The Economics Feeding Arizona Industry

The  Economics Feeding Arizona Industry

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The Economics of the

Cattle

Feeding

Industry

in

Arizona

Technical

Bulletin

207

Agricultural

Experiment

Station

The

University of Arizona

Tucson

THE

ECONOMICS

OF

THE

CATTLE FEEDING

INDUSTRY

IN

ARIZONA

BY

ELMER

L,

MENZIE*

WILLIAM

J,

HANEKAMP*

**

GEORGE

W,

PHILLIPS

THE AGRICULTURAL EXPERIMENT STATION

UNIVERSITY OF ARIZONA

TUCSON, ARIZONA in cooperation with the

VALLEY

NATIONAL BANK OF ARIZONA

Technical

Bulletin

207

3

-M

October

1973

*

Professor and

Research Assistant, respectively, Department of Agricultural Economics, University of Arizona, Tucson, Arizona.

** Vice-

President, Agricultural and Livestock

Loan

Department, Valley National Bank, Phoenix, Arizona.

ACKNOWLEDGMENTS

The authors wish to express thanks to the Valley National Bank for making this study possible.

Additionally, cooperation of Bank officers in helping to obtain information and iu review of the manuscript was greatly appreciated.

Special recognition is due to the

Arizona Cattle Feeders organization and its members.

Information made available through personal interviews with the cattle feeders provided a major part of the basic data.

Numerous others associated with cattle feeding in

California and Texas also cooperated and provided important information used in the study.

Financial institutions both in and outside of Arizona and other groups interested in cattle feeding cooperated in the study.

Other members of the faculty in the College of Agriculture, University of Arizona, assisted by providing technical advice and in reviewing the manuscript.

Dr.

Jimmye Hillman, Head,

Department of Agricultural Economics, was instrumental in getting the project started.

Finally, the authors would like to thank Mrs. Paula Tripp and Mrs. Nancy Rose for typing of the manu- script in the various stages of its development. ii

TABLE

OF

CONTENTS

CHAPTER

I

-

INTRODUCTION

CHAPTER

II

-

COMMERCIAL

CATTLE FEEDING INDUSTRY

Developments in the

U S

Cattle Feeding in

Arizona

Size of Feedlots

Location of Feeding

Weight of Feeders

CHAPTER

III

-

ECONOMIC CHARACTERISTICS

OF

COMMERCIAL

CATTLE FEEDING OPERATIONS

OF

ARIZONA

Introduction

Feedlot Survey

Investment in Feedlot Facilities

Capital Requirements for Expansion

Degree of Utilization of Feedlot Capacity

Operational Costs of Arizona's Commercial Feedlots

Nonfeed Costs

Fixed Costs of Operation

Variable Costs of

Operation

Total Nonfeed Costs

Nonfeed Costs and Utilization Rates

Feed Rations and Costs

Revenues and Profits

CHAPTER

IV

-

CUSTOM CATTLE FEEDING

IN

ARIZONA

Advantages of Custom Feeding to

Arizona Feedlot Operations

Disadvantages of Custom Feeding

Custom Feeding Clients and Sources of Investment Capital

Costs of Custom Feeding

Total Costs

Feedlot Charges

Profit and

Breakeven Prices

Feedlot Owner Strategies Relative to Custom Feeding

CHAPTER

V

-

ARIZONA

FEED

SITUATION

Feed Grains

Feed Grain Production in Arizona

Feed Grain Consumption

Future Feed Grain Position in Arizona

Resource and Urban Constraints on the Feed Grain Economy

Technology Changes in the Feed Grain Industry

Competitive Position in Procurement of Feed Grains by Arizona Feedlots

.

22

22

22

22

24

24

25

25

12

13

13

13

15

15

16

17

18

5

5

5

6

7

7

8

8

8

9

10

10

10

12

1

1

3

3

3

5 iii

TABLE

OF

CONTENTS

(coNT'D)

Roughages

Roughage Production in

Arizona

Roughage Consumption

Future Roughage Position in

Arizona

Depletion of

Roughage Surplus

Alternative Sources and Costs of Roughage

Page

26

26

27

27

29

29

CHAPTER

VI -

SUPPLY

OF

FEEDER CATTLE

FOR

ARIZONA

Sources of Supply

Methods of Purchase and Transportation

Types and Performance of

Cattle Fed in

Arizona

Weights,

Sex, and Quality of

Placements

Performance Efficiencies of

Feeder Cattle by Weight, Breed, and Location

.

Future Sources of Feeder Cattle and Arizona's Competitive Status

30

30

31

31

31

33

34

CHAPTER

VII

-

CURRENT

LOCAL, STATE,

AND FEDERAL CONTROLS AFFECTING

LIVESTOCK FEEDING

IN

ARIZONA AND COMPETING

STATES

Zoning of Cattle Feeding Operations

Health and Sanitation of Arizona Feedlots

Control of Feed Supplements

Environmental Issues in

Arizona

Environmental Issues of Other Areas

Experimental Systems for Environmental Control

37

37

37

38

38

39

39

CHAPTER

VIII

-

SOURCES, METHODS, AND COSTS

OF

FINANCE

FOR

FEEDLOTS AND FEEDING

Banking Practices for Short and

Intermediate Term Finance

General Lending Procedures

Interregional Banking Practices

Lending Agency Requirements and Costs on Short

Term

Cattle Financing

. . .

Intermediate Term Financing for Feedlot Operations

Alternative Sources of Short and Intermediate Term Financing of Feeder

Cattle and Feedlot Companies

Financial Servicing of Custom Feeders by the

Cattle Feeding Industry

40

40

40

41

41

41

41

43

CHAPTER

IX

-

MARKETING

OF

FAT CATTLE AND BEEF

Fat

Cattle Marketing

Numbers and Markets for Fat Cattle

Methods of Sale

Packing Plant Facilities in

Arizona and California

Characteristics of Beef Markets

Nature of the Demand for Beef in the United States

Growth in Consumption and Expenditures

Effects of Income on Demand

Marketing Margins and Costs

43

43

43

44

45

45

45

45

47

48 iv

TABLE OF CONTENTS

(coNT'D)

Market Supply and Demand in

California

Arizona's Beef Markets

Market Expansion to 1982

International Developments in Beef Markets

The Challenge of Synthetics

CHAPTER

X

-

ASSESSMENT

OF

ARIZONA`S COMPETITIVE POSITION

PRODUCTION AND MARKETING

IN

BEEF

Beef Shipments

Transportation

Costs for Fresh

Beef

Market Price Differentials and Beef Shipment Patterns

Factors

Affecting Production Costs

Transportation of

Feeds and Feeders

Production Efficiency in the

Feedlots

Summary of Cost

Differentials

Assessment of the Future

Competitive Position of Arizona's Cattle

Feeding Industry

The Role of

Changing Technology

Resource Adjustments of Major Cattle Feeding Regions

Changes in

Marketing and Transportation

Changes in the

Location of

Slaughtering Facilities

CHAPTER

XI -

SUMMARY AND PROSPECTUS

1982

Demand Expansion

Growth in

Arizona's Cattle Feeding Industry

Developments in the Meat

Packing Industry

Concluding Comments

APPENDIX

A

APPENDIX

B

APPENDIX

C

APPENDIX

D

APPENDIX

E

FOOTNOTES

REFERENCES

Page

49

50

50

51

54

55

55

55

58

60

61

61

62

64

64

65

66

67

68

68

68

69

70

71

72

73

74

75

78

81 v

LIST

OF

TABLES

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

31.

32.

33.

34.

Table

No.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

Marketings of

Fat Cattle by Size of

Feedlot, Arizona, 1962

Average Number of Cattle on Feed in

Arizona,

By

Region, 1964

Average Book Value Assessment for Fixed Investment, Per Head of

Capacity,

Arizona Feedlots, 1971

New Replacement Costs to Construct a

Feedlot With a

Capacity of 20,000

Head, or More, 1972

Average Fixed Costs Per Ton of

Feed Fed, By Size of Operation, 1971

Average Nonfeed Costs Per Ton of Feed Sold, By Size of Operation, 1971

A Composite of

Feeding Programs For Arizona Feedlots, 1971

Percent of

Custom Feeding by Size of Feedlot, Arizona, Jan. -Dec.

1971

Percent of

Custom Feeding by Size of Feedlot, Arizona, March 1973

Comparison of Capital Requirements by Commercial Custom Feeding Operations and Full Ownership Feeding Firms

Ownership of Cattle Fed by Class of Owner, Arizona

Ownership by Feedlot Owners, Partners, Managers, and Stockholders by Size of Firm,

1971

Costs Per Pound of Gain for

Custom Feeding, Arizona, 1971

18.

Page

6

14

14

15

16

1971

Average Industry Breakeven Points for Losses on Feeding Company Owned

Cattle as a

Basis for

Increasing Utilization Rates, Arizona, 1971

20

21

22

23

Estimated Feed Grain Consumption in Arizona, By Type of

Animal, 1961

. . . .

23

24

26

Alfalfa Hay Acreage and Production By Districts, 1967

Estimated Yearly Hay Consumption

By

Type of Animal, Arizona, 1961

27

28

28

Demand-

. .

28

Projected Alfalfa Hay Production, Arizona, 1982 29

Projected Roughage Balances with Alternative Cattle Feeding Programs, 1982

. . .

30

Alfalfa Hay Production and Prices, Imperial County, California, 1964

. . . .

30

Cattle Shipped into Arizona by Major States of

Origin, 1960

32

Type of

Feeder Cattle Placed on Feed in Arizona Feedlots During 1971

Average Performance of

Feeder Cattle, 1971

33

33

Inventory of Cows and Heifers Two Years Old and Over That Have Calved and Calves Born, U.S., 1965

-73

35

2

3

3

4

4

7

8

9

11

13

13 vi

LIST

OF

TABLES

(coNT'D)

Table No.

35.

36.

37.

38.

39.

40.

41.

Commercial Banks: Characteristics Relative to Short

Term Cattle

Feeding Loans

Intermediate and Short Term Credit Arrangements

Marketings of Fat

Cattle in

Arizona,

1962

Commercial Livestock Slaughter, Arizona and California, 1964

Meat: Production and Per Capita Consumption, by

Class, 1950

Per Capita Retail Costs and Percent of Disposable Income for

Choice Beef,

1950 -72

Beef and Veal: Production in

Specified Countries, Average

1961

42.

43.

44.

45.

46.

47.

48.

49.

50.

51.

52.

53.

54.

55.

56.

57.

Cattle and Buffalo: Numbers in

Specified Countries, Average 1961

Beef and Veal: Per Capita Consumption in Specified Countries, Average

Annual

1968

Projected

Impact of Soy Substitution on Pounds of

Meat, Kind, and

Number of

Livestock Replaced, 1980

Liveweight Commercial

Slaughter,

Western Cattle Feeding Regions, 1962

.

.

.

Shipments of Fresh Beef into California by Regions of Origin (July

1971

June 1972). Inshipments by Motor Carrier

Transport Costs For Suspended Beef Carcasses to

Wholesale Markets by Motor

Carrier, 1972

Motor Carrier and Railroad

T.O.F.C.

Trailer Tariff Rates to Ship Suspended

Fresh Beef to

Eastern and Southwestern Markets

Shrinkage Rates by Type of

Packaging and Carcass Form

Fresh Meat Shipments by Iowa Beef Processors, November

1,

1971

30,

1972

.

Estimated Cost Differentials for Four

Major

Beef

Producing Regions Competing for Southern California's Wholesale Beef Markets, 1971

Estimated Cost Differentials for Four

Major Beef Producing Regions Competing for the

Northern California Wholesale Beef Market, 1971

Estimated

Cost

Differentials for Four Major Beef Producing Regions Competing for Arizona's Wholesale Beef Markets, 1971

Resource Adjustments of

Major Cattle Feeding Regions

Motor Carrier Fresh Beef Transport Costs Per Hundredweight by Alternative

Handling Systems and Destinations

Railroad Fresh Beef Transport Costs Per Hundredweight by Alternative

Handling Systems and Destinations

(T 0 F C

)

Commercial Cattle Slaughter by Region,

1965 and 1972

Page

52

56

67

67

68

63

63

66

57

57

58

60

62

42

42

44

45

46

48

53

54

55

56 vii

LIST

OF

FIGURES

Figure

No.

1.

Fat Cattle Marketings of Seven

Western States; (Arizona, New Mexico, Texas,

2.

3.

12.

13.

14.

15.

26.

27.

28.

29.

30.

19.

20.

21.

22.

23.

24.

25.

4.

5.

6.

7.

8.

9.

10.

11.

16.

17.

18.

Page

2

Fat Cattle Marketings in the

Northwestern States (Washington, Oregon,

2

Fat Cattle Marketings in the Cornbelt States (Iowa,

Indiana, Illinois, Ohio,

Fat Cattle Marketing for California, 1962

Number of

Cattle on Feed in

Central Arizona, Jan.

1971

-

Dec. 1972

Utilization of

Feedlot Capacity in Arizona, 1971

Non

Rates, Arizona, 1971

Alfalfa Hay Prices in

Arizona, 1962

Farmers)

Grain Sorghum Prices by Farmers) in Arizona, 1962

Monthly Prices Received

The Effect of

Alfalfa Hay and Grain Price Changes on

Ration Costs

Effects of

Conversion Ratios and Ration Costs on Costs Per Pound of

Gain

(Markup Fees Not Included)

Effects of Ration Charges on Costs of

Gain for

Custom Feeding

Effects of

Medical and Veterinary Costs on Costs Per Pound of

Gain

Effects of

Death Loss on Costs Per Pound of Gain

Breakeven Price for 350

-Pound Net Gain at

Selected Feeder Cattle Prices and

Feeding Costs Per Pound of Gain

Breakeven Price for

450 a 500

-Pound Net Gain at

Selected Feeder Cattle Prices and

Feeding Costs Per Pound of

Gain

Breakeven Prices for 500 a

-Pound Net Gain at

Selected Feeder Cattle Prices and Feeding Costs Per Pound of Gain

Breakeven Prices for 600 with a

400 at

Selected Feeder Cattle Prices and Feeding Costs Per Pound of

Gain

11

11

16

18

19

19

All Calves Born,

Including Dairy Calves, Minus Deaths, Arizona, 1965

Cattle and Calves Shipped to

Arizona, By

Source, 1960

Heifers as

Percent of

Total Cattle on Feed in

Arizona, 1965

Cattle and Calves on Farms, By Cycles, United States, 1896

Calf Production and Placement in Texas and Oklahoma (Panhandle Area), 1965

.

.

Calf

Production and Placements in Montana,

Idaho, Wyoming, Colorado (Rocky

Mountain Region),

1965

Calf Production and Placements, New Mexico, Arizona, and California, 1965

. .

Meat Consumption, Per Person

Beef Production, By Grade

36

36

47

47

49

20

24

30

31

33

34

35

17

17

18

18

2

3

5

7

10

Fresh and Frozen Beef Shipments From

Arizona to California, July

1,

1971 to

June

30,

1972

56 viii

LIST OF FIGURES

(coNT'D)

Figure

No.

31.

32.

33.

Transport Costs

By

Motor Carrier and Wholesale Price Differentials Per Hundred- weight Between Los Angeles, California and Amarillo, Texas for 600

Choice Steer Carcasses, 1972

Shipments of Beef, Fresh or Frozen, From the South and North Plains to

California, July

1,

1971 to June

30,

1972

Transport Costs

By

Motor Carrier and Wholesale Price Differentials Per

Hundredweight Between Los Angeles, California and Denver, Colorado, for

Page

58

59

59

34.

35.

36.

Shipments of Beef, Fresh or Frozen, From Colorado to California, July

1,

1971 to June

30,

1972

Transport Costs By Motor Carrier, Wholesale Price Differentials Per Hundred- weight Between East Coast Markets and Omaha, Nebraska for 600

Choice Steer Carcasses, 1972

Transport Costs

By

Motor Carrier and Wholesale Price Differentials Per Hundred- weight Between East Coast Markets and Denver, Colorado for 600

Choice Steer Carcasses, 1972

59

60

60 ix

CHAPTER

I

INTRODUCTION

Livestock and livestock product sales have been growing both in absolute and relative impor- tance to

Arizona's agricultural sector.

