. * other
describe other
100%
B. From which states have most of your feeder cattle come during the last two
years?
State - Percent
C. Are your feeders processed/vaccinated percentage

I. preconditioned (processed/vaccinated before arrival)?
2. upon arrival?

VI. Mamgement Aids
A. Records
1. Do you keep records on the performance of your cattle? yes no
_ a) Gain (total)
_ b) Feed consumption
_ c) Days on feed
_d) Other

 

165

VII. Future

A. Please describe your personal outlook for cattle feeding in the State of
Michigan over the next 5 years. You may want to consider feeds, markets, types of
cattle and other factors in your evaluation.

 

 

 

 

 

 

 

B. We would like your comments on what you consider might be done to improve
demand for beef.

 

 

 

 

 

 

 

 

Return to:

Harold M. Riley

Professor

Department of Agricultural Economics
Michigan State University

East Lansing, MI l\I882lI-1039

(Stamped envelope enclosed for your use.)

APPENDIX II

Survey Procedure

Included in Appendix I is a copy of the questionnaire used
in the survey of Michigan cattle feeders. Persons interested
in future research of this kind would be advised that the
sections on feeds and feeding practices yielded very little
useful information. For one, many of the respondents skipped
over this section. They may have either been confused by the
wording or possibly found the format too complicated. Also,
those that did respond used everything from check marks to
numbers which appeared to represent either weights, dollar
values or percentages. Analysis was consequently very limited.
The author is convinced that more careful revision and testing
of revised questions would have produced improved results. The
author would also encourage the researcher to solicit copies of
questionnaires used for this purpose at other institutions.
This effort could not only improve the quality of the data but
also identify sources of other research for comparison of
results, an essential part of the analysis.

Apparently a common procedure in surveying is to code the
surveys and the address labels for easy identification. This
advice came from a number of sources but, unfortunately, too
late as the questionnaires had already been sent. Such

identification would have greatly helped in tabulating the

166

167

results, correcting or updating addresses, deciphering
illegible handwriting, and identifying those who simply wrote
"No longer feeding cattle." and returned the questionnaire in
the self addressed envelope without name or address. Such a
procedure would also have greatly simplified the process of
editing the mailing list in preparation for sending the
reminder letter.

The address list contained a number of inconsistencies.
As seen in Table AII many of the counties appear to be under
represented. This is seen by comparing the columns identifying
the number of feeders surveyed and the annual marketings for
the county. For example, Jackson and Hillsdale counties had
names and addresses for only a few feeders with corresponding
substantial marketings. By contrast several counties, such as
Washtenaw and Shiawassee, contain more names and addresses than
expected given the number of fed cattle marketed from these
counties. Some of the names listed in these counties may
correspond to cow calf producers or those with backgrounding
operations whose names appeared on county lists as beef
producers.

Another concern about the original address list is
examined by comparing this information with Table 3.4 which
gives a breakdown of the counties in which the survey was
conducted, the number of farmers surveyed in each and how many

responded.

168

Table AII: number of Cattle Feeders, Capacity and Marketings

 

COUNTY CATTLE MARKETIgGS ESTIMATEDb RATIOc
FEEDERS 1982 CAPACITY

Allegan 39 9100 7592 1.20
Barry 7 2899 1150 2.52
Branch 11 10661 4925 2.16
Calhoun 6 7526 2950 2.55
Cass 16 3441 1767 1.94
Clinton 23 4840 5175 .93
Eaton 50 3514 3782 .93
Genessee 7 8404 9400 .89
Gratiot 11 9513 9050 1.05
Hillsdale 4 8029 1100 7.30
Huron 98 41736 33545 1.24
Ingham 5 3053 565 5.40
Ionia 9 5247* 1330 3.95*
Isoco 13 D 2500 D
Isabella 11 8238 4300 1.92
Jackson 5 10859 4400 2.46
Kalamazoo 14 4873 5150 .95
Kent 17 4916 3111 1.58
Lapeer 13 8969 7935 1.13
Leelanau 9 2449 2200 1.11
Lenawee 17 11438 8565 1.34
Livingston 5 6438 2800 2.30
Macomb 2 3440 2020 1.70
Mason 7 .2358 1170 2.02
Midland 99 6657 No capacity figures listed
Monroe 12 6232 3757 1.66
Montcalm 1 1873 200 9.35
Muskegon 1 2917 700 4.17
Newaygo 2 2484 700 3.55
Oceana 14 2936 2450 1.20
Ottawa 23 10861 3500 3.10
Saginaw 21 3327 2500 1.33
Sanilac 57 7449 6805 1.09
Shiawassee 115 3194 No capacity figures listed
St Clair 4 6566 2750 2.38
St Joseph 4 2963 1330 2.23
Tuscola 1 2989 1000 2.99
Van Buren 10 2326 2875 .81
Washtenaw 165 7407 5409 1.37