In 1972, livestock and livestock product sales made up 59.7 percent of the cash receipts from all farm market ings. Meat animals alone were the source of 53.4 percent.

(1)

To determine the nature of recent year changes in growth and structure of the cattle feeding industry in

Arizona.

(2) To determine costs of operation for Arizona firms involved in feeding, by representative size groups.

The 1972 receipts from cattle and calves totaled $407 million. The total calf crop in the state was estimated to be 327,000 head, of which approximately 60,000 were used for replacements of dairy and beef cows.

Assuming the remainder were sold at an average weight of 450 pounds and the average price received for the year of

$44.00 per hundredweight, the total value of all calves sold would have been approximately $53 million.

Sales of culls accounted for an additional $12 to $14 million.

1972.

Fed cattle marketings totaled 899,000 head in

Based on average prices and weights, the value of fat cattle marketings was about

$308 million or 76 percent of the receipts from cattle and calves.

It is estimated approximately

90 per- cent of the feeder calves and 45 percent of the feed grains fed by the industry were imported into the state in

1971 and 1972. Thus, approximately

$100 million represents returns to resources originating in the state.

(3)

To determine the costs of custom feeding in

Arizona and assess the effect of custom feeding on the state's feeding industry.

(4)

To assess production problems and aspects af- fecting the competitive nature of the

Arizona feeding industry, including availability of feeder cattle, sources of feed, environmental standards and methods and costs of finance.

(5)

To study and analyze the nature of growth and development in beef markets and to assess

Arizona's competitive position in those markets relative to other supply areas.

The study is based largely on data provided through personal interviews with cattle feeders con- ducted in the spring of 1972.

Detailed information on investment, operating costs and returns and management practices were obtained and analyzed from

27 operators representing about

88 percent of the cattle on feed.

This study is primarily concerned with the economics of the cattle feeding industry in the state. The industry has been growing at a fairly continuous rate in recent years and its structure has been changing.

As indicated above, it repre- sents a major part of the state's receipts from agricultural marketings.

It involves large capital outlays for facilities and cattle and for the feed- ing operation. The industry is supportive of an active livestock slaughter and distribution sector.

It is supportive of and dependent on feed grain and hay producers. Thus, the economic health and growth of the industry is important to numerous groups and individuals in the state, as well as to the state in general.

The major objectives follows: of the study were as

In addition to data on local producers, cost estimates for competing areas were obtained from personal interviews and other data sources. Also, estimates were made of transfer costs for beef from competing areas to markets in Arizona and California.

Various lending institutions in Arizona and other states provided data, through both a mailed ques- tionnaire and personal interviews, on financial charges and practices relative to credit for cattle feeding.

An attempt has been made to project growth in cattle feeding to 1982. This analysis has required estimates to be made of growth in beef consumption, the amount and location of feed supplies, growth in sources of feeder cattle, and the effects of innova- tions on production.

Based on these estimates of industry growth, some projections have been made of capital requirements to finance the increase.

CHAPTER

II

COMMERCIAL CATTLE FEEDING

INDUSTRY

DEVELOPMENTS

IN

THE

U.S.

Commercial cattle feeding in the United States has grown significantly in the last decade. Fat cattle production increased from

12.9 million head in 1960 to over 26.7 million head in 1972 (Table

1)

This expansion has been due primarily to the growth of cattle feeding in seven western states. Fat cattle marketings in Arizona, New Mexico, Texas,

Oklahoma, Kansas, Nebraska, and Colorado soared to

15 million head in

1972, representing approximately

75 percent of the national growth in the last

10

1

TABLE

1.

FAT CATTLE MARKETINGS, U.S., 1960

Year Total Fed Cattle Marketings

FIGURE

2.

FAT

CATTLE MARKETING

IN

THE NORTH-

WESTERN STATES (WASHINGTON, OREGON,

MONTANA, IDAHO) 1962 -1972.

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

12.87

13.75

14.18

15.16

16.77

18.16

19.77

21.15

22.55

23.75

24.84

25.28

26.71

Source: Livestock and Meat Statistics, USDA,

Economic Research

Service, SRS,

Agricul- tural Marketing Service. Supplement for

Bulletin

No. 333. years (Figure

1).

Expansion in fed cattle market- ings of 7.4 percent per year also occurred in the northwestern states, bringing marketings for this area to over 1.1 million head (Figure

2).

M00- o z

1000-

F

U

700-

4

0

1962

I

1963 1964 1965

7

I

1966 1967

YEARS

I

1968

1969

I

1970

1971

1

1972

Source: Ibid

Figure

1

NORTHWESTERN STATES

FIGURE

1.

FAT CATTLE MARKETINGS OF

SEVEN WESTERN

STATES; (ARIZONA, NEW MEXICO, TEXAS,

OKLAHOMA, NEBRASKA, KANSAS

AND COLORADO)

FIGURE

3.

FAT CATTLE MARKETINGS

IN

THE CORNBELT

STATES

(IOWA, INDIANA, ILLINOIS, OHIO,

Ô

15,000

11,000

-

=

13,000 o

-

9,000- w

J

I-

7,000-

5,000

V

Li-

3,000-

4

1962

E w

8000- p

7000- o z_

I-

W

6000-

Q w

.

I-

5000 c7 4000-

á u-

0

1962

1

1964

I

1966

'

YEARS

I

1968 1970

1

1972

1964

1

1966

YEARS

1

1968

1970 1972

Source: Ibid Figure

1

Source: USDA,

Livestock and Meat Statistics,

1962

Statistical Bulletin No. 333, July 1963 and Annual Supplements: Also USDA, Cattle on Feed,

Jan. 18, 1973.

A drop in fat cattle marketings in Iowa was mainly responsible for the decline in output of the

Cornbelt region. Numbers marketed in Iowa decreased from 4.58 million head in 1970 to

3.91 million head in 1972. This reduction represented over

85 percent of the total decline in the Cornbelt area.

The growth experienced by many western states, however, has not been shared by the cattle feeding regions of the Cornbelt. After recording a gradual growth in fat cattle marketings in the early and middle sixties, the Cornbelt states reached a peak million head.

They have since declined each year to

6.4 million in 1972 (Figure

3).

Declines in fat cattle marketings were also registered in California, one of the most active feeding states in the country, as early as 1965.

Numbers marketed decreased from 2.28 million head in 1965 to 1.97 million head in

1970. However, following 1970, marketings increased slightly. The

2

1972 marketings were just over

2 million head

(Figure

4).

FIGURE

4.

FAT CATTLE MARKETING FOR CALIFORNIA,

2300

-

= 2200- o o o z

1= w

2100-

á

2000- w

-J

H

1900-

There were only seven feedlots in the 16,000 head and over category up to 1967.

By 1972, there were

18, with nine firms having capacities in excess of 32,000 head. Until 1969, there were no lots registered with capacities exceeding

32,000.

This mix of expansion and exodus of feeding operations through the last decade has resulted in a net growth in the state's feeding capacity. With the growing domination of the industry by large feeding operations, receipts from both numbers on feed and fat cattle marketings increased at an average annual rate of approximately

6.0 percent.

In 1962, for example, the 189 feedlots averaged

282,000 head on feed with marketings of 568,000 fat cattle. As feedlot numbets declined in the ensuing years, state production levels rose to an average of

556,000 head on feed, and 899,000 fat cattle marketings for 1972. Of these fat cattle sales, large feedlots with capacities over 16,000 head marketed 711,000 (Tables

3 and

4). o

1962

Source:

1964

Ibid Figure

1

1966

YEARS

1968

CATTLE FEEDING

Size of Feedlots

IN

ARIZONA

1970 1972

The structure of the cattle feeding industry of

Arizona has undergone dramatic change in the last decade. In 1962, there were 189 feedlot firms in the state, but by 1972 the number had declined by

72 percent to 53.

This reduction in numbers was due to the exodus of small feeding operations.

Firms with a capacity of 8,000 head or less totaled

27 in 1972, versus 171 in

1962 (Table 2).

TABLE

3.

FEEDLOT NUMBERS, CATTLE ON FEED, AND

MARKETINGS, ARIZONA,

1962

Year

Number

Feedlots

Average on

No.

Feed

1,000's --

Total

Marketings

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

189

125

109

102

87

76

77

62

61

62

53

282

309

292

306

304

344

353

448

462

496

556

568,000

608,000

600,000

650,000

608,000

665,000

703,000

835,000

860,000

901,000

899,000

Sources:

Arizona Agricultural Statistics,

1965-

1972,

Bulletins

S to

S

Arizona Crop and Livestock Reporting Service; Number of

Cattle Feedlots by Size Groups and

Number of Fed Cattle Marketed, 1962

USDA, July 1968, SRS Cattle on Feed,

USDA, MtAn

2

-1

(1

MtAn

2 (1

-73).

TABLE

2.

ARIZONA FEEDLOT NUMBERS,

1962

Feedlot Capacity

Under

Year 4,000

4,000-

8,000

8,000- 16,000-

16,000 32,000 number of feedlots

Over

32,000 Total

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

150

85

66

62

47

38

37

25

23

23

19

21

20

22

20

21

21

21

14

13

11

8

11

13

15

14

12

10

10

12

11

12

8

7

7

6

6

7

7

9

8

8

10

9

3

6

6

9

189

125

109

102

87

76

77

62

61

62

53

The large feedlots have been consistently in- creasing their share of the state's total slaughter cattle sales.

Marketings by large lots rose from

37 percent of the total sales in 1962 to 68 and

79 percent for 1971 and 1972, respectively.

3xpansion of facilities remains the dominant strategy of the large feedlots within the industry.

Estimates on the feedlot capacity for the state showed a net increase in feeding space of over

60,000 head in 1971 lated by a number of large firms to construct additional facilities in the next five years.

Sources: Number of

Cattle Feedlots by

Size Groups and Number of Fed Cattle Marketed,

1962-

1967, USDA,

Statistical Reporting Service,

July 1968, SRS Cattle on Feed, USDA,

Statistical Reporting Service, MtAn

2

-1

MtAn

2 (1

Location of

Feeding

The cattle feeding belt in Arizona extends along the southern regions of the state from the

3

TABLE

4.

MARKETINGS OF FAT

CATTLE BY SIZE OF FEED-

LOT, ARIZONA,

1962

Year

Capacity of

Feedlot

Under 16,000 Head Over 16,000 Head

- Percent of

Total Fat Cattle Marketings-

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

63

58

65

61

52

55

47

35

29

32

21

37

42

35

39

48

45

53

65

71

68

79

Sources: Number of

Cattle Feedlots by Size Group and Number of Fed

Cattle Marketed, 1962-

1967, USDA, July 1968, SRS -14;

Cattle on

-MtAn

2 (1

MtAn

-1

(1

-73);

Livestock and Meat Statistics,

USDA, SRS, Supplement for 1971, Bulletin

No. 333. presently phasing out their operations.

The net effect is expected to result in a reduction of approximately 57,000 head from the region's 1972 capacity.

TABLE

5.

Year

AVERAGE NUMBER OF CATTLE ON FEED

IN

ARIZONA,

BY REGION, 1964 -1972.

Maricopa Pinal

County

Yuma

Other

1,000 head

Total

1964

1965

1966

1967

1968

1969

1970

1971

1972

206

220

198

199

198

240

227

209

196

26

27

40

71

85

116

154

203

264

42

45

47

50

47

65

55

59

68

18

14

19

24

23

27

26

25

28

292

306

304

344

353

448

462

496

556

Source: Arizona Agricultural Statistics,

1965-

1972, Bulletins

S to

S

Arizona Crop and Livestock Reporting

Service.

Colorado River eastward to the Cochise Mountains.

Pinal, Maricopa, Yuma, and Pima Counties are the primary feeding areas of this region, reporting approximately

98 percent of the state's total cattle on feed. Each county is characterized by a desert climate, with similar seasonal variations in tem- peratures and rainfall.

Weather conditions range from an average seasonal high of 87.7 °F during the summer to a low of 55.3 during the winter with the heaviest rainfall concentrated in the summer and winter seasons. The homogeneity of the feeding environment of this area establishes a common competitive position with regards to climate in each of the four desert counties.

Court injunctions barring operation established feedlots of to of in the

Phoenix of some area, the threat continued public nuisance, and legal actions have been the major factors causing the shift of feeding operations to new areas. Some feedlots have com- pleted the relocation of their facilities and only a few operations remain in areas vulnerable to public disfavor and possible future legal action.

It is estimated that the facilities most vulnerable relocation pressure represent a combined capacity

50,000 head.

Pinal County became the new major cattle feeding center of the state in the summer of

1971 when its feedlot capacity reached 230,000 head.

Numbers on feed, in the last half of 1971, averaged

220,000 head, placing Pinal ahead of Maricopa. In

1972, the numbers on feed in Pinal exceeded Maricopa

County by an average of 68,000 head (Figure

5).

The heaviest concentration of cattle feeding in Arizona traditionally has been in Maricopa

County (Table

5). In 1964, over

70 percent of the cattle on feed were in this county with 8.9 percent in

Pinal and the remainder in other counties.

How- ever, the major part of the increase in feeding capacity since 1964 has been in Pinal

County. Total numbers on feed in

Maricopa have not changed signif- icantly but the percent of the total for the state had declined to 35.3 by 1972. Numbers on feed in

Pinal County increased by

10 times in the eight year period and represented nearly

48 percent of the state total in

1972.

Numbers on feed in other areas increased from 60,000 to 96,000.

Pinal area, brought the capacity of the county to over 300,000 head.

The growth of the feeding industry in Pinal

County has been due to both the expansion of local feedlots and the relocation of a number of feeding operations from other areas.

Over the past six years, four large feedlots have relocated in the increasing the county total by nine.

Additional feeding capacity added during 1972

Thus, Maricopa has been gradually losing its traditional position as the major feeding region in the state. In early

1972, there were

32 firms feeding cattle in the county, 10 of which operated at capacities in excess of

10,000 head.

Total feeding capacity for the area was estimated at

275,000 head, with the average number on feed being

196,000 head. Although expansion is planned by some feedlots in the county, a number of other firms are

Cattle feeding in Yuma County has remained fairly stable with an average number on feed of

48,000 until

1969 (Table

5).

By 1972, numbers had risen to

68,000.

Growth during this period was a result of the relocation and expansion of a few existing feedlots in the area. Further limited expansion is planned which is expected to increase the total capacity of the area to approximately

100,000 head by

1975.

4

FIGURE

5.

NUMBER OF CATTLE ON

FEED

IN

CENTRAL

ARIZONA, JANUARY

1971

-

DECEMBER

1972.

310

- o

290

270-

250

a

w

_ o

ó

230

o w

w

U_

210- z o

w

m

2 z

190-

170

5 o

JAN

1971

MAY

PINAL COUNTY

MARICOPA COUNTY

1 1 1

SEPT

1 1 I

I

JAN

1972

I

1

MAY

SEPT

JAN

1973

Source: Arizona Agricultural Statistics; Bulletin

March 1972 and Monthly Livestock

Reports, January

1-

December

1,

1972,

Statistical Reporting Service Office,

Phoenix

Conditions for rapid expansion in the

Yuma area have not been sufficiently attractive to stimulate comparable new growth.

Competition with other areas has been weak because of the traditional ties of

Central Arizona with the cattle industry plus the great distance from the main trading center at

Phoenix and from grain exporting areas. Transporta- tion costs for grain and feeder cattle tend to be higher and there are no packing plants in the area.

At the present time there are no apparent economic or other pressures favoring Yuma County as an area for significant expansion.

Similarly, the other regions of the state have shown little indication of supporting a substantial growth in cattle on feed. For the last six years, numbers on feed have leveled at

25,500 head per year.

A small increase to 28,000 occurred in 1972.

Weight of Feeders

The cattle feeding industry in

Arizona has characteristically been a steer calf finishing opera- tion.

Steers on feed have gradually increased to a high of 91.2 percent of the numbers on feed as heifer feeding has declined during the last decade. Data also show that

75 percent of the 1971 placements were under

500 pounds, averaging

449 pounds. Only three firms feeding cattle during 1971 specialized in finishing heavier placements. These firms placed approximately 200,000 head on feed at an average weight of 627 pounds.