 

: From Census of Agriculture 1982

: From capacity figures in the address list

: Marketings divided by estimated capacity.

* Not reported to avoid revealing confidential individual farm
data.

00‘”

169

Notes to consider from Table 3.3

Note 1. The county agent in Midland county did not update the
list sent to him but simply returned a document entitled "Beef
List". Comparing this with the list sent to him revealed only
one duplication of address. With no way of knowing which
addresses corresponded to cattle feeders vs. cow calf or
backgrounding operations it was necessary to simply include the
entire list. This partially explains the large number of

individuals surveyed in this county.

Note 2: The number of addresses for Shiawassee county are

suspiciously high. The author has no explanation for this.

Note 3. Washtenaw county had on the list 165 cattle feeders
claiming a capacity of 5409, but 2772 of that capacity came
from 126 farmers all declaring a capacity of 22 head.
Incidentally, not one respondent from that county reported a
capacity of 22 head. Furthermore 40% of the erroneous

addresses originated from the Washtenaw county list.

The capacity and marketing figures provide some useful
information in determining the accuracy of the address list.
From these we can compute a simple feedlot use ratio by
dividing the marketings figure by the estimated capacity. This

ratio can be used as a guide to compare the reported figures

170

with reasonable expected values.

Since it is possible to fatten cattle in as little as 60
days in the feedlot with proper backgrounding and warm up it is
conceivable to market as many as six times the one time
capacity of a feedlot during the course of a year. In this case
the feedlot use ratio would be 6 or a total of six times as
many cattle marketed as capacity in the feedlot. More
typically, however, marketings are significantly less as often
pens of cattle require 3-9 months to finish, depending on entry
weights. Refilling of the lot is not always immediate, and the
lot is not always filled to capacity. In some cases financing
of the cattle may not be available or the operator may feel
that existing costs and prices make cattle feeding
unprofitable. Regardless of the reason, it is highly unlikely
that the feedlot use ratio would exceed 3.5. Consequently,
those ratios corresponding to Hillsdale, Ingham, Ionia,
Montcalm, Muskegon, and Newaygo counties raise questions about
the accuracy of the address list with respect to the feeders in
these counties.

Feedlot use ratios are difficult to compute since capacity
data are often unavailable. The industry relies on another
ratio that serves as a proxy for feedlot use, the turnover
ratio. This figure is computed by dividing the total annual
marketings by the one time number of cattle on feed. Usually
January 1 is the reference date. The turnover rate will be

higher than the feedlot use ratio because the cattle on feed

171

will always be less than or equal to the one time capacity of
the feedlots. Typically in major cattle feeding states,
aggressive cattle feeders will experience turnover rates of
between 2 and 3. cattle over two to three times during the
course of a year depending on the entry weights and the degree
of finish desired. Where cattle feeding is seasonal, as is
often the case in Michigan, or if for other reasons the lot
remains empty for a portion of the year, the turnover rate will
be much lower. The turnover rate calculated for Michigan was
1.28 using marketing data and cattle on feed figures for 1978-
81.