Initial weights of feeder placements decreased in 1972 and early 1973.

Records for a number of to 1972 showed no definable trend to lighter weight placement cattle. The inadequacy of supply of feeder cattle is believed to be the major factor in forcing many feeders to place lighter weight animals on feed in recent months.

CHAPTER

III

ECONOMIC CHARACTERISTICS OF

ARIZONA COMMERCIAL

CATTLE FEEDING OPERATIONS

INTRODUCTION

Growth in the cattle feeding industry in Arizona has increased demand over the last decade for capi- tal, labor, feed, and other agricultural resources.

This chapter describes the volume and value of re- sources utilized by the Arizona feedlot industry during 1971 and analyzes their use in terms of effi- ciency of fat cattle production.

Investment, costs, and revenues are developed to show the economic characteristics of the cattle feeding business in this state.

FEEDLOT SURVEY

Capital requirements for fixed investments and costs of operation presented in this chapter were obtained from a survey of Arizona feedlots conducted in the first quarter of 1972.

A listing of

38 cattle feeding operations representing

94 percent of the cattle on feed as of

December 1971 was used as a basis for selection of a sample for personal inter- views. Interviews conducted with

23 firms supplied data on operations which accounted for approximately

85 percent of the cattle on feed.

An additional four firms responded to a mail questionnaire.

Four- teen of these

27 feedlots supplied complete data on their operations while the others, representing

28 percent of the state's feedlot capacity, did not provide financial information.

In total, detailed financial data were collected from firms feeding

57 percent of the cattle on feed in

Arizona during

1971.

5

INVESTMENT

IN

FEEDLOT FACILITIES

The book value assessment of the capital invest- ments in equipment and facilities by Arizona feed- lots averaged $58.00 per head of capacity during

1971.

Feedyard and feedmill facilities were the largest investment items, comprising approximately

75 percent of the total. Feedyard investments in corrals, water systems, and shade canopies averaged

$21.45 per head of capacity compared to $20.46 per head of capacity for feedmill equipment and facil- ities. Rolling equipment was third in importance of the fixed investments followed closely by buildings

(Table

6). to custom feeding and to customer services. Feedlots competing aggressively for new feeder clients regis- tered the highest investments in administrative facilities while feedlots catering to established customers registered lower capital investments. As the amounts of investment capital derived from non- agricultural interests has increased, the expendi- tures on administrative facilities have expanded. feed.

The investment values per head of capacity for feedmill facilities listed in Table

6 are relatively high due to the surplus of milling capacity per corral space.

Excess mill capacity was standard for most feedlots as a form of protection against costly breakdowns which could result in excessive feed costs. at the

Incorporated in this insurance capacity, however, is the potential also to support a limited expansion in feed processing. Also, longer shifts mill could increase the output in milled

Estimated potential expansion of the industry associated with excess mill capacity is 10 to 15 percent above present output.

There were moderate differences in capital investments per unit of feeding capacity between feeding enterprises.

Large and medium tions made similar cash investments per head in their feeding facilities.

Fixed investments aver- aged $62.33 per head for firms with 30,000 head or more capacity, compared to $58.76 and $60.40 for firms with 10,000 to

20,000 and 20,000 to

30,000 head capacity, respectively. Although at somewhat higher levels, this investment pattern was similar to that found by Dietrich ini4 study of the Texas feedlot industry in 1966-67.-1

Total fixed invest- ments for Texas and Oklahoma feedlots ranged within

5 percent among firms exceeding a

5,000 head oper- ating capacity.

The book value of administrative facilities, in each size classification above 10,000 head, ranged between four and twelve dollars per unit of capacity.

Large administrative investments were linked directly to for some operations promotion activities related

Fixed investments in farmer- under 10,000 head capacity, were limited to essen- tial facilities and equipment for the feeding of cattle.

Office buildings, office equipment and scales, standard items for large feedlots, were considered unnecessary overhead by small feedlot operators.

In addition, many equipment items used

TABLE

6.

AVERAGE BOOK VALUE ASSESSMENT FOR FIXED INVESTMENT, PER HEAD OF CAPACITY, ARIZONA FEEDLOTS,

1971.

Item

Less 10,000 20,000

Than to to Over

10,000

Head

19,999

Head

29,999

Head

30,000

Head

Capacity Capacity Capacity Capacity

Dollars

Total

21.45 Feed pens, equipment and water systems

Milling equipment and storage facilities

16.28

24.00

22.44

20.50

23.53

17.82

23.55

18.50

20.46

Feed distribution, transportation, and manure equipment

2.50 6.05 8.90

7.50 6.24

Offices and other buildings

Scales, office and other administrative equipment

Land*

3.32

.85

2.50

5.67

1.60

2.50

6.22

1.43

2.50

8.53

1.75

2.50

5.94

1.41

2.50

TOTAL

49.45 58.76 60.40

62.33 58.00

Total Number of

Firms Surveyed

3

4 4

3

14

*based on pen space of 220 sq.ft.

/animal.

6

in cattle feeding were utilized by small lots for other agricultural operations.

Feed distribution equipment and storage facilities often served mul- tiple functions for the small operation.

Conse- quently, investment values for feeding operations were intertwined with the total farm operation and accurate measures of the requirements of the feedlot enterprise were difficult to develop. Professional agriculturists, with long experience in cattle feeding, estimate an average investment of $50 per head capacity is a reasonable measure for a typical farmer- Averages from data col- lected in this study, on lots of less than

10,000 head, indicate a total investment of

$49.45 per head of capacity.

DEGREE OF UTILIZATION OF

FEEDLOT CAPACITY

The 1971 utilization rate of feedlot capacity by

Arizona feeders was estimated to average

82 per- cent on the basis of an estimated capacity of

605,000 head. The rate varied from a high of 87 percent of capacity in

January to a low of 75 per- cent in September

(Figure 6).

While estimates of utilization were difficult to make, since changes were occurring in capacity levels throughout the year, the above are considered to be fairly close approximations.

CAPITAL REQUIREMENTS FOR EXPANSION

New replacement costs are useful as a financial guide in determining the capital required to expand feedlot facilities or to construct new feeding facil- ities. Investment in new facilities, on the basis of estimates made by commercial construction and private consulting firms, totaled

$78 per unit for a feedlot with a capacity of 20,000 head or more

(Table

7). In many of the investment categories, savings could be achieved by using lower quality material or utilizing labor already employed by the feedlot to assist in new feedlot construction.

It is estimated savings of $4 to $5 per unit might be achieved in the construction of corrals and water systems by some firms.

If circumstances are correct, similar savings might be realized in the construction of buildings for milling equipment, storage facili- ties, and in the assembling of milling equipment.

FIGURE

6.

UTILIZATION OF FEEDLOT CAPACITY

IN

ARIZONA,

1971.

(ESTIMATED

1971

TOTAL

FEEDLOT CAPACITY

IN

ARIZONA

WAS 605,000

HEAD.)

90-

117 w

U

86

-

W d z

82

O

-

Q

N

78

- t-

TABLE

7.

NEW REPLACEMENT COSTS

TO CONSTRUCT A FEED-

LOT WITH A

CAPACITY OF 20,000 HEAD, OR

MORE,

1972.

New

Replacement

Investment Category

Cost Per Unit of Capacity dollars r

(-3

Q

74

-

-

<z

U

70

-

0

JAN

I

MAR

I

MAY

'

I

JULY

MONTHS

' 1

SEPT

I

NOV

Corrals, equipment and water systems

32.72

Milling structure and equipment, storage facilities

25.10

Offices, other buildings

Scales, office and other equipment

Feed distribution equipment, ve- hicles, and other rolling stock

Land

Total Investment

Cost Per Unit of

Capacity

7.99

2.01

8.06

2.50

78.38

Management skills, stages of expansion and relocation, and seasonal feeding conditions were some of the major factors affecting the level of utilization of facilities. A decline in numbers on feed traditionally occurs in late summer.

Dust, summer thunderstorms and summer heat reduce the performance levels of crossbreed and Okie type cattle and are the primary factors contributing to the third quarter reduction in the utilization rates.

Variations in utilization of feedlot facilities among the four major feeding counties (Maricopa,

Final, Pima and Yuma) in the state were not signifi- cant. Size of operation was the factor providing the greatest range in utilization. Feedlots with capacities exceeding 10,000 head averaged

88 percent

7

utilization for

1971 with the traditional seasonal fluctuations during the year. Feedlots under 10,000 head capacity operated at 68 percent utilization.

- feeder operations tend to be more seasonally oriented.

Feeding activities are related to availability of labor and other inputs, as feed, associated with other farming operations. rate, raising the costs to a level above the average recorded for the industry. Expansion of facilities and the subsequent increase in depreciation cost was not limited to the large operations.

A number of smaller feedlots (10,000 to

30,000 head capacities) also incurred added depreciation costs associated with expansion. However, the effect was much less since the proportion of new to older facilities was smaller than with the larger group.

Utilization of feedlot facilities affects the annual costs of operations per animal fed.

Fixed investment costs, including maintenance, interest, insurance, taxes and depreciation are higher per animal unit when the utilization is less than cap- acity. Larger units maintaining fairly constant levels of operation the year round are able to aver- age market sales and thereby reduce some of the risk associated with market price variability. Further- more, a continuous volume at a fairly constant level provides the larger feeders with an advantage in marketing their product.

OPERATIONAL COSTS OF ARIZONA'S

COMMERCIAL FEEDLOTS

TABLE

8.

AVERAGE FIXED COSTS PER TON OF FEED

FED,

BY SIZE OF

OPERATION, 1971.a

Item

Depreciation

Managementb

10,000 to

20,000

Head

- - -

20,000 to

30,000

Head

Over

30,000

Head

/Ton of Feed Fed

- -

-

1.13

1.23

1.42

.76 .79 .55

Insurance

Taxes

Interestc

Miscellaneous

.33

.20

.69

.09

.26

.17

.68

.05

.22

.22

.70

.02

Total

3.20 3.18 3.13

Since most commercial feedlots in Arizona are operated as

"custom feeders," they actually make their income as a result of providing services.

These services usually include buying and selling of feeders and fat cattle; provision of feed, feed- ing and general management of the customer's cattle in the feedlot owner's facilities; and sometimes, aid in financing the operation. These services are sold either to the feedlot owner himself or to other individuals. aFixed costs per ton of feed are based on an average utilization rate of 88 percent. bCost of paid managers including an opportunity cost estimate for the owner

The main input provided is the feed. As a result, feedlots have developed an accounting sys- tem based on the costs associated with each ton of feed fed to livestock for each customer.

Customers are, in turn, charged on this basis. It is for this reason that the description and analysis of costs in the remainder of this section are based on costs per ton of feed fed.

NONFEED COSTS

Fixed Costs of Operation

Fixed costs include depreciation, insurance, taxes, management, interest, and miscellaneous ex- penditures per ton of feed milled by Arizona feed- lots during the calendar year of 1971 (Table

8).

The highest of these fixed costs were depreciation, interest, and management, representing approximately

85 percent of the total.

°Estimated on basis of present investment values given since each firm had accounting for this cost. a different system of

Since depreciation costs were those reported by the individual firm, they are subject to some variation resulting from unique accounting systems.

However, comparisons of the book costs recorded by the surveyed firms to a standardized depreciation system used in a study of Texas lot operations27howed minor variations from those reported here.- Standardized depreciation costs for feedlots exceeding a capacity of

20,000 head were $1.47 per ton.

Interest costs for feeding operations over

10,000 head capacity ranged between

68 and

70 cents per ton of feed fed.

Although many commercial feed- lot companies owned their own facilities and incurred

Depreciation costs averaged $1.42 per ton of feed for lots with feeding capacities over 30,000 head, which exceed the average for 10-

20- 30,000 head lots by 19 and

29 cents, respectively

(Table

8).

Costs for the largest firms were in- flated by the recent and extensive construction of new facilities by three of the four feedlots in the category. These new facilities were valued at replacement costs, and depreciated at an accelerated investments, each firm still absorbed an opportunity cost by committing company capital to facilities.

The interest expenditures in

Table

8 represent oppor- tunity or out pocket interest costs of

6 percent on the present book investment in feeding facilities.

Management costs include the employment of top management in the positions of head yard foreman,

8

feedmill foreman, company accountant or office mana- ger and the owner- of the lot.

The largest of the state's commercial operations generally em- ployed persons to fill each of these four positions while smaller operations limited their top manage- ment personnel to owner- or head yard fore- man and owners.

These management positions are con- sidered to be fixed over a relatively large range of utilization of plant facilities and thus are included as part of the fixed costs.

The average costs per ton of feed fed for management decreased as the size of operations increased to capacities of 30,000 head.

Savings of 21 cents per ton of feed fed were regis- tered by the largest firms.

TABLE

9.

AVERAGE NONFEED COSTS PER TON OF FEED

SOLD, BY SIZE OF OPERATION, 1971.

Item

Variable

Labor

Interest

Power and fuel

10,000 to

20,000

Head

- - -

3.15

1.05

.81

$

20,000 to

30,000

Head

Over

30,000

Head

/Ton of Feed Fed - -

2.38

1.03

.72

2.60

.67

.42

Vet and medical supplies

.98 .95 .93

In summary, the total fixed costs reported by the feedlot industry in

Arizona shows estimated ex- penditures were highest for operations with feeding capacities under 20,000 head. However, the differ- ence between the lowest and highest cost groups amounted to only seven cents per ton of feed fed.

It would appear, therefore, that economies to size in terms of fixed costs were relatively small over the range of operations examined.

Administrative staff and supplies

Consultant

Other fees

Maintenance and repairs

.79

.16

.15

1.14

1.25

.20

.17

1.06

1.09

.18

.49

1.04

7.76 7.42

The use of standardized system for determining depreciation costs increased the differentials be- tween the size groups.

Fixed costs per ton for the largest size group remain about the same at

$3.13, but for the 10,000 to

20,000 capacity lots, costs rise to $3.44 and for the 20,000 to 30,000 unit size, costs are $3.40 (Appendix A).

Total Variable Costs 8.23

Total Fixed Costs

3.20

TOTAL COSTS 11.43

3.18

10.94

3.13

10.55

Variable Costs of

Operation

Variable costs are those expenditures which are subject to change according to the number of cattle fed.

Variable costs considered were labor, mainten- ance and repairs, interest on omating capital, power and fuel, administration, veterinary and medical supplies, consultant fees, and miscellaneous expenditures. Labor, interest, administration, and maintenance and repairs were the four largest vari- able costs, composing approximately 80 percent of the total (Table

9).

Cost economies were also evident in the short term interest expenditures of feedlot operations.

Feedlots with the smallest capacities registered the highest interest costs. Average interest costs by size groups ranged from $1.05 per ton of feed fed to $0.67.

Specialization of activities undoubtedly contributed to the larger firms' ability to manage funds and thereby reduce costs.

Additionally, larger firms were charged a lower rate of interest, reflecting savings associated with loan size.

Total variable costs were lowest for operations with feeding capacities over 30,000 head.

Cost per ton of feed fed averaged $7.42, which was

34 and

81 cents less than for units of

20,000 to 30,000 head and 10,000 to

20,000 head, respectively

(Table 9).

Although cost economies were evident by size of operation, there were no apparent cost savings by region of operation. Feedlots in Pinal, Maricopa,

Pima, and Yuma Counties all registered similar variable costs.

Administrative costs listed in Table

9 included expenditures for wages paid to secretarial and clerical staff, office supplies, communications, transportation, and other sundry costs. These ranged from a high of $1.25 per ton of feed fed for firms in the 20,000 to

30,000 head classifica- tion to a low of $0.79 for feedlots under 20,000 head.

Operations of over 30,000 head averaged

$1.09 per ton of feed. The range in administrative costs for individual firms was from $0.25 to

$2.47 per ton of feed fed.

Feeding operations exceeding 20,000 head capac- ity had economies in labor use.

The wage bills for larger operations averaged 18 to 25 percent below the average of $3.15 per ton of feed fed associated with 10,000 to

20,000 head operations. Reductions in labor costs were attributable to the greater labor specialization by larger operations as well as their higher degree of mechanization.