In the case of Montcalm, Hillsdale, Ingham, Muskegon,
Newaygo, and Ionia counties the ratio of marketings to capacity
indicates that either the marketings are over stated or the
capacity is understated or both. 'Understatement of the
capacity would suggest that not all of the current cattle

feeders names and capacity estimates are on the list.

APPENDIX III
QUESTIONNAIRE FOR THE SURVEY OF SLAUGHTERERS

OF MICHIGAN CATTLE

July 16,1987
{company-j
{first-} {last-}
{address-}
{box-j
{city-} {state-}
{country-I {zip-}

Dear Mr. {last},

Please find enclosed a copy of the questionnaire “A Survey
of Slaughterers of Michigan Cattle.“ As I indicated in my phone
call this copy is provided to familiarize you with the
questions and allow you to make any advance preparations for
our telephone appointment. This approach was chosen in order
avoid misinter-pretation of the questions and to streamline the
data collection process.

The information requested pertains to the calendar year 1986.

Individual responses will be kept strictly confidential.

A copy of the summarized results will be sent to you for your
reference.

The intent of this survey is to gather current information
about the type, quality, and sizes of cattle desired by
slaughter plants accessible to Michigan cattle feeders. It is
also hoped that information regarding the current slaughter
capacity, volume trends, and competitiveness of plants in the
Eastern Cornbelt region will prove useful to those intending to
invest in the cattle feeding industry. We believe that it is
increasingly important for cattle feeders to identify
anticipated markets and feed accordingly.

I currently plan to phone you on
Pretesting of the questionnaire has indicated that at least 20
minutes to 1/2 hour are required to complete it.

Your help and cooperation are greatly appreciated.

Sincerely,

Kent Gwilliam

KG/kg
encl.

172

173

W

Firm name:

Contact Person:

Address: ,_
Date: ._ Cattle Buyer

 

 

 

Year when this plant was built...................

 

Years since most recent major remodeling.........

 

Years under present plant management .............

 

Current slaughter capacity (8 hour shift) Cattle
Hogs

 

 

Sheep

 

Average number of shifts/week....................

 

Potential number of shifts/week..................

 

Has your capacity changed over the last 10 years?

Increased from to shifts/week in 19

Increased from to head/shift of in 19

What is your most limiting factor in production?
Kill floor capacity

Cooler Capacity

Inspection

Labor

Other

 

 

 

 

Do you routinely practice carcass stimulation?
Do you hot process?
or are you considering hot processing?

Is yours an on-the-rail skinning and dressing system?

Do you ethnic (Kosher, Muslim, etc.) kill?

r< D<V<0<
222

Z

r<
Z

QEEBAIIQES
Indicate the percent of t9§al_gg§§1g slaughtered in each

category.
Type of cattle Percent 3 yrs
Colored (Beef type) steers........
Colored (Beef type) heifers.......
Holstein Steers...................
Cows..............................
Bulls.............................
Calves.............. ..... .........
Total 100%

. ago 1983

100%

174

Indicate the percent of figfi_ga§§1e that fall into each quality
grade.

Percent
Prime ................ . ..... .
Choice......................
Good..... ........ .. .........
Standard....................
No-roll .....................
Total 100%

Indicate the percent of £gg_§a§§1g that fall into each
yield grade.

Yield grades Percent
1 O O O O O O O O O O O O O O O ......... O O
2 O O O O O O O O O O O O O O O O O O O O O O O O O O
3 O O O O O O O O O O O O O O O O O O O O O O O O O O
4 O O O O O O O O O O O O O O O O O O O O O O O O O O
5 O O O O O O O O O O O O O O O O O O O O O O O O O O
ungraded O O O O O O O O O O O O OOOOO O O O
Total 100%
What percentage of the cattle you kill are dark cutters? %

What kind of cattle are the most profitable for your operation?

 

Least profitable?