The size of the office staff, the largest single expenditure in administration of

Arizona feedlots, was not related to location, size, or type of feeding facility. Some feedlot owner managers undertake a large array of responsibilities in the operation of the lot, reducing their admini- strative costs substantially, while other owners delegated many responsibilities among their firm's employees. The overhead in staff salaries in the latter case far exceeded costs recorded by the smaller administrative operations.

9

Maintenance and repair costs for facilities and equipment, per ton of feed fed, declined slightly as the operations increased in size.

Feedlots with over 30,000 head averaged

$1.04, while those with

20,000 to 30,000 head had costs of $1.06 and the

10,000 to

20,000 units had $1.14 per ton of feed fed.

Many of the larger firms had relatively new facil- ities and consequently, less maintenance was re- quired. This was offset, however, by the higher depreciation costs associated with the newer and larger investments (Table

8). range were $4.31 per ton of feed fed between the highest and lowest cost operations.

FIGURE

18-

7.

NON

RATES,

COSTS AND CAPACITY

ARIZONA,

1971.

UTILIZATION

Total Nonfeed Costs

Total nonfeed costs, based on an average capac- ity utilization rate of 88 percent, were lowest for operations with feeding capacities of over 30,000 head at $10.55 per ton of feed fed.

Smaller sized lots averaged $11.43 per ton of feed fed (Table

9).

Individual firms' costs ranged from $7.84 to

$12.00 per ton of feed fed in 1971.

w w w

0

15

Z

O

F-

-

_1 a

O

H

w

C9

w

o_

H cn o l0-

7-

B

(HIGHEST

COST FIRM)

C

(AVERAGE

COST

FOR THE INDUSTRY)

A

(LOWEST COST FIRM)

Feedlots with feeding capacities under 10,000 head typically were part of other general farming operations and costs of operation of the feedlot were mixed with the expenditures of the total agri- cultural operation. Most small operators lacked detailed accounting records to separate the costs of their feeding operations, and were only able to submit estimates on total feeding costs.

E5

Q

0++

0

I

30

I

40

I

50

I

60

I

70

I

80

UTILIZATION RATE, PERCENT

1

90

100

The average estimated total nonfeed cost for small farmer- feeder operations was approximately

$12 per ton of feed fed. This was the highest among all feeding operations in the state. The lower degree of specialization within the labor force and the type of feeding equipment were important factors contributing to higher unit costs. The diversifica- tion of the total operation requires a flexibility within the farming business, reducing efficiencies in any one enterprise. in

Variations however, steer for in are small nonfeed slaughter. costs relative to between operations, the total costs to fatten a slaughter animal.

Total nonfeed costs com- pose only

12 to 15 percent of the costs to ready a

Small incremental cost savings feed purchases or cattle feeding performance can quickly offset high yard and mill operational costs.

Nonfeed

Costs and Utilization Rates

FEED

RATIONS AND COSTS

Costs per animal fed for all commercial feed- lots are affected by the level of utilization of the feeding facilities. Based on the average for

Arizona firms, in 1971, the estimated nonfeed costs ranged from $10.55 per ton of feed, operating at

100 percent of capacity to over $17.08 per ton, operating at less than 30 percent of capacity

(Figure

7).

Nonfeed costs for the firm in the sur- vey with the lowest estimated cost per ton of feed fed ranged from $7.50 per ton at 100 percent of capacity to $12.75 at 30 percent.

Similarly, for the firm with the highest costs, estimated nonfeed costs ranged from $11.82 to $17.18 per ton at utilization rates of 100 and

30 percent of capacity, respectively.

The 1971 utilization rate for firms over 10,000 head capacity was above relevant range region between of cost

70

70 and 100 percent. percent of

Therefore, estimates applies only capacity. the to the

Con- sequently, cost differences within this utilization

The cost tant inputs in cattle feeding. Grains and alfalfa hay represented approximately

87 percent of the ration vitamins, urea, and hormones up the remaining

13 percent of the total ration (Table

10). Devia- tions from these proportions existed for individual firms. for of rations feeders in is one the state of the most impor- in 1971. Feed

Operations in the farmer showed the greatest array of ingredients in their feeding rations. Availability of substitute feeds derived from farming operations permitted alterna- tive ingredients to be used. Silage, cottonseed hulls, and beet pulp were the most common of these substitutes. Although some feedlots of over 10,000 head capacity also used by- feeds, the major- ity of the larger feedlots mixed a standard ration of alfalfa hay, grains, and supplements.

10

TABLE

10.

A COMPOSITE OF FEEDING PROGRAMS

FOR

ARIZONA FEEDLOTS,

1971 -72.

Feed

Ingredients

Starting Intermediate

Ration

Ration

Percent

Finishing

Ration

Roughage

Alfalfa hay

Cotton hulls

Other

46.8

1.6

2.3

28.4

1.3

1.0

10.6

0.4

Feed Grains

(Milo, barley, and wheat)

High Energy

Substitutes

Beet pulp

38.3 58.1

0.2

77.5

0.2

Supplements

Fat

Molasses

Nutrients

(vitamins, minerals, urea)

1.0

7.0

3.0

2.5

5.5

3.0

3.3

4.5

3.5 in the western sections of the state was due to the additional cost of transportation from the major exporting regions of

Nebraska, Kansas and Texas.

FIGURE

8.

ALFALFA HAY PRICES

IN

ARIZONA, 1962

(AVERAGE MONTHLY PRICES RECEIVED

BY

FARMERS) s

°1962 1964

1966

1968

YEARS

1970

1972

Source: Agricultural Prices, Statistical Registry

Service, USDA, PR

(1-

-PR

1 (12

FIGURE

9.

GRAIN SORGHUM PRICES

IN

ARIZONA,

1962-

1972

(AVERAGE MONTHLY PRICES RECEIVED

BY FARMERS).

Approximately 76 percent of the feedlots utilized three rations for different stages of animal growth.

The other 24 percent of the firms in the state found either four or two rations more appropriate. Those using programs of two and four rations generally specialized in the feeding of heavy cattle

(550

/or light cattle

(300

A few feedlots found a four for general fattening.

Variations in ration formulas, of course, were also common in the daily operation of feedlots. As commodity prices and the availability of feed prod- ucts fluctuated throughout the year, firms altered their ingredients to achieve the most economical mixture. Prices for grains and alfalfa hay, for example, have varied as much as $8 to $10 per ton in a year (Figures

8 and

9). s o1962

I

1964 1966 1968

YEARS

1970

I

1972

The cost of mixed rations has varied signifi- cantly since the survey of feedlots was conducted in early

1972.

Prices of feed grains have increased over

20 percent since April, increase from increase in

40 to 70 cents alfalfa hay

1972. per prices.

Ration costs ton for each dollar

The cost of mixed rations also varied by loca- tion of feedlots.

Feedlots in Final, Pima, and

Maricopa Counties found rations with high concentra- tions of grain most economical. Savings of 10 to

15 cents per hundredweight were registered over competing feedlots in western Arizona.

These savings reduced costs of intermediate and finishing rations of

Central Arizona feedlots approximately

$0.61 and $1.85 per ton. The added cost of grains

Source:

Agricultural Prices, Statistical Reporting

Service, USDA, PR

1 (1- 62)

-PR

1

(12

Despite the higher grain prices in western

Arizona, feedlots located in Yuma County recorded the lowest cost for a starting ration. Alfalfa hay, the primary ingredient in this ration, sold FOB Yuma feedlots at $3 to $4 per ton less than in Central

Arizona. The Wellton, Mohawk, and Yuma Valleys produced a surplus of hay, whereas the Central

Arizona supply was insufficient to meet the require- ments of local feedlots.

Although cost savings in feed appeared by region of operation, there was insufficient evidence to determine if cost economies in feed procurement

11

were achieved by feedlots according to size of oper- ation. Purchase, delivery, and storage patterns of feed by the industry's firms were mixed among the various size groups.

Many feedlots traded feed in- ventories.

For example, it was not uncommon for a feedlot to stock its mill with feed from a compet- itor's inventory of grain, registering a credit to the loaning lot for the tonnage withdrawn to be replaced at a specified date in the future. Addi- tional costs of interest, storage, and shrinkage were intertwined in the replacement price of grain, further complicating a comprehensive itemization of feed expenditures.

REVENUES AND PROFITS charged the feedlots by local banks.

Interest earn- ings, however, were only a supplemental income, since these firms financed less than

20 percent of the cattle placed in the yard by custom feeders.

Customer financing within the industry was primarily considered a management service for the private investor.

Custom feeding was common only to larger lots.

Small operations owned their cattle and fed, financed and managed their inventory for private sale. The income of farmer of cattle fattened in the lot.

Returns fluctuated as prices for live cattle varied through the year, and in 1971 profits from individual lots of cattle ranged from a net return of $35 per head to a loss of over

$25 per head.

The major source of revenue for the operation of commercial feedlots in Arizona was the income received from the sale of feed and services to cattle feeding clients. Revenue earnings from these sales in 1971 averaged

$54, $64, and $68 per ton for the three starting, intermediate, and finishing rations. Also included within the total charge for each ration was a markup fee which ranged from

$10 to

$14.50 per ton. This fee was charged to cover the yard's operational costs as well as guaranteeing the firm an adequate invest- ment return.

In contrast to the income variation of small operations, the weighted average profit for the feeding of custom cattle by commercial feedlots in

Arizona was $3.21 per ton of feed fed and sold.

This profit margin included the revenues from handling

(or chute) fees, and interest charged for customer financing.

The profit margins of individual firms feeding cattle varied from $1.25 per ton to

$6.50 per ton throughout the industry for

1971.

There was no evidence, however, to suggest that prof- it rates were correlated with size or location of feedlots. charged head this

All operations feeding cattle on a custom basis to a handling cover castrate, and placement fee or chute fee the costs was for their expenditures to and veterinary services. of $2 to $2.50 per to separate, brand, dehorn, vaccinate each animal.

The purpose of compensate the feedlots on labor, medical supplies,

Additional revenues were collected by some of the commercial feedlots from the financing of custom feeding programs. Interest paid by clients ranged from

1/2 to 1 percent above the commercial rate

Profit earnings from commercial cattle feeding totaled approximately $9.50 per unit of capacity.

This level was estimated on the basis of 2.96 tons of feed consumed per unit of capacity and sold at a profit of $3.21 per ton (Appendix

B).

Based on present value estimates of investment at $58.00 per unit of capacity, a return of

16.4 percent was realized above normal market rates of return.

Alternatively, the profits realized may also be classified as additional returns to management.

CHAPTER

IV

CUSTOM CATTLE FEEDING

IN

ARIZONA

Feedlot owners in

Arizona have specialized in feeding cattle on a custom basis for the last five to six years. These custom operations provide all or part of a series of services, depending on the clients' wishes. Services may include buying feeder cattle, feeding and managing them during fattening, and marketing the fattened animals when ready.

Additionally, the feedlot owner may provide or arrange for financing as a service to clients.

The client usually pays for the service provided as part of the bill for feed fed by the feedlot owner. For but two of the state's

29 largest feeding corporations fed cattle for custom clients.

Both of these firms filled their lots with company owned cattle.

Surveys were conducted during the first quar- ters of 1972 and 1973 to determine the ownership characteristics of custom fed cattle.

Information was obtained from

23 of the feedlots, representing approximately 80 percent of the state's feeding capacity. Only one of the eight included in the survey, with less than 10,000 head capacity during did custom feeding. However, firms of over 10,000 head capacity have gradually increased their inventories of custom cattle. In 1971, six firms had

51 percent or more of their cattle on feed by custom clients, but by March

1973, 13 firms fed at least

51 percent of their numbers for custom clients (Tables

11 and 12).

12

TABLE

11.

PERCENT OF CUSTOM FEEDING

BY

SIZE OF

FEEDLOT, ARIZONA, JANUARY -DECEMBER,

1971.a

Size of Feedlot 0

Percent Custom Fed

1

-25 26 51

-100

Number of Firms

- - -

Under 10,000

7

1

Over 30,000

TOTAL

1

8

1

1

2

2

1

3

7

2

1

3

2

1

3

13).

Based on the common margin requirement of 30 percent for short term credit and 15 percent for long term loans, the custom feeding operation could finance 29,429 head compared to 4,293 for the full ownership system.

The wide difference in size of facilities is a function of the system of financing common to custom feeders. The client provides the capital for pur- chase of the feeder and is billed monthly by the custom feeding firm for the cost of feed and feeding services.

Thus, the feedlot providing custom ser- vices provides capital only for the facilities plus feed and operating expenses on a 30 full ownership feeder provides capital for facilities, feeder cattle, and operating expenses for the full feeding period involved. aRespondents represent approximately 38 percent of total number of feedlots engaged in cattle feeding with a combined feeding capacity of 484,000 head, or 80 percent of the estimated feedlot capacity in the state, based on estimated total capacity of

605,000 head.

In addition to the reduction in capital require- ments to finance commercial feeding operations, custom feeding spreads the risks associated with feeding. Prices and costs are subject to major changes in relatively short periods of time. As a result, the industry can and does experience, at varying times, high profits and high losses. Since the custom feedlot owners make their returns based on charges for services provided to clients, the market risks associated with cattle feeding are transferred to their clients.

TABLE

12.

PERCENT OF CUSTOM FEEDING BY SIZE OF

FEEDLOT, ARIZONA, MARCH 1973.

Size of Feedlot

0

Percent Custom Fed

-25 26

51 76

-100

- - - -

Number of

Firms

- - - -

DISADVANTAGES OF CUSTOM FEEDING

Under 10,000

Over 30,000

7

2

1

1

2

4

1

2

3

Commercial feedlots specializing in custom feeding in the state have large amounts of capital committed to facilities. The primary strategy of feeding firms is to maintain a high level of capac- ity utilization.

Dips and peaks in the beef cattle market affect the profit levels of firms since

TOTAL

9

0 1

7

6 feed on the basis of market conditions. aRespondents represent approximately

45 percent of the total number of feedlots engaged in cattle feeding with

78 percent of numbers on feed for

March 1973.

ADVANTAGES OF CUSTOM FEEDING

TO

ARIZONA FEEDLOT OPERATIONS

Thus, while the practice of custom feeding permits expansion of plant size and spreads risks associated with feeding, it leaves the feedlot firm vulnerable to decisions of clients over whom the firm has limited control. Withdrawal of clients in adverse market situations can leave the firm with unused facilities which, in turn, causes unit costs to rise. In recognition of this risk, various management strategies, discussed later in this chapter, are employed to minimize such occurrences. The shift by the industry to feeding cattle on a custom basis for ranchers, cattlemen, and investors has been necessary as a means of acquiring addi- tional capital and of spreading risks.

Capital made available through custom clients reduces the large reserves needed to finance feeding operations and permits feedlots to expand and obtain economies of size. Capital required for the purchase of feeders feed, and other operating expenses exceeds invest- ment in plant facilities by three or four times.

As an illustration of the advantage provided, it was assumed an individual or group had available capital reserves of

$500,000 and budgets were formu- lated with custom and total ownership feeding (Table

CUSTOM FEEDING CLIENTS AND SOURCES

OF INVESTMENT CAPITAL

Major custom feeding clients in

Arizona have been ranchers, farmers, feedlot owners, cattle buy- ers and packers (Table 14). However, the numbers on feed owned by ranchers and farmers averaged only

4 percent of the total inventory of custom fed cattle during 1971 and

5.5 percent in March

1973.

It appears the relative importance of custom feeding by this rancher-

13

TABLE

13.

COMPARISON OF CAPITAL REQUIREMENTS

BY COMMERCIAL CUSTOM FEEDING OPERATIONS AND

FULL

OWNERSHIP

FEEDING

FIRMS.

Capital Requirementsa

Capital for fixed investments

Operating capital

Capital for feed purchases

Capital for feeder cattle purchases and related miscellaneous expenses

Company Cattle

Feeding Facility

Equity

Capital

Borrowed

Capital

11.25

7.02

33.19

Commercial Custom

Feeding Facility

Equity

Capital

Borrowed

Capital

$

/Unit of Capacity

11.25 75.00

23.40

1.00

110.63

4.74

75.00

3.34

15.80

65.00 217.00

426.03

94.14

Total Capital Requirement

Total capital reserve, dollars

Maximum feedlot capacity per operation

116.46

500,000

4,293 head

16.99

500,000

29,429 head aCapital requirements are based on 1971 cost levels for replacement costs of fixed investments, operating capital, capital for feed, feeder cattle, miscellaneous expenses (Chapter

III). Costs to feed animals based on parameters in

Appendix

A. bEquity Capital is referred to in the banking community as leverage capital.

TABLE

14.

OWNERSHIP OF CATTLE

FED BY CLASS OF

OWNER, ARIZONA.

Ownership

Investment corporations or groups

Cattle management companies

Investment groups

Feedlot ownership

Feedlot owners and personnel

Feedlot company

Packers

Land cattle companies and professional cattle investors

Farmers and ranchers

TOTAL

Percent of Cattle

Fed

1971a March

1973b

40.0

36.0

8.0

12.0

4.0

100.0

52.0

37.9

14.1

23.5

15.9

7.6

5.5

13.5

5.5

100.0 aBased on responses from

23 firms which represented

80 percent of the state's feeding capacity,

1971. bBased on responses from

23 firms which had

76 per- cent of the cattle on feed, March 1973.

The farmer- less interested in feeding as feeder prices have increased in recent years. He is more inclined to use his capital and management capacities in expanding his calf produc- tion operations with which he is more familiar, since those operations are now profitable.

Beef packing companies, land and cattle corpor- ations, and professional cattle speculators were more actively involved in custom feeding than the farmer- rancher.

Numbers on feed have stabilized at about 20 percent of the total inventory of cattle in

Arizona feedlots for the last two and a half years.

Packing houses usually feed cattle to guarantee a level of slaughter cattle to supply specialty cuts and types of meats for retail outlets. The packing plants of the state seldom placed cattle on feed to maintain continuous supplies. Packing firm manage- ment generally argue their companies are processors and suppliers of fresh beef and not speculators on the fat cattle market.

Feedlot owners, partners, managers, or stock- holders in 1971 owned

36 percent of the cattle on feed. Ownership of animals on feed was a common practice among the feedlot operators and associated personnel. The percentage of cattle fed by persons linked with large commercial feedlots ranged from

5 to

75 percent with the typical number owned by feedlot personnel at about 20 to 25 percent of the capacity (Table 15). Ownership of cattle by feed- lot interests has declined from the 1971 level.

14

Individuals linked directly with commercial feedlots controlled nearly

16 percent of the numbers on feed in

March of

1973 with feedlot company ownership owning an additional

7.6 percent. In total, these feedlot interests owned 23.5 percent of the animals on feed during March 1973, a drop of

12.5 percent from 1971 levels (Table

14).

TABLE

15.

OWNERSHIP

BY

FEEDLOT OWNERS, PARTNERS,

MANAGERS, AND STOCKHOLDERS

BY

SIZE OF

FIRM, 1971.a

Percent of

Ownership

Size of

Feedlot

Under 10,000

0

1

-25 26

51

-75

76

-100

1

7 deferrals.

This source may be sporadic and contains some uncertainty, due to the possibility of changes in the law.-1/

Under present law and the cash accounting method, costs for agricultural operations are deduc- tible upon payment and income is reported when re- ceived.

With a planned investment program this method can result in deferral of income from one tax year to the next. By delaying declaration of the full income earnings of a year, investors are given time to seek tax shelter investments which may con- vert ordinary income into capital gains. It also permits the firm or individual to reinvest tax savings during the deferral period. Deferral of incomes may also benefit investors moving to lower tax brackets in the near future due to retirement or other changes in income status.

5

2

1

20,000- 30,000

Over 30,000

TOTAL 0

1

8

2

3

6 aRespondents represent approximately

38

1

2 7 percent of total number of feedlots engaged in cattle feeding with a combined feeding capacity of 484,000 head, or 80 percent of feedlot capacity in the state.

The extent of cattle owned for tax purposes in the state is now known. Data describing the types of custom feeders participating in the feeding in- dustry are limited. Also, it is difficult to dis- tinguish between the primary objectives of tax management and profit earnings among investors in cattle feeding. Many investors are committing funds to feeding programs with both objectives in mind.

However, it is apparent that cattle feeding by limit- ed partnerships are becoming more popular among investors interested in tax management programs. turally oriented interests, with

40 percent of the total, had the largest ownership of cattle on feed in 1971. Furthermore, interest in custom feeding by investment management firms, investment groups, commercial banks, insurance companies, and other financial institutions has been increasing substan- tially.

Reported returns on equity capital of 12 to 20 percent on cattle holdings during the first three quarters of

1972 drew the attention of many new investment and financial institutions.

As a result, investment corporations or groups had in- creased their share of the cattle on feed by

March

1973 to 52 percent.

The largest part of this owner- ship is controlled by cattle management companies servicing investment institutions and individual investor interests. First quarter estimates placed ownership levels at 37.9 percent for these manage- ment companies compared to

14.1 percent controlled by private investment groups

(Table 14).

Investment funds offer numerous advantages in capital management to feedlot firms. These funds generally manage their capital to gain average year to year returns, and therefore, are more inclined to maintain relatively constant inventories of cattle on feed. This assists the feedlot in planning commodity and feeder purchases and in maintaining capacity relative to plant facilities. The accom- panying reduction of uncertainty improves profit potential, reduces costs and institutes a growing preference for this source of capital in the industry.

Some capital has also been entering the indus- try to take advantage of permitted federal tax

Total Costs

COSTS OF CUSTOM FEEDING

The costs and performance of cattle on feed are highly variable and subject to numerous factors which affect returns. Feed conversion efficiency, death rates, prices of commodities and feeder cattle are some of the factors which influence returns from feeding.

Estimates were made for costs in custom feeding, based on the average of experiences recorded in

Arizona in 1971 (Table 16).

Cattle placed on feed at weights under 500 pounds averaged a total cost per pound of gain at the feedlot, including interest, of

27.06 cents. Costs for this weight group ranged from 25.91 cents to

27.62 cents. Costs, including interest, for heavier placement weights

(501 pounds) averaged 27.88 cents per pound of gain. The higher costs were largely due to differences in feed conversion. Feed conversion ratios averaged

7.8 for the heavier placement weights versus

7.3 for the lightweight cattle.

Feed costs were estimated at

20.30 cents per pound of gain for heavyweight cattle compared to 19.48 cents for lightweights.

The highest cost per pound of gain was regis- tered for cattle placed on feed at over 600 pounds.

Feed costs rose to

21.40 cents, bringing total costs at the yard to 29.51 cents per pound of gain.

Costs for the heaviest group of feeders were nearly

2.5 cents per pound of gain more than for the lightest weights.

15

TABLE

16.

COSTS PER POUND OF GAIN

FOR

CUSTOM

FEEDING, ARIZONA, 1971.a

Placement Weights

Item Under

500 lbs.

501-

600 lbs.

Over

600 lbs.

-

Cents Per Pound of Gain

-

Feed Costs

Feed

Markup charge

Medical and Veter- inary Costs

Death Loss

19.48

4.32

.40

1.15

20.30

4.59

.37

.76

21.40

5.12

.33

.68

(Figure 13). Death losses are much more important.

If feeders weighing 500 pounds and valued at $250 have a death loss experience of

1 percent, the cost per pound of gain will be 0.5 cents.

However, a

4 percent death loss will result in a cost of two cents per pound of gain (Figure 14). For this weight and value of feeder, each percentage point increase in death losses results in 0.50 cents in- crease in the cost per pound of gain.

The average death rate recorded by the industry for 1971 was

3.6 percent for lightweight and 1.4 for heavyweight cattle. Experiences of individual feeders and of lots of cattle varied significantly, however, from the industry average.

Interestb

Cattlec

Custom charges

Total cost

1.20

.57

27.06

1.44

.42

27.88

1.63

.35

29.51 aAverage cost data were recorded from approximately

40 percent of the cattle marketed in 1971. bCosts based on a

7 a

30 percent margin requirement.

FIGURE

10. THE EFFECT OF ALFALFA HAY

AND GRAIN

PRICE CHANGES

ON

RATION

COSTS.

X o o z

65 o

~

60 o

LLI d

55 z

2

50

4

Cr

45 u_

40

STARTING

RATION'

FEED GRAIN PRICE

(DOLLARS)

/

TON: o

70 o

40

75

70

65

60

55

50

45

INTERMEDIATE RATION`

FEED GRAIN PRICE

(DOLLARS)/ TON:

80

60

50

85

,FINISHING RATION.

FEED GRAIN PRICE

(DOLLARS)

/

TON)

90

80

70-

65

6

55

50 e

70

60

50 cTransportation cost of feeders included in total price per cwt.

O

35

40 4

40

Feedlot Charges

á

30

H

4

0

25 30

I

35

I

I i

40

45 50

35-

4

O

25

7

I

30 35

I I

40

45 50

40-

4

O

25

I

30

35

PRICE OF ALFALFA HAY PER TON (DOLLARS)

I

1

I

40 45 50

Costs per pound of gain for custom feeding clients depend on charges by the feedlots for raticns, the custom service markup, and efficiency of gain of feeders. All items in the ration affect the total cost but hay and grain are the major ingredients.

Changes in prices of these items greatly affect costs. For example, with alfalfa hay costing

$30 per ton and grain $50 per ton, finishing rations cost $51.07 per ton for the feed ingredients alone, but with grain at $70, the ration ingredient costs rise to

$66.57 (Figure

10).

Feedlot ration costs, in turn, greatly affect the costs per pound of gain.

For example, with a conversion ratio of 7.5, feed costs per pound of gain are nearly four cents more for rations costing

$70 per ton than for those costing $60 per ton

(Figure

11). Similarly, with a feedlot ration of

$65 per ton, a conversion ratio of 7.0 results in custom feeder costs of over three cents per pound of gain less than with a conversion ratio of 8.0

(Figure 12). Thus, both conversion ratios and basic feed charges are major factors in determining costs of gain.

Costs for medical and veterinary fees and death losses are comparatively minor.

As medical and veterinary fees vary within their normal range of $1.50 to $5.00 per head, costs per pound of gain for this service range from 0.25 to

1.25 cents for feeders when adding 400 to 600 pounds of gain

*Note:

Markup fees not included; cost of feed supplements and substitutes held at

1971 price levels (per ton).

Fat, $150.00;

Molasses, $38.00; Nutrients, $68.00; Beet

Pulp, $56.00; Cotton Hulls, $25.00.

The graphs on costs for feeding cattle can be used as a guide in estimating costs of gain within the range of prices and performance parameters shown. For example, a custom feeder being charged

$80 per ton of feed fed, including the feedlot owners' markup fee, will incur a total feed and feeding cost of

30 cents per pound of gain on feed- ers placed at 450 pounds with a 7.5 feed conversion ratio (Figure 12). Medical and veterinary costs of

$3 per head for 550 pounds of gain will average

.54 cents (Figure 13), raising feeding costs to

30.54 cents per pound of gain. Finally, a death loss of

4 percent for 450 at $50 per hundredweight will add $8.90 cost per head.

Assuming 550 pounds of gain, this cost averages 1.7 cents per pound of gain. Summing each of these items gives a total cost per pound of gain of

32.24 cents.

Similar calculations can be made for interest costs.

These will vary with interest rates charged and total value of the investment in the feeder and the feeding program. While the differences are

16

relatively small, they are important.

For example, a difference of

1 percent in the interest rate on a feeder calf costing $250 and fed at a cost of $175 would amount to less than one of a cent per pound of gain.

A difference, even this small, be- comes meaningful when considered in terms of thousands of cattle fed.

FIGURE

11.

EFFECTS OF CONVERSION RATIOS AND RATION

COSTS ON COSTS

PER POUND OF

GAIN.

(MARKUP FEES NOT INCLUDED.)

PRICE PER TON OF RATION

(DOLLARS):

90

85

FIGURE

12.

EFFECTS OF RATION CHARGES

ON COSTS OF

GAIN FOR

CUSTOM

FEEDING.

40-

38-

36

-

34 z

<I

(D

32-

Ó

30-

o

Z

D o a-

28-

26

-

CONVERSION RATIOS:

8.0

7.5

7.0

30-

Z

(

28

0

Z

o

26-

a_

80

75

70

65

1--

Z

22-

w

U

20

_

18

16

0 d-7

50

1

60

1

70

I

80

'

I

90

'

I

100

CHARGE PER TON

OF RATION

FED

(DOLLARS)

(CHARGE=

MARKUP

FEE

AND

COST OF

RATION)

O4

7.0 7.5

8.0

CONVERSION

RATIO - (POUNDS

OF

FEED/

POUNDS OF BEEF

)

60

PROFIT AND BREAKEVEN PRICES

Profit margins in feeding cattle can be inter polated for the changing market prices of feeder and fat cattle given the expected costs of feeding.

There is extensive variability in profit experienced as placement weights, sale weights, performance levels, and prices of both feeders and fat cattle fluctuate between lots.

Breakeven prices for cattle placed on feed at weights ranging from

350 to 600 pounds can be deter- mined from Figures

15

Prices for fat cattle are based on net sale weights, assuming a shrinkage level of

4 percent per animal.

Fat cattle prices exceeding the breakeven levels bring a profit to the cattle investor. For example, a

-pound feeder calf purchased at the average Kansas City price for

February 1973 of $56 per hundredweight and fed to

500 pounds net gain, with a feeding cost of 33 cents per pound of gain, will break even at a fat cattle price of $43.85 per hundredweight.

Similar breakeven relationships can be developed from other weight categories and differing costs of gain. They can be used as guides in helping to decide the merits of a given investment possibility for an individual placing cattle in feedlots on a custom basis.

17

FIGURE

13.

EFFECTS OF MEDICAL AND VETERINARY COSTS

ON COSTS PER

POUND

OF GAIN.

1.50

1.25

1.00

POUNDS

OF

GAIN:

400

450

500

550

600

FIGURE

15.

BREAKEVEN PRICES FOR 350 POUND FEEDER

CATTLE WITH

A

650 POUND NET GAIN AT

ING COSTS PER POUND

OF GAIN.

52-

COST PER POUND OF GAIN (CENTS):

33

31

29

27

25

23

.75

.50

.25

0

I

2 3

4

MEDICAL AND

VETERINARY

COSTS

(DOLLARS PER

HEAD)

30-

28-

26-

FIGURE

14.

EFFECTS OF DEATH

LOSS ON

COSTS PER

POUND

OF GAIN. c350-

FEEDER CATTLE WEIGHTS:

550

500

450

400

áV

> o

f

30 40 50

60

)--

80

20

UW

FEEDER CATTLE PRICE

(DOLLARS) /HUNDRED LBS.

DEATH RATEI%):

6

S =

15

á

óá

1O

J-1

QO

5

O

1-

0

0

100

200

300

VALUE

OF

FEEDER ANIMAL

(DOLLARS

/HEAD)

5

4

3

2

1

0

30

`

T

40

TOTAL FEEDER

1

50

I

60

I

70

I

80

CATTLE

COST(DOLLARS

/100

POUNDS)

POUNDS OF GAIN:

400

450

500

550

600

5

10

15

TOTAL DEATH COST

(DOLLARS

/

HEAD)

20

Source: Greene,

C.

H. and Ljundahl, W.A., Breakeven

New Mexico State University, Cooperative

Extension Service, March

1972.

FEEDLOT OWNER STRATEGIES RELATIVE

TO

CUSTOM FEEDING

As indicated earlier, feedlot owners use custom feeding as a method of increasing the size of opera- tions by bringing in outside capital. This method is also used to help spread some of the risks asso- ciated with cattle feeding. While some risks are reduced, the system leaves feedlot owners dependent on clients for utilization of plant capacity. Full utilization is an important factor in keeping per unit costs down (Figure

7).

There are a number of policies or strategies which can be employed by feedlot owners to try to maintain client interest. These are of importance,

18

especially in weak or declining markets when in- vestor interest in cattle feeding can be expected to decline.

FIGURE

16.