 

Would you remove fat on the kill floor if yield grade
requirements were changed? Y N

What percentage of your carcasses require trimming to remove:
(Average number of lbs. trimmed)

 

bruises? %
abscesses? %
other? %

 

Do Michigan cattle require more or less trimming than average?
more less no difference

 

What are your current requirements for carcasses?
Beef type:

 

 

 

 

Choice steers % weighing to lbs. YG
Choice steers % weighing to lbs. YG
.Choice heifers % weighing to lbs. YG
Choice heifers % weighing to lbs. YG
Good steers % weighing to lbs. YG
Good heifers % weighing to lbs. YG

 

Holsteins
Choice steers % weighing to lbs. YG
Good steers % weighing to lbs. YG

Which kind of cattle are you having the most trouble getting?

What percent of your fed cattle come from within:
Percent
50 miles............
51-100 miles........

loo-200 mileSO O O O O O O

 

 

 

200+ miles ......... .
Total 100%
Sources of fed cattle for slaughter
Percent
Michigan... ..... ....

Ohio................
Indiana.............
Illinois............
Wisconsin ..... ......
Pennsylvania........
Iowa................
Canada..............

 

 

Other .......
Other .......
Total 100%
Which source do you prefer? Why?
Purchasing
What percent of your fed cattle are purchased through the
following methods? Percent

Direct- feedlot to packer:
House cattle buyer dealing with the feedlot..
Order buyer or commission purchase...........

 

 

 

 

 

 

 

Other ...........................
Indirect:
House cattle buyer- auction.......... ..... ...
Orderbuyer independent........ ...............
Other ...... .....................
Total 100%
What percentage of your cattle are purchased
Percent
Live weight basis .........
On the rail basis

Grade and yield.... .......

In the beef....... ....... .

Other.......... .......... .

Total 100%

176

In the case of live purchases, do you require the producer to
guarantee:
a minimum dressing percent? Y N
a maximum yield grade? Y N
(i.e. cattle must dress at least 57% with no more than 10% YG 45)

What are your main procurement problems? (rate 1-4 worst to least)
Availability of desired quality and type
Consistent Quality

 

 

 

 

Transportation
Other
Do you: Percent of total
volume.
Do you feed your own cattle? Y N
Forward contract purchases with cattle feeders? Y N
Have feeders custom feeding cattle for you? Y N

Would you like a list of major cattle feeders in
Michigan who are custom feeding? Y N

What post slaughter information is available to the producer?.
Indicate by placing the corresponding letter A, B, or C in the
space under the appropriate column heading.

A) Currently provided B) Available on request C) Not available

Identified
By Lot By Animal
Carcass weight A B C A B C
Yield grade A B C A B C
Quality grade A B C A B C
Backfat A B C A B C
REA A B C A B C
KPH fat A B C A B C
Liver abscesses A B C A B C
Liver Flukes A B C A B C
Amount of trim A B C A B C

Do Michigan fed cattle have more or less liver problems than
those from others sources? more less no difference

What could Michigan cattle feeders do to improve their product
being offered for sale?

 

 

SEEKS

What sources do you use for price formulation information?
Yellow sheet
Blue sheet
Other

 

177

Do you market beef products under a private brand name or label?

Y N

If not, are you considering one? Y N
If yes, what percent of your total volume goes into

these products? %
What quality grade of carcasses do you use in these
products?
Choice %
Good %
No-roll %

How are your 1gg_hggfi products shipped? (Percent by weight

of total pounds shipped)

Sides & Quarters (swinging)........................
Boxed BeefOOOOOOOOOOOOOOO OOOOOOOOO OOO OOOOOOO OOOOOOO
Primal cuts (not vacuum packed)...... ..............

Processed portion cuts, chipped, formed, ground,

etc.

Processed into cooked and/or cured products........

fresh and/or fresh frozen....................

 

Types of markets for products Percent by weight

Direct to Supermarkets...... ...... .....
Direct to Other retailers..............
Direct to HRI..........................
Direct to other Packers or Processors..
Purveyors (wholesalers)................
Your own retail outlet.................
Other .........................

 

.LABQB

Do you have a union contract? Y N
What is your base hourly rate...........
What is your top hourly rate ...........
Do you have bonuses for individual piece work
or shift volume

or other

Do you have a weekly guarantee of hours? Y N
What is your annual workers compensation cost?
per worker?

 

What does your benefits package contain?
Health Care
Dental
Retirement

Paid vacation weeks

 

 

 

 

 

Your benefits package makes up what percent of your total
labor costs? %

178

QQHEEIIII!E_EQ§IIIQE

What advantages or disadvantages does your plant have compared to
plants in the Southwest, High Plains, and Western Cornbelt?

Cost Cost
Advantage Disadvantage No Diff.
External _
(taxes, regulations)

Labor
Scale (plant size)
Cattle

Availability

Quality

Consistency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cont.... . Adv. Dis. No Diff
Market
Availability
Diversity
Fabrication ability
Kill Cost

 

 

 

 

 

 

 

 

 

 

 

 

Drop Credit Value $ . Date of quotation

What is main source of competition?

 

 

What is your key to remaining competitive?

 

 

What is your most restrictive constraint to being more competitive?

 

991L993
Over the next three years do you intend to
Expand?
Reduce?
Discontinue?

Maintain current level of production?

What is the potential for expanding the slaughter capacity in
your area?

 

 

Are you in favor of changes in quality grading standards? Y N

Would you use the "Select" grade if it became official? Y N

 

179

What role should the Eastern Cornbelt have in the cattle
industry to be competitive with the cattle feeding and slaughter
industry in the High Plains, Western Cornbelt and Southeast?

 

 

Do you have any specific problems that could be addressed by the
research and extension resources of the University?

 

 

 

APPENDIX IV
DETERMINATION OF MICHIGAN FEEDER AND FED CATTLE PRICES

Michigan Prices

The Michigan Live Stock Exchange in Lansing Michigan was
very helpful in providing a set of weekly price quotations from
January 1, 1978 through October 1985. The author subsequently
subscribed to the weekly report and retained copies which
accounted for the quotations through December 1986. The entire
set has been placed in the possession of Dr. J. Ferris of the

Michigan State University Agricultural Economics Department.

Calculation of monthly average prices was accomplished by
entering all the weekly sales quotes, usually from six to eight
per week for the beef type, fed steers, and three or four per
week for 600 - 800 lb. colored feeder steers, and averaging the
weekly and monthly data. The actual calculations were
performed by Agricultural Economics Computer Center Personnel

under the supervision of Chris Wolfe.

Below is a sample of the format used to store the price
information in Lotus. The first two digits of the left column
correspond to the year, the next two- the month and the last
two- the week. The second and third columns represent the

number of cattle in the lot and the selling price.

180

Date Number Price

780101 20
780101 32
780101 11
780101 12
780101 16
780101 30
780101 27
780102 11
780102 31

780102 6
780102 11
780102 17
780102 15
780102 12
780103 22
780103 10
780103 14
780103 12

45.00
44.96
44.02
44.82
44.36
43.60
43.60
45.50
45.36
44.60
44.54
44.82
44.64
44.91
45.57
44.97
44.35
45.40

181

Average weekly prices were calculated by multiplying the

number sold by the price for each quotation for the week to get

a value of the
dividing this

average price.

780103 22 * 45.573 1002.54
780103 10 * 44.978 449.70
780103 14 * 44.35= 690.90

2617.94

2617.94 divided by 58 is 45.14 or the average price

the week.

and then summing the number sold and

into the sum of the lot values to get an

example, if the week had four quotations:

for

Then a straight average price was calculated for each

182

month. (i.e. sum the weekly prices and divide by the number of

weeks.)

The output, the weekly and monthly prices, was listed in
columns in such a way that they could be imported into Lotus or
TSP to use in further calculations. It was in this form that
they were transferred to Micro TSP in order to produce the
graphs in Chapter V. Appendix V contains a number of tables,

some of which display the monthly averages thus calculated.

The number of quotations varies for each week and the

number of weeks reported for each month may also vary.