BREAKEVEN PRICES FOR 450 POUND FEEDER

CATTLE WITH A 500

POUND NET GAIN

AT

SELECTED FEEDER CATTLE PRICES AND

FEEDING COSTS PER POUND OF GAIN. arrangements used, entails the absorption of losses below a prescribed level, by the feedlot firm, when they are sustained by clients.

In return, the feed- lot owner shares in profits earned by clients.

Typically, feedlots absorb losses below $10 to $20 per animal and split clients' profits if they exceed these amounts per animal.

This arrangement is most attractive to custom clients during weak fat cattle markets.

46-

44-

42-

COST PER POUND

OF

GAIN (CENTS):

33

31

29

27

25

23

40- t-

U

38-

J

ó

36-

v

34-

Er a w

J

32-

30-

>

w

< 28-

m

26

0

t,

ITT11111111i1111

1111

30 35

40 45

50

FEEDER CATTLE

PRICE m

55

il,ill

60

POUNDS)

Source: Greene,

C.H. and Ljundahl, W.A., Breakeven

New Mexico State University, Cooperative

Extension Service, March,

1972.

FIGURE

17.

BREAKEVEN PRICE FOR 500 POUND FEEDER

CATTLE WITH

A 500

POUND NET GAIN AT

SELECTED FEEDER CATTLE PRICES AND

FEEDING COSTS PER POUND OF GAIN.

46-

44-

42-1

COST PER POUND OF GAIN (CENTS):

33

31

29

27

25

23

H

40-

U cn

W

a

38-

J

O

C

36-

w

E

a

34-

J

32- cra

Z

>

w

30

w

28-

CC m

26-

0

30

iiiiIIIIIIIII

iilII

III iIII

35

40

45 50 55 60

/I00

POUNDS) TOTAL FEEDER CATTLE

COST

(DOLLARS

Arizona feeders' strategy to date has been largely to obtain clients with long run investment interests. They promote and encourage clients to invest on a continuous basis. The assumption under- lying this policy is that returns will be greater by "market averaging" than by any other investment policy. date

While Arizona feeders have made limited use of to risk sharing and limited partnership agree- ments, other areas have used these methods exten- sively to encourage investment. The stop agreement, one of the most common risk

Source: Greene,

C.H. and Ljundahl, W.A., Breakeven

New Mexico State University, Cooperative

Extension Service, March,

1972.

The minimum investment needed to purchase a limited partnership generally varies from $2,500 to

$10,000, with a minimum life of three years. Most partnership contracts can be liquidated before the maturity date if a relatively high penalty fee is paid. These contracts give some assurance of continuity of investment. Feedlot owners can plan

19

utilization of space on a longer term basis and assure lower charges for the feeding service since costs are kept down.

FIGURE

18.

50-

48-

46-

-POUND NET GAIN AT

SELECTED FEEDER CATTLE PRICES AND

FEEDING COSTS PER POUND OF

GAIN.

COST PER POUND OF GAIN

(CENTS):

33

31

29

27

/ /

/

/

25

23

44-

pound of gain, had it been necessary as a measure to maintain capacity.

Alternatively, based on average performance in

1971,

Arizona firms could have permitted utilization of capacity to decline to between

45 and 50 percent without either raising charges or suffering losses

(Table 17). At this level, unit costs to the firm increase to the point of elimination of all profit as well as revenues to cover some long run non costs. It would not be an acceptable position except as a short run solution. While utilization levels decline, firms will recognize declining profit mar- gins and be inclined to raise charges as an offset.

This policy, however, must be recognized as having the likelihood of further reducing utilization rates where custom feeding is employed since clients' prof- its will be further reduced.

U

42-

-J

ó

38-

rn

J

34-

TABLE

17.

UTILIZATION RATES AND NON

FOR FEEDING CUSTOM CATTLE, ARIZONA, 1971.

Utilization

-

Rate

Percent

-

Total Costs Per

Ton of

Feed Fed

- -

Dollars

- -

100

95

90

85

80

75

70

65

60

55

50

45

9.60

9.75

9.91

10.10

10.31

10.53

10.80

11.12

11.47

11.90

12.39

13.02

W

32

>

w

w

x

30-

28

0

r

,,,I ,,,1

,

I,1

11;r1I

30 35

40 45 50

55

60

TOTAL

FEEDER CATTLE COST (DOLLARS

/

100

POUNDS)

Source: Greene, C.H. and Ljundahl, W.A., Breakeven

Finally, if feedlot owners have access to capi- tal, they can help to maintain plant utilization by increasing the number of feedlot owned cattle as cli- ents reduce investments. This can be done as long as losses

(if these occur) on the feedlot owner's cattle do not exceed the additions to profits asso- ciated with custom feeding at the levels of utiliza- tion being maintained. These are illustrated for various levels of operation in

Table

18.

New Mexico State University, Cooperative

Extension Service, March, 1972.

Feedlot owners can combat the exodus of inves- tors in periods of declining investor interest by reducing markups.

This system would help reduce losses by custom clients.

Actions of this type, however, are constrained by costs and profit margins of feedlot owners. Total nonfeed charges made by feedlots in

Arizona in

1971 averaged nearly

$13 per ton of feed fed per animal. Most of these charges were associated with variable costs of operating the feedlot and therefore could not be reduced.

In the short run, the firm can ignore depreciation charges, eliminate profit margins and forego interest on owned capital.

Operating at 1971 levels of capacity, firms probably could have reduced charges by one to

The figures in each of the squares in Table 18 indicate the maximum loss feedlot owners could sus- tain on owned cattle to maintain a given level of utilization and still break even.

The calculations are based on the average markup charge with asso- ciated profit margins as experienced in Arizona in

1971. For example, a firm which is operating at 60 percent of capacity, filled by custom cattle, could obtain a higher return by expanding utilization to

65 percent by adding

5 percent company owned cattle if losses associated with fattening and marketing this number were less than

$7.87 per head.

While market risk is involved, and must be considered, company owned cattle should have a better chance of at least breaking even than custom client cattle since costs to the company are less.

20

CHAPTER

V

ARIZONA

FEED SITUATION

Feed, as indicated in previous chapters, is one of the major inputs for the cattle feeding industry.

Rations are generally composed of 60 percent grain,

30 percent roughage, and

10 percent supplements.

The costs of these feeds are important to the com- petitive position of Arizona's cattle feeders. This chapter analyzes the feed situation in Arizona and discusses some of the implications of potential changes on the industry's future growth.

AVERAGE

Percent

350.9

51.1

FEED GRAINS

Feed Grain Production in considerably during the

34.9

Arizona

Feed grain production in Arizona has fluctuated last decade.

238.8 13.3 2.8

2.0 0.4

Production grains (sorghum, barley, wheat, corn and oats) dropped in 1962 to 393,200 tons from 542,900 in

1961, then rose to a record 932,000 tons in 1967.

79.3

11.6 of

Since 1967, feed grain production has varied between

800,000 and 900,000 tons per year

(Table 19).

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

TABLE

19.

FEED GRAIN PRODUCTION,

1961 -72.

Year

1972

Sorghum a/

Barley Corn Oats Wheat-

Total

1,000 Tons"

228.6 28.5

1,000

Tons

542.9

178.4

209.7

269.3 10.1 6.4

173.2 10.1 5.8 25.7 393.2

260.0

201.2 11.8

3.2

238.5

13.4 4.8

30.3

40.4

456.2

551.1

348.6

420.4

557.9

253.4

176.9

15.7

19.2

4.7

2.9

288.0 21.7

1.9

29.8

23.5

62.5

652.2

642.9

932.0 c/ 511.0

434.6

354.8

355.7

297.0

308.3 15.2

245.4

12.1

255.4

217.1

9.4

8.1

185.7 14.7 c/ c/ c/ c/

68.9

115.4

263.9

300.0

290.4

903.4

807.5

883.5

881.5

787.8

685.0

100.0

Even greater changes have occurred in output of individual grains. Grain sorghum production more than doubled over the period 1961 to

557,900 tons, then declined to

297,000 in 1972. Barley production fluctuated but no trends were observed.

Corn and oats, both relatively minor crops, declined.

Wheat has shown the most significant growth.

This has been largely a function of the introduction of new varieties which have resulted in yields in- creasing from 1.5 tons in the early 1960's to over two tons per acre in the early 1970's. This im- proved yield made wheat more competitive with other feed grain crops surpassing the yield rates of bar- ley and sorghum in the central and southwestern districts of the state. As a result of the in- creased wheat productivity, substantial transfers of acreage have taken place within these two regions

(Figure 19). Wheat acreage in the state grew from an average of

26,000 in the early 1960's to a peak of

173,000 in 1971 and estimated feed wheat produc- tion increased from under 30,000 to

300,000 tons by

1971.

Central and southwestern Arizona produced 90 percent of this growth in output (Table 20). Both acreage and estimated feed wheat production declined in 1972 to

170,000 and 290,400 tons, respectively.

The introduction of new wheat varieties has had a minor effect on the mix of grain crops in south- eastern Arizona.

Total acreage in feed grains showed some substitution of wheat with an expansion of

22,200 acres in the last three years (Table 20).

Sorghum remained the major grain crop, averaging a yield of 2.35 tons per acre, with approximately

100,000 acres in production until 1972, when acreage declined to

82,600. Barley and wheat crops are less competitive in this region, yielding 1.7 to

2.0 tons per acre.

Feed grains production in the northern district of Arizona has constituted less than

3 percent of the state's total production over the last decade.

Soil, land, weather, and economic factors restrict the production levels of the northern areas.

Feed Grain Consumption

The commercial feedlot industry is the major consumer of the state's feed grains.

Through the last decade, estimated grain requirements for cattle on feed averaged

77 percent of the tonnage demanded by the livestock industry. Consumption rates for cattle on feed increased from 462,600 tons in 1961 to

1,100,900 tons in 1972. Feed requirements of the

-Assumes

85 percent of total wheat production is for eed. onverted from bushels. o data available.

Source: Arizona Agricultural Statistics, 1966

Bulletins

S

-1 to

S

Arizona

Crop and

Livestock

Reporting Service, Phoenix, Arizona. from 188,000

The industry deficit tons to

282,200 tons (Table 21). higher consumption levels of the livestock has pushed feed

Arizona into an increasingly grain position. Feed grain require- ments have historically exceeded production in

22

Arizona, but in the last four years, the deficit has increased substantially. The feed grain deficit of

22,300 tons estimated for 1967 was the lowest of the period

1961 to 1971. The largest deficit for the period was 595,300 tons in

1972 (Table 22). areas extending from the Northwest and Rocky Moun- tain states to the

Midwestern grain belt. Nebraska,

Kansas, and the Panhandle of

Texas have been the major suppliers of grain to

Arizona cattle feeders.

It is estimated that between

30 and

40 percent of the total grain tonnage shipped into the state came from the Midwestern states in 1971.

FIGURE

19.

FEED GRAIN, YIELDS PER ACRE, ARIZONA,

BY

DISTRICTS,

1961 -72.

SORGHUM

3--

BARLEY--

WHEAT

-

--

2-

0 i,----

SOUTHEASTERN DISTRICT

(COCHISE,

GILA,

GRAHAM, GREENLEE,

PIMA,

SANTA CRUZ

)

'

1

TABLE

22.

ARIZONA FEED GRAIN BALANCE,

1961 -72.

Year Production Consumption

Deficit

(-

)

1,000 tons

1961 543.3 650.6 107.3

1962

1963

1964

1965

1966

393.5

456.2

557.1

652.2

642.9

699.9

745.1

785.1

840.0

849.9

306.4

288.9

228.0

187.8

207.0

22.3

1967

1968

1969

932.0

903.4

954.3

1013.1 109.7

1970

1971

1972

807.5

883.5

881.5

787.8

1270.4

1319.0

1372.0

1383.1

462.9

435.5

490.5

595.3

Average 703.4 990.2 286.8

SOUTHWESTERN DISTRICT

(YUMA)

Future

Feed

Grain Position in

Arizona

Projections presented in this section were made largely on the basis of past trends and estimates of possible technological developments which might affect production. They are intended mainly to in- dicate magnitudes and possible consequences of cer- tain kinds of assumed projections. Such estimates are considered important in terms of developments in the cattle feeding sector.

0

1961

CENTRAL DISTRICT

(PINAL,

MARICOPA)

1

T

1966

YEAR

,

1971

Source:

Arizona Agricultural Statistics; For 1966-

1972 Bulletins

S

-1 to

S

1972 Statistical

Reporting Service Office, Phoenix.

Resource and Urban Constraints on the

Feed

Grain Economy. The agricultural economy has com- peted aggressively against the elements for water in the arid environment of Arizona since the first

Americans settled in this state in the late 1880's.

Sources of water through the decades have been a major factor in many farmers' decisions to establish, continue or expand their agricultural operations.

Groundwater levels and surface water availability have been two of the principal parameters considered in agricultural production planning.

Due to the deficit of feed grains in the state, many feedlots have established market links with producers and merchandisers of feed grains to supply their grain requirements. The commercial feedlot industry imported approximately

45 percent of its grain requirements in 1971 from grain producing

research

conducted by

Drs. Kelso, Martin, and

Mack- on water supplies in the agricultural dis- tricts within Arizona show a continuous decline in the groundwater aquifers of the central district.

Based on production practices of the 1960's, they estimate the decline of the water table can be ex- pected to continue in future years. Projections

24

for 1985 show reduced groundwater levels in

Pinal and Maricopa Counties and for the major grain pro- ducing areas of

Cochise and Pima Counties.

The availability of water for agricultural pro- duction, however, will remain constant in the grain producing areas of Yuma, Graham, and

Greenlee

Coun- ties. The eastern counties of

Graham and Greenlee are expected to have sufficient water recharge to maintain

1966 water table levels, while Yuma County will continue to be served by surface water from the

Colorado River. Only institutional changes in

Arizona water rights to the Colorado River will alter the availability of water to local grain producers.

The decline of groundwater levels in the major grain producing areas of Pinal, Maricopa, Pima, and

Cochise Counties will ultimately lead to higher pro- duction costs due to increased pumping costs to irri- gated cropland.

Rising costs will squeeze profit margins, which is expected to alter the mix of crop acreage and feed grain production. Estimates of the effect of both the economic pressures of higher pro- duction costs and the urbanization of agricultural areas in the

Phoenix vicinity by the Kelso, Martin, and

Mack study show a decline in land available for grain production. grain sorghum yields projected by state agronomists could increase output to 386,000 tons on the basis of sorghum acreage.

Production levels pro- jected for barley, however, are less optomistic since yields have stabilized during years. Assuming yields remain the last five constant and acreage in barley production holds at

1970 barley production would remain at approximately 213,000 tans.

Total production of grains with the above sug- gested increases in yields would amount to 957,000

Additional increases in feed grain could be achieved by the sub- stitution of wheat for barley crops. However, even assuming the seasonal and economic constraints on crop substitution are relaxed to permit the complete changeover of wheat for barley, there still remains a substantial deficit in terms of feed grain require- ments based on livestock inventories in 1971.

An expansion of 146,000 fat cattle marketings, approxi- mately 16 percent of the 1971 production, would return the state to the same grain deficit position as in 1971.

Therefore, with fairly optimistic assumptions for the next decade, Arizona's grain deficit position cannot be expected to improve.

Alternatively, if acreages in fact decline as pro- jected in the previous section, the deficit position will be even greater.

Projections for 1982 place land allocated for grain production at about 423,300 acres. This acre- age represents a decline of 28,000 from the average in grain production for 1970 Two of the last five years, 1969 and 1972, actually experienced har- vested grain acreage at

416,000 and 415,000 acres, respectively, well below the projected level for

1982.

Based on these acreage projections feed grain output would be expected to decline, unless changes occurred in production per acre.

Technology Changes in the Feed Grain Industry.

The projections described in the preceding section have been developed from economic models representing a set of assumptions which have been determined to be reasonable, within the working framework of Ari- zona's agricultural economy. Two of the major assumptions in this model were the maintenance of production technologies and institutional constraints at 1966 levels through the projection periods of

1975 to

1985. However, advances in production tech- nologies have taken place, particularly in the development of wheat varieties. Wheat yields have improved

40 to 50 percent in the last decade, which has resulted in a dramatic increase in acreage in wheat production. Further research is being con- ducted on new wheat varieties, which some research agronomists feel may increase yields an additional

25 to 30 percent within the next decade.