 

APPENDIX V

TABLES OF DATA USED IN FIGURES IN CHAPTER V

Month Average

Month Average

Table‘v.1 Michigan Feeder Steer Prices

Month Average

 

Price_ Price, Price
7801 43.46 8101 73.70 8401 67.78
7802 47.04 8102 71.94 8402 68.23
7803 52.24 8103 68.66 8403 69.13
7804 55.30 8104 69.04 8404 65.66
7805 60.68 8105 67.13 8405 62.83
7806 59.39 8106 65.01 8406 61.64
7807 61.35 8107 65.57 8407 62.96
7808 61.77 8108 64.60 8408 64.07
7809 63.77 8109 66.07 8409 64.52
7810 63.37 8110 63.31 8410 63.23
7811 65.45 8111 62.23 8411 64.67
7812 67.43 8112 61.96 8412 65.42
7901 71.68 8201 60.72 8501 68.93
7902 79.43 8202 63.69 8502 68.67
7903 84.16 8203 66.11 8503 65.09
7904 86.90 8204 67.51 8504 66.12
7905 86.51 8205 67.12 8505 65.14
7906 81.38 8206 67.25 8506 64.50
7907 80.39 8207 67.22 8507 63.81
7908 79.93 8208 66.94 8508 57.20
7909 83.83 8209 67.29 8509 57.85
7910 79.83 8210 63.90 8510 58.31
7911 80.78 8211 64.11 8511 61.42
7912 79.34 8212 61.38 8512 63.39
8001 80.39 8301 66.70 8601 62.10
8002 83.41 8302 66.78 8602 61.93
8003 80.47 8303 69.19 8603 59.12
8004 70.97 8304 67.92 8604 56.06
8005 71.45 8305 66.35 8605 53.70
8006 73.21 8306 64.67 8606 56.13
8007 76.94 8307 63.24 8607 58.90
8008 76.87 8308 59.92 8608 61.51
8009 75.01 8309 57.37 8609 63.89
8010 74.43 8310 58.22
8011 72.88 8311 61.06
8012 73.86 8312 64.17

Source: MLSE weekly quotation data.

183

184

Table V.2: Michigan Fed steer Prices

Month Average Month Average Month Average

 

Priee. Pricegi Price
7801 45.15 8101 65.50 8401 69.84
7802 46.99 8102 63.30 8402 68.21
7803 50.76 8103 62.09 8403 69.40
7804 53.18 8104 64.75 8404 68.07
7805 58.99 8105 65.83 8405 65.98
7806 57.48 8106 67.28 8406 64.49
7807 55.64 8107 67.20 8407 66.26
7808 53.13 8108 66.19 8408 65.33
7809 54.74 8109 65.97 8409 63.78
7810 55.27 8110 63.23 8410 63.17
7811 55.03 8111 61.28 8411 65.96
7812 56.71 8112 59.83 8412 66.70
7901 62.32 8201 61.00 8501 66.30
7902 66.86 8202 64.01 8502 64.56
7903 72.20 8203 67.08 8503 61.28
7904 75.25 8204 68.94 8504 59.05
7905 74.37 8205 73.09 8505 58.14
7906 69.28 8206 70.05 8506 56.95
7907 65.15 8207 66.02 8507 53.04
7908 62.99 8208 65.09 8508 52.88
7909 68.32 8209 62.17 8509 53.50
7910 66.97 8210 59.44 8510 61.95
7911 67.80 8211 59.05 8511 65.02
7912 69.35 8212 58.08 8512 65.51
8001 68.71 8301 60.48 8601 61.01
8002 69.19 8302 62.42 8602 57.63
8003 67.04 8303 64.82 8603 56.10
8004 64.47 8304 67.93 8604 54.44
8005 64.09 8305 66.90 8605 55.07
8006 65.90 8306 65.51 8606 54.29
8007 70.16 8307 62.46 8607 58.10
8008 72.57 8308 61.12 8608 60.33
8009 70.92 8309 59.43 8609 60.76
8010 69.21 8310 60.52 8610 60.31
8011 67.42 8311 61.19 8611 62.30
8012 66.66 8312 63.67 8612 63.27

Source: MLSE weekly quotation data.

185

Table'V.3: Choice Steer Prices Omaha

Month Average Month Average Month Average

 

Prige, Price Price
7801 43.62 8101 63.08 8401 67.08
7802 45.02 8102 61.50 8402 67.07
7803 48.66 8103 61.40 8403 68.60
7804 52.52 8104 64.92 8404 67.86
7805 57.28 8105 66.86 8405 65.89
7806 55.38 8106 68.26 8406 64.28
7807 54.59 8107 67.86 8407 65.79
7808 52.40 8108 66.37 8408 64.36
7809 54.26 8109 65.37 8409 62.68
7810 54.93 8110 61.45 8410 60.85
7811 53.82 8111 59.81 8411 64.29
7812 55.54 8112 59.24 8412 65.32
7901 60.35 8201 60.75 8501 64.35
7902 64.88 8202 63.54 8502 62.80
7903 71.04 8203 65.80 8503 59.28
7904 75.00 8204 69.11 8504 58.72
7905 73.99 8205 72.10 8505 57.58
7906 68.53 8206 70.18 ' 8506 56.64
7907 67.06 8207 66.18 8507 53.26
7908 62.74 8208 65.14 8508 51.94
7909 67.84 8209 61.25 8509 51.29
7910 65.81 8210 58.78 8510 58.02
7911 67.00 8211 58.91 8511 63.30
7912 68.72 8212 58.92 8512 62.94
8001 66.32 8301 59.33 8601 59.69
8002 67.44 8302 61.20 8602 56.42
8003 66.88 8303 64.03 8603 55.55
8004 63.07 8304 67.70 8604 53.68
8005 64.58 8305 67.51 8605 55.79
8006 66.29 8306 65.90 8606 54.08
8007 70.47 8307 62.22 8607 58.27
8008 72.31 8308 61.27 8608 59.04
8009 69.68 8309 59.19 8609 59.43
8010 67.18 8310 59.58
8011 65.05 8311 59.41
8012 64.29 8312 62.85

Source: USDA Livestock and Poultry Situation and

Outlook Reports.

186

Table v.4: Choice Steer Prices Texas New Mexico Direct

Month Average Month Average Month Average

 

Price, Price Price
7801 .00 8101 66.08 8401 69.49
7802 .00 8102 63.99 8402 68.43
7803 .00 8103 68.91 8403 71.00
7804 53.10 8104 66.98 8404 70.09
7805 58.23 8105 69.04 8405 67.31
7806 55.94 8106 70.60 8406 65.31
7807 54.48 8107 68.53 8407 66.22
7808 51.96 8108 66.96 8408 64.54
7809 54.19 8109 67.47 8409 62.60
7810 53.98 8110 63.97 8410 62.14
7811 53.70 8111 63.09 8411 66.06
7812 56.85 8112 61.14 8412 68.19
7901 61.28 8201 62.34 8501 66.13
7902 65.14 8202 64.81 8502 64.81
7903 72.15 8203 67.00 8503 61.36
7904 75.72 8204 71.64 8504 61.43
7905 75.73 8205 74.43 8505 60.94
7906 70.48 8206 71.58 8506 58.68
7907 69.25 8207 66.66 8507 54.52
7908 63.50 8208 65.76 8508 53.89
7909 68.80 8209 62.29 8509 53.80
7910 65.49 8210 61.54 8510 61.11
7911 68.15 8211 61.64 8511 66.39
7912 69.66 8212 61.64 8512 65.86
8001 67.17 8301 61.80 8601 60.81
8002 68.80 8302 62.77 8602 57.74
8003 67.75 8303 65.68 8603 57.43
8004 64.92 8304 71.36 8604 55.91
8005 67.32 8305 69.17 8605 57.95
8006 68.42 8306 67.03 8606 55.81
8007 72.05 8307 63.76 8607 59.28
8008 72.96 8308 62.37 8608 59.84
8009 69.82 8309 59.68 8609 .00

Source: USDA Livestock and Poultry Situation and

Outlook Reports.