Competitive Position in

Procurement of Feed Grains by Arizona Feedlots

Continuing and even growing deficits in feed grain need not be viewed as a major disadvantage in the feeding of cattle in Arizona.

Grain deficits in the last three years have increased substantially, yet growth in cattle on feed and expansion of feeding facilities has continued. The apparent paradox in the growth of the industry is due to a host of inter- relating factors such as efficiency of gain, climate, markets, transportation rates, and general management.

As a result of each of these and other variables, the industry has not been materially bound by the limitations of its feed grain position.

Feed grain production in the state represents less than

2 percent of the nation's total feed grain

. output, and local production levels have not been sufficient to affect the prices of feed grains to feedlot operations.

Supply and demand relationships within the feed grain belt of the Midwest dictates the benchmark prices for feed commodities.

Short run price aberrations occasionally appear in the local grain market; however, these conditions are temporary and will adjust to the Midwest prices plus transportation tariffs.

Relaxing the constraints on technology improves the production potential of the feed grain economy in the state. If average yields of wheat increase by 30 percent over the next

10 years, and harvested acreage in feed grain varieties holds at the average level during the 1970 rise to 358,000 tons. Similarly, improvements in

Establishment of marketing contacts with local grain merchandisers and producers offers numerous operational conveniences to the state's commercial feeding operations; however, substantial cost bene- fits are not evident in such market links. Many feedlots have developed market operations with out - of as market and transportation connections have improved in the last five years.

25

Importing of grains from Midwestern sources has been economically successful and competitive with local grain purchases.

Expansion of the dependence of local feedlots on Midwestern sources of grain should not reduce the competitive status of the industry, given equitable transportation tariffs in the future. annual output averaging 1,333,900 tons.

Alfalfa made up the largest percentage of this roughage averaging 1,096,800 tons per year.

Production of other hay was about 89,000 tons per year, while silage output, based on alfalfa hay equivalents, averaged 164,700 tons (Table 23).

The competitive position of the state in re- gards to feed grain procurement depends on transpor- tation tariffs.

Present rates to import grain aver- age 70 cents per hundredweight from the Nebraska

Kansas area and 65 cents from the Texas Panhandle.

Variations in tariff rates have substantial impact on the costs of gain in feeding cattle. For example, a shift of 10 cents per hundredweight in transporta- tion rates on grains can cause a change in the cost of fattening a

450 calf of

$2.60 or approxi- mately a half cent per pound of gain.

Similar tariff variations will alter costs to fatten

600 pound yearlings by approximately 0.57 cents per pound of gain.

Therefore, efforts to maintain the most economical transportation rates should be a prime goal of the cattle feeding industry in Arizona.

ROUGHAGES

Production of alfalfa hay, the major roughage ingredient in rations fed to cattle, is concentrated in the central area of the state. Land in alfalfa production averaged 117,300 acres and composed approximately 65 percent of the state's acreage in alfalfa hay.

Acreage varied up to 30 percent during the last decade, and production levels ranged from

704,600 to

551,400 tons.

Changes in output were also due to variation in yields.

Production per acre ranged from

5.1 to

6.2 tons with an upward trend indicated (Table 24).

Alfalfa yields have increased gradually southwestern region of the state. in the

Production acre climbed from an average of 5.5 tons in the early sixties to

6.3 tons in the last five years.

Total output of alfalfa hay in the

Yuma area reached per

427,800 tons in 1972, representing a continuous growth in output since 1967.

Roughage Production in

Arizona

The production of roughage in

Arizona has re- mained relatively stable for the last 10 years with

The northern and southeastern districts of the state produced the remainder of the state's alfalfa hay crop.

Annual production in these areas ranged between 113,300 and 173,600 tons since 1961. Yields

TABLE

23.

ARIZONA ROUGHAGE PRODUCTION,

1961 -72.

Year

Alfalfa

Hay

Hay

Other

Hay

Total

Hay

Sorghum

Silage

Corn

Silage

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1,112

1,008

1,024

1,024

1,085

1,040

1,039

1,091

1,015

1,230

1,186

1,269

87

83

83

83

88

86

103

97

100

86

82

85

1,209

1,108

1,110

1,106

1,170

1,127

1,122

1,174

1,096

1,318

1,272

1,372

420

380

510

324

266

156

82

72

105

162

135

126

128

153

171

190

214

195

210

195

286

322

207

198

59

45

48

48

73

47

43

69

Other Roughage

Cottonseed

Hulls

Total

1,000 Tons

77

87

76

76

625

620

757

590

553

372

398

335

336

450

529

390

Hay

Equiv.

Other Rough.

208.3

206.7

252.3

196.7

184.3

132.7

111.7

112.0

150.0

176.3

130.1

124.0

Total

Roughage

(Hay Equiv.)

Sources:

Arizona Agricultural Statistics, Bulletins

S to

S

-7,

1966 Arizona Crop and Livestock

Reporting Service, Phoenix, Arizona.

Crop Production, 2971

Annual Summary, U.S.D.A. Crop Reporting Board, Washington, D.C.,

January 1972.

1,417.3

1,314.7

1,362.3

1,302.7

1,354.3

1,259.7

1,233.7

1,286.0

1,246.0

1,494.3

1,402.0

1,496.0

26

TABLE 24.

Period

ALFALFA HAY ACREAGE AND PRODUCTION BY

DISTRICTS, 1967

A

Central

Y/A

P

A

Southwest

Y/A

P

A

Southeast

Y/A

P

A

Northern

Y/A

P

A

State

Y/A

P

1961

130.6

5.1 658.0 54.5 5.3

288.8 23.4 4.5 104.9 18.5 3.3

1962

121.5 5.1 617.5

60.3 227 4.9

1112

48.0 4.8

230.0 22.9 4.4 101.7 17.6 3.3 58.5

210 4.8 1008

1963

116.6

5.5

635.0 46.0 5.5 753.0

17.9 4.5

81.1 16.5

3.3

54.9 197 5.2

1024

1964 122.5 5.0

598.8 57.0 5.4 307.8

16.5 4.3 71.3

13.0

3.7

46.1 209 4.9

1024

1965

115.5 5.6 633.0 58.4

5.8

338.7

14.9

4.9 72.9 12.2

3.2

40.4

201 5.4 1085

1966

118.7 5.1 601.0 52.3 6.1 319.0

16.3 4.5 73.3 12.7 3.7

46.7 200 5.2 1040

1967

118.7 5.4 636.0 46.5 5.6

260.0 18.1 5.4 96.8

12.7

3.6

46.2 196

5.3 1039

1968 118.2 5.5

652.8 51.0 5.6

286.0 18.8 5.6 105.0

14.0

3.4

47.2 202 5.4 1091

1969 104.0

5.3 551.4 50.0 5.8

290.0 18.6 5.8

1972

118.0 6.0 704.6

62.0 6.9

108.0 15.4

4.3 65.6 188 5.4 1015

1970 112.8 6.2

696.7 56.0 6.5 364.0

21.2 5.3 111.5 15.0 3.9

57.8 205 6.0 1230

1971 111.0 5.8 649.0

54.0 6.8 367.2

22.2 5.0 111.2 13.8 4.3

58.7 201 5.9 1186

427.8 20.0 5.1

103.8 14.5 2.3 32.8

215 5.9 1269

Key to

Heading Symbols

A

=

Acreage in

1000's

Y/A

=

Yield per acre in tons

Source:

Arizona Agricultural Statistics,

2966- 1972,Bulletins

S

-1 to S

Reporting Service, Phoenix, Arizona.

P =

Production in

1,000 tons

Arizona Crop and Livestock in the northern areas have been the lowest in the state, averaging

3.6 tons per acre, while the south- eastern regions averaged 5.0 tons per acre for the same period.

The potential of these areas as major alfalfa suppliers is limited since Cochise and Gra- ham Counties are the only areas which are competitive with

Yuma, Maricopa, and Pinal Counties. almost

300 percent over

1967.

Local consumption by feedlot cattle alone was estimated at

253,400 tons, creating a roughage deficit for Pinal of

168,800 tons.

Although deficits occurred in

Pinal County,

Yuma and Maricopa Counties have had large enough supplies to meet state requirements (Table

27).

Future Roughage Position in

Arizona

Roughage Consumption the three main consumers of roughage within the live- stock sector of the state's agricultural economy.

-calf producers used 41 percent and the beef cattle feeding industry, 46 percent of the total livestock industry roughage consumption in

Arizona for 1972.

Hay consumption in the cattle feeding industry increased the last five years at a rate of 6.0 percent per year, from 399,000 tons in

1967 to

520,400 tons in 1972.

Consumption by other livestock has not changed appreciably

(Table

25).

Increases in the consumption rate feeding industry have not, at affected the the last decade (Table

26). of the cattle the present time, state's surplus position in roughage production. Surpluses averaged

334,300 tons per year and have never dipped below 217,000 tons in

However, local deficits have appeared, due to quality variations in alfalfa hay or local production variations. For example,

Pinal County, in the last five years, has been a deficit area since cattle on feed have expanded

Land in alfalfa hay production for the last 10 years has averaged 201,000 acres.

Although acreage has remained relatively constant, yields per acre have gradually increased. For the 1962 yields per acre increased by an average of .08 tons per year.

If the same rate of increase in produc- tivity occurs over the next 10 years, and acreage remains at the average of 201,000, total alfalfa production will rise to

1,326,600 tons by 1982.

Alfalfa hay production of

1,326,600 tons will help to maintain Arizona's roughage surplus position.

Expansion in fat cattle marketings of over 270,000 head by 1982 would be needed to reduce the state's roughage balance below the level of 1971.

Assuming alfalfa hay acreage holds at the average level of yields increase at the rates indicated,

Arizona's cattle feeding industry will have suffi- cient roughage to support growth in fat cattle out- put.

However, other factors may affect the projections. to

Production of silage and alfalfa hay is subject resource and cost constraints similar to the feed

27

TABLE 25.

ESTIMATED YEARLY HAY

CONSUMPTION

BY TYPE OF ANIMAL, ARIZONA, 1961

-1972.

Year

BEEF

Cows

&

Feedlot Heifers Heifers

Marketing

2

Yr.

+

1

-2 yrs. Bulls

DAIRY

Cows

&

Heifers Heifers Heifer

2 yr.

+

1

Calves

Sheep on Feed

385.5

31.5

26.3

1,000 Tons

205.2

31.3 7.2

14.9

1961

1962

1963

1964

1965

411.8

425.6

405.0

422.5

168.5

183.0

186.5

25.5

28.8

28.8

24.9

26.3

27.5

28.8

27.5

210.6

194.4

212.8

173.6

33.1

27.8

27.8

27.8

6.8

6.3

6.3

6.3

13.8

12.0

16.0

19.9

1966

1967

1968

1969

1970

1971

1972

383.8

399.0

404.2

417.5

430.0

450.5

520.4

195.5

203.5

180.5

195.0

188.0

183.5

188.0

172.0

172.5

27.0

29.4

28.2

24.0

24.3

22.8

21.6

25.0

28.8

27.5

27.5

28.8

31.3

31.3

224.0

212.8

209.0

214.5

216.0

216.0

212

29.6

27.8

26.1

26.1

22.6

22.6

22.6

5.8

5.8

5.8

5.9

5.9

5.9

5.9

23.4

19.2

13.2

13.0

15.1

13.7

16.3

Other

95.0

112.0

117.0

123.5

130.0

137.0

65.0

68.0

70.0

73.0

74.0

77.0

Total

935.4

978.9

978.9

994.0

980.0

976.1

1013.3

1013.0

1029.0

1054.2

1064.8

1139.6

Source: Thomas

F.

Archer, Elmer

L.

Menzie, William E.

Martin,

A

Determination of the

Livestock

Balance for Arizona, 1961

University of Arizona, Tucson. unpublished manuscript, Department of Agricultural Economics,

TABLE 26.

ARIZONA ROUGHAGE POSITION,

1961

-1972.

Year

Production-

(Hay

Equivalent)

Estimated

Consumption-

(Hay

Equivalent)

Surplus

(

+

)

1961

1962

1963

1417.3

1314.7

1362.3

1,000 Tons

935.4

978.9

978.9

481.9

335.8

383.4

TABLE

27.

DEMAND HAY BY

MAJOR CATTLE FEEDING COUNTIES, 1972.

County

Pinal

Average Estimated

Numbers

Annual

Produc- Consump- tion of tion- on Feed- Consumption

Alfakffa

Supply of Alfalfa

Hay

-

Balance

Hay by Beef

Cattle

264

253,400

Tons

84,600

(-

168,800)

1964

1965

1302.7

1354.3

1259.7

994.0

980.0

308.7

374.3

Yuma

Maricopa

68

196

65,300

188,200

427,800 362,500

620,000 431,800

1966

1967

1968

1969

1233.7

1286.0

1246.0

976.1

1013.3

1013.0

1029.0

283.6

220.4

372.0

217.0

Other 28 26,900

136,600 109,700

2.-/Source of primary data:

Arizona Crop and Live- stock Reporting Service, Phoenix, Arizona.

1970 1494.3

1402.0

1054.2

1064.8

440.1

1971

337.2

1972

1496.0

AVERAGE

1347.4

1139.6

1013.1

356.4

334.3

áProduction:

All hay and alfalfa hay equivalent of silage and hulls(3# silage or hulls

- 1# alfalfa hay). bl

Consumption: Total consumption in alfalfa hay equi- valents. For individual consumption, see Table 25. grain sector.

Groundwater levels, surface water availability, and urbanization of agricultural lands, all affect the cost structure of producing roughage within the agricultural districts of the state. As water tables decline, production levels will be con- strained by the rising costs of operation. This pressure on profit margins, and urbanization of agricultural land in the

Phoenix area, as interpreted

28

by the Kelso, Martin, and Mack study, is expected to reduce acreage in alfalfa production by approximately

.8 percent per year. Based on this rate gf/ decline, alfalfa acreage would be

185,000 by 1982.- on the roughage position of the state's livestock industry.

Therefore, in this analysis, silage out- put levels are assumed to remain constant which may be an optimistic assumption given the economic pressures expected on crop production.

The reduction of alfalfa acreage is expected to center in Pinal, Pima, Maricopa, and Cochise Counties where groundwater is declining. Based on assumed yields of 6.0 tons per acre and 1982 acreage pro- jections, total hay output for these four counties will be 597,000 tons.

Production levels for this period in the remaining counties of the state, how- ever, are expected to expand due to increases in yields in the

Yuma and Graham areas.

Assuming yields to increase at the rate experienced since

1961, a yield of eight tons per acre could be ex- pected.

If present acreage levels continue, output will rise to

631,500 tons for the southwestern, southeastern, and northern districts by 1982

(Table 28).

TABLE

28.

PROJECTED ALFALFA

ARIZONA,

1982.

HAY

PRODUCTION,

In summary, roughage production, based on estimated increases in yields and acreage projec- tions as indicated in Table

28 should stabilize during the next decade at current levels of 1.46 million tons.

Depletion of

Demands crease both animals placed on

Roughage Surplus for as a on feed feed. roughage in the state tend result of and reductions in weights

Consumption amounts to increasing numbers of in- of calves to 0.5 tons head for 450

-pound feeders and 0.3 tons per head for yearlings. An increase of 100,000 head of yearlings fed would increase roughage use by 30,000 tons whereas the same increase in the lighter calves would require 50,000 additional tons. per

Region

#1

Maricopa

Pinal

Cochise

Pima

Estimated

Total

No.

Acres

Harvested

Per Area

1,000 Acres

99.5

Estimated

Yield

Tons /Acre

6.0

Total

Production

Tons

597,000

In the past year there has been a trend among many Arizona feedlots to place lighter cattle on feed due to the scarcity of heavier feeders. Thus, even without an expansion in numbers, there would have been an increase in roughage requirements. Re- ductions in placement weights of feeders during 1972 over 1971 are estimated to have increased roughage requirements for the cattle feeding sector between

10 and

20 percent.

#2

Yuma

Graham

68.0

#3

Apache

Cocinino

Mohave

Navajo

Yavapai

Gila

Greenlee

Santa

Cruz

17.5

8.0

5.0

544,000

87,500

At recent placement weights of

450 pounds and assuming demand for roughage by other livestock does not grow by more than

5 percent, projected roughage supplies of 1.46 million tons would feed 1,673,000 head for market. This would, therefore, permit an increase in marketings to

1982 of about 774,000 head over

1972. If placements are at lighter weights, numbers fed would have to be less if local roughage supplies were the only ones available. In fact, if placement weights average

350 pounds, marketings could expand by 296,000 head over the 1972 levels without importing roughage (Table 29).

Alternative Sources and Costs of Roughage

TOTAL 162.0

6.6

1,228,500

Derived from data supplied from:

Arizona Agricul- tural Statistics, Bulletin

S

March 1972, Arizona

Crop and

Livestock Reporting Service; Water Supplies and Economic Growth in an Arid Environment:

An

Arizona Case Study, Kelso, Martin, and Mack,

The University of

Arizona Press, 1973.

If growth in cattle feeding and the demand for roughage were to expand beyond Arizona's output, there are supplies of alfalfa hay available in many of the western and midwestern regions of the United

States. However, importation of hay in the past has been limited to regions bordering Arizona because of the excessive costs of transportation. Although prices for alfalfa hay in the Midwest average

$10 to

$16 per ton below local levels, transportation costs exceed these price differentials.

Silage production in the next decade is diffi- cult to estimate because of the nature of its origin.

Since silage is a substitute crop in the feeding of livestock, changes in production have a minor effect

The Imperial Valley in California currently appears to be the only region which could supply alfalfa hay to local feeders at reasonable prices.

This area produced

1.2 million tons in 1971 and has

29

the capacity to expand output above this level

(Table

30). assuming the

Arizona can continue at levels projected, there should not be a significant problem in the Arizona feeding industry associated with roughage availability.

TABLE

29.

PROJECTED ROUGHAGE BALANCES WITH ALTERNA-

TIVE CATTLE

FEEDING PROGRAMS,

1982.

Feeder

Feeder

Cattle

Fat Cattle Projected Cattle Residual

Placement Marketings

Roughage Roughage

Weights Per Year

For

Production Consump- Other tion

Uses

-

- lbs. - - No. -

Tons

450

400

1,673,000 1,461,600 836,600 625,000

1,394,000 1,461,600 836,600 625,000

350

1,195,000 1,461,600 836,600 625,000

TABLE

30.

ALFALFA

HAY

PRODUCTION AND PRICES,

IMPERIAL COUNTY, CALIFORNIA, 1964

Year

Acres

Harvested

Acres

Yield/

Acre

Tons

Total

Production

Tons

Price Per

Ton

Dollars

1964

1965

150,000

138,000

5.9

6.4

885,000

883,200

26.10

25.25

1966

126,000

6.4

806,400 28.50

:/Assumes a growth of

5 percent in demand by other than cattle feeders.

1967

135,000

6.1

823,500

30.30

1968

136,000

6.5 884,000

26.50

Alfalfa hay prices in

California have been close to

Arizona prices. Transportation rates have not been formally established for the shipment of hay from the Valley; however, rates from Yuma to

Phoenix average between

$5 and

$7 per ton. The additional distance of 60 miles from Imperial Valley to

Yuma should increase the tariff by a maximum of only

$2 to $3 per ton.

A price rise of $2.50 per ton of hay, based on present rations would increase costs of gain for 350- and 450

0.29 and 0.26 cents per pound, respectively. This represents an increase in total costs of

1 percent to finish feeders in Arizona feedlots. Therefore,

1969

1970

1971

1972

Source:

140,000

154,000

170,000

157,000

6.8

6.0

7.0

6.4

952,000

924,000

1,190,000

1,004,800

29.00

30.50

32.10

34.00

County Agricultural Commissioner's Office,

El Centro,

Market News Service,

El Centro, California.

CHAPTER

VI

SUPPLY

OF

FEEDER CATTLE FOR ARIZONA

SOURCES OF SUPPLY

Arizona farms and ranches have produced an average annual calf crop, in recent years, of about

320,000 head

(Figure 20).

However, most of these are shipped to California, Colorado, and other states. Placement figures for Arizona feedlots in- dicate only about

25 percent of the 1971 calf crop for the state was fed locally. This low placement level is attributed to the movement of

Arizona calves to the cooler climates of neighboring states where they perform better than in the southern deserts of Arizona.

Thus, the feeding industry has experienced a growing dependence upon out -state sources for replacement cattle as expansion has occurred.

Shipments of cattle into Arizona expanded from

195,728 in 1950 to

708,572 in 1962.-1 Numbers de- clined from this level until 1968 when 706,148 head were imported.

Increases in recent years brought imports to

1,052,398 head in 1972.

30

FIGURE

20. ALL CALVES BORN, INCLUDING DAIRY CALVES, p

350

W

=

340

O

O

0

330 z

320 cc

O

U

30

7

0

1965 r

If

I r

1966 1967

1968 1969 1970

1971

1972

YEARS

1946.

Texas has been the major source of supply since

Each year since that date, at least

50 per- cent of imports originated in Texas (Figure

21).

New Mexico has also been an important supplier of feeder cattle in the last decade.

Texas, New Mexico,

Oklahoma, Mississippi, Florida, and

Colorado have supplied

80 to 90 percent of Arizona's cattle im- ports since

1960. Mexico has supplied between

7 and 15.5 percent.

A few are shipped in from other western states, Kansas, Tennessee, Alabama, and

Arkansas, but the combined totals are relatively small (Table

31). basis of specified type, weight, and price of feeders acceptable. Order buyers handled over

90 percent of the purchases by Arizona lots in 1971 with a customary commission rate of

25 cents per hundredweight or $1 to $1.50 per animal, depending on the weight.

The remaining purchases were con- ducted feedlot owners, cattle feeders, or salaried y buyers.-

Purchase arrangements were based on the pay weight of feeder cattle as determined at the point of origin. Thus, losses of weight in transit were absorbed by the cattle buyers.

FIGURE

21. CATTLE AND CALVES SHIPPED TO

ARIZONA,

BY SOURCE,

1960

700-

z

o

E

400- o

F-

z

300

Few local feedlots contracted with cattle ranchers to supply feeders. Of the lots which con- tracted for feeder cattle in 1971, the delivery date did not exceed the time of contractual agreement by more than three months.

Cattle contracted for or purchased directly from ranches amounted to less than

30 percent of the state's annual placements.

ó

<

600- w

8 o

500-

FF--

v

TEXAS

---

All feeder cattle purchases were transported from their points of sale by commercial truck.

Tariff rates varied with points of origin and load weights.

Shrinkage is an additional cost in trans- porting feeders. Weight shrinkage reported by feed- ers in the state averaged

8 percent for cattle shipped from Texas, and

9 to 10 percent for cattle originating from Florida and the southeastern states.

Shrinkage on Mexican cattle was highly variable be- cause of the range in breeds, ages, weights, and points of origin of each animal.

Estimates of weight losses ranged from a low of

2 to a high of

11 percent.

(For additional discussion on transport costs and shrinkage of feeder cattle, see Chapter

X.)

_

(I)

W

200-

100-

/

OTHER STATES

--

.

..

"_` '

r

SOUTHEAST STATES

(FLORIDA, MISSISSIPPI,

LOUISIANA)

TYPES AND PERFORMANCE OF CATTLE

FED

IN

ARIZONA

Weights,

Sex, and Quality of Placements

The commercial feedlot industry of

Arizona has

1960

1962 1964

1966

YEAR

1968 1970 1972

Source: Menzie, Elmer

L. and

Russell

Gum,

Cattle and Calf Shipments for the

State of

Arizona,

Tech. Bull. 190,

University of Arizona

Agricultural Experiment

Sta., March

1971,

USDA, Arizona

Crop and

Livestock Reporting

Service, Cattle Shipments- Arizona, 1969-

1972. during the last decade. Approximately

75 percent of the placements in 1971 were steers averaging

446 pounds per head.

Only three feedlots specialized in feeding heavier cattle and their inventory of feeders represented the remaining share of steers placed on feed. These feeders were yearlings aver- aging

625 pounds each at the point of delivery.

In 1969, a record 537,837 head of cattle and calves were shipped from

Texas. In 1970 and 1971 the numbers declined to just over 400,000 but a new recórd of 631,187 was reached in 1972.

Annual im- ports from Mexico for 1970 head.

Heifers were a minor part of the cattle placed on feed in 1971.

Smaller lots, generally under

5,000 head capacity, were the main ones feeding heifers. These smaller operations have been de- clining in number for several years with the result that the inventory of heifers on feed has decreased from nearly

15 percent in 1954 to 8.6 percent in

1971 of the total numbers on feed (Figure

22).

METHODS OF PURCHASE AND TRANSPORTATION

Commercial feedlots generally act as purchasin agents for cattle fed by custom feeders. Order buyers, in turn, carry out the field buying on the lots were generally classified as U.S. Good. Feed- ing programs throughout the state are designed to upgrade the quality of these feeders to

U.S.

Choice for the fat cattle market.

According to feeders' responses, upgrading is most common with the Okie,

31

Mexican, and crossbreed type of cattle.

Dairy and

Brahma breeds generally were classified as low good or standard as feeders and were rarely upgraded by the feeding.

FIGURE

22.

HEIFERS

AS

PERCENT

OF

TOTAL CATTLE

ON

FEED

IN

ARIZONA, 1965

16

-

14

-

12

-

TABLE

32.

TYPE OF FEEDER CATTLE PLACED ON FEED

IN

ARIZONA FEEDLOTS DURING

1971.

Type

Percent

Okie

#1, 2, and

3

Mexican

Brahma

Arizona crossbreed

Dairy

Other

TOTAL

55

19

11

9

9

4

100

Source:

Primary data from 25 of the

Arizona feed- lots surveyed which fed approximately 88 percent of cattle marketed in 1971.

4-

2-

0

1965

Source:

1

1966

1

1967 1968

YEARS

1

1969

1970

1

1971

1

1972

Arizona

Crop and

Livestock Reporting

Service,

Arizona Agricultural Statistics,

Bulletins

S S

Okie type cattle comprised approximately 55 percent of the animals placed on feed in 1971.

"Okie" is a common term referring to an animal with predominantly a

European bloodline with mixtures of dairy.

These animals are generally graded on a 1, 2, and

3 scale to represent the variations in conformation between animals.

A number one Okie represents an animal with the greatest amount of

English beef qualities.

Mexican crossbreeds were the second most impor- tant group on feed in 1971, comprising approximately

19 percent of total placements. Almost all Mexican cattle were bloodline mixtures of European,

Corriente, and Brahma breeds. Arizona crossbreeds, the fourth most important type, registered strong

Hereford qualities. The remaining types of cattle on feed were Brahma, dairy, and exotic breeds

(Table

32).

Performance Efficiencies of Feeder

Cattle by Weight, Breed, and

Location

The performance of cattle on feed in Arizona varied according to the animals' placement weight.

Light feeder calves fed for slaughter during 1971 averaged the highest feed conversion levels. Con- version rates ranged between

7.1 and 7.8 for various lots on feed. Correspondingly, however, the daily gain rates for lightweight cattle were lower than for heavier placements. Ranges of daily gain were from

2.3 pounds to 2.6 pounds for lighter calves while gains for heavier placements ranged from 2.5 to 2.9 pounds per animal.

Feeding performance compiled by kind of feeders showed Okie steers as the most efficient gainers for

1971.

Conversion ratios for calves placed on feed at under 500 pounds and yearling steers at 500 to

650 pounds averaged 7.47 and 7.59, respectively, while rates of other feeder cattle ranged between

7.54 and 8.25.

Brahma cattle recorded the lowest daily rates of gain while Mexican breeds averaged the highest daily gains, except for heavier weight

Holsteins. Daily gains for Mexican cattle averaged

2.55 pounds for for heavier feeders.

Arizona crossbreeds converted feed the least lightweight feeders and 2.58 pounds efficiently of the four major types of cattle fed in the state; however, daily rates of gain surpassed Okie cattle (Table

33).

TABLE

33.

AVERAGE PERFORMANCE

OF FEEDER CATTLE, 1971.

Type of

Feeder

Placements Under

500 Lbs.

Conversion Daily

Ratio Gain

Placements

-650 Lbs.

Conversion Daily

Ratio Gain lbs. lbs.

Okie

#1,

2, and

3

Mexican

Arizona

Crossbreeds

Brahmas

Holstein

SE

Cross- breeds

7.47

7.54

7.72

7.65

7.69

2.37

2.55

2.51

2.30

2.50

7.59

7.99

8.18

--

8.25*

7.70

2.44

2.58

2.54

2.68

2.46

*Dairy cattle placements averaged

Source:

812 lb

Primary data.

Performance levels compiled from closeout information on

15 percent of the fat cattle marketed during 1971.

33

Comparisons of performance levels by origin of feeder cattle also showed some interesting results.

Cattle placed on feed at weights under 500 pounds from Mexico, the

Panhandle and the southeastern states showed minor variations in feed conversion and daily gain levels.

Feeder cattle shipped from the

Southeast converted feed least efficiently at

7.69 pounds of feed per pound of gain, but registered high daily gains. Cattle imported from Mexico at heavier weights, on the other hand, averaged the highest feed conversion and daily gains among heavy placements. However, comparing the feeding perfor- mances of both heavy and lightweight placements, the best overall performance levels were recorded by

Okie type cattle from

Texas.

FUTURE SOURCES OF FEEDER CATTLE AND

ARIZONA'S COMPETITIVE STATUS

The growth in cattle and calf inventories has broken away from the traditional production cycles of the past.

Since data on cattle inventories were collected in the late 1880's, the numbers of animals on farms have been characterized by cyclical varia- tions.

However, for the last

15 years, numbers of cattle and calves on farms have gradually increased.

Only a short stabilization period during the four year span between 1965 the growth in inventories. Numbers on farms since this period have increased substantially (Figure 23).

There were

46.7 million calves born in the

United States in 19713ffrom a cow and heifer inven- tory of 49.8 million

-

(Table

34).

From 1965 to

1967, the total inventory of cows and heifers that have calved dropped from 48.8 million to

47.5 million. It rose continuously from 1967 to 52.8 million at the beginning of 1973.

The growth rate has been increasing and has climbed at a compound rate of 2.75 percent per year since

1969.

Total cow numbers increased by 4.3 percent from January

1972 to January

1973.

Dairy cow numbers have been declining steadily, which has had a dampening effect on total breeding herd growth.

However, the rate of this decline has slowed to less than

1 percent per year. Beef cow numbers, on the other hand, have been increasing at an increasing rate.

Numbers rose continuously from

33.4 million in 1965 to 41.1 million in

January

1973.

This was an average growth of 2.6 percent per year, compounded. The growth rate increased to 4 percent per year from 1970 to 1973 and to

6 percent for 1972 to 1973. herd.

The numbers of calves born has been increasing both because of cow numbers and efficiency. Numbers rose from 43.9 million in 1965 to 47.9 million in

1972. Calves born as a percent of cows and heifers that have calved rose from

90 in 1965 to 94.7 in

1972.

Growth in calf numbers born since 1969 has been at the same rate as the increase in the cow cent per year. rate of increase was

3 per-

FIGURE

23.

CATTLE AND CALVES ON FARMS, BY CYCLES,

120-

1967 -1972

80-

60

0

0

4

a:120-

z

- o

_71110-

-

100-

90-

80- o

4

1950

1958 -1967

3

_.f

5

°

7

1949

-1958

1928-

9

1938'.

_41912-1928

1896

-1912-

13

CATTLE

AND CALVES

ON

FARMS

-

JAN.

I

1955

I I

1960

YEARS

1 l

I

I

1965

1 I

1

15

'

I

17 i

1970

'

I

19

High prices of the last two or three years have stimulated increases in the breeding herd and it is anticipated the rates of increase will continue to rise, at least for another year or two.

These increases in the herd size will result in further increases in calves born. The decline in the dairy herd has slowed down and probably will not change significantly. Policy changes in land use and grain production will draw resources into production.

Improved practices should increase the calves born as percent of cows and heifers calved above

94.7 to as high as 96 or

97.

Furthermore, calf death losses