187

Table v.5: Feeder Steer Prices Great Plains

Month Average Month Average Month Average

 

Price_, Priceg, Price
7801 44.22 8101 71.88 8401 67.32
7802 47.91 8102 70.22 8402 68.31
7803 52.52 8103 68.91 8403 67.97
7804 54.33 8104 65.07 8404 65.08
7805 59.28 8105 61.70 8405 60.94
7806 57.03 8106 63.20 8406 60.28
7807 59.67 8107 61.62 8407 62.94
7808 69.92 8108 64.16 8408 63.90
7809 63.50 8109 65.11 8409 63.61
7810 61.75 8110 62.50 8410 63.27
7811 64.15 8111 64.17 8411 66.44
7812 67.37 8112 60.50 8412 67.84
7901 74.74 8201 60.78 8501 70.19
7902 80.23 8202 63.78 8502 70.60
7903 88.11 8203 64.74 8503 67.11
7904 90.26 8204 64.07 8504. 65.09
7905 85.90 8205 64.50 8505 63.08
7906 75.74 8206 63.38 8506 60.42
7907 79.00 8207 65.29 8507 58.75
7908 76.13 8208 67.11 8508 61.88
7909 80.88 8209 64.43 8509 56.62
7910 78.43 8210 63.25 8510 60.11
7911 80.78 8211 61.88 8511 61.94
7912 80.85 8212 62.69 8512 61.65
8001 79.63 8301 66.06 8601 63.90
8002 82.62 8302 67.28 8602 62.81
8003 77.81 8303 70.50 8603 59.03
8004 68.05 8304 67.62 8604 55.15
8005 68.58 8305 63.07 8605 54.28
8006 69.12 8306 62.25 8606 54.88
8007 71.33 8307 59.72 8607 61.08
8008 75.01 8308 59.58 8608 63.63
8009 73.16 8309 57.72 8609 63.50
8010 73.23 8310 57.54
8011 71.62 8311 62.00
8012 72.66 8312 66.12

Source: USDA Livestock and Poultry Situation and

Outlook Reports.

188

Table v.6: Feeder Steer Prices Corn Belt

Month Average Month Average Month Average

 

Price, Price Price
7801 44.07 8101 72.58 8401 65.06
7802 47.60 8102 70.40 8402 66.45
7803 52.00 8103 66.80 8403 67.42
7804 55.08 8104 66.74 8404 67.51
7805 60.36 8105 65.79 8405 65.70
7806 58.56 8106 65.12 8406 62.70
7807 60.60 8107 63.22 8407 63.80
7808 63.08 8108 67.75 8408 64.04
7809 64.46 8109 66.16 8409 63.98
7810 64.88 8110 64.07 8410 65.06
7811 64.85 8111 64.02 8411 65.42
7812 69.83 8112 60.06 8412 66.28
7901 75.29 8201 60.08 8501 68.48
7902 80.26 8202 63.28 8502 69.08
7903 87.25 8203 65.78 8503 67.40
7904 89.98 8204 66.08 8504 68.60
7905 88.32 8205 67.78 8505 67.04
7906 82.19 8206 65.57 8506 65.40
7907 82.48 8207 65.26 8507 60.76
7908 79.31 8208 67.85 8508 61.52
7909 85.34 8209 66.48 8509 60.25
7910 81.29 8210 63.45 8510 62.37
7911 82.44 8211 63.88 8511. 62.86
7912 82.80 8212 63.35 8512 60.98
8001 80.52 8301 65.30 8601 62.16
8002 83.18 8302 67.35 8602 62.42
8003 77.62 8303 69.19 8603 63.22
8004 69.87 8304 68.38 8604 60.32
8005 69.18 8305 67.62 8605 60.40
8006 72.25 8306 64.75 8606 58.50
8007 73.32 8307 60.13 8607 61.00
8008 76.40 8308 58.58 8608 65.75
8009 77.60 8309 58.31 8609 65.50
8010 76.05 8310 60.20
8011 73.75 8311 61.00
8012 72.96 8312 63.65

Source: USDA Livestock and Poultry Situation and

Outlook Reports.

 

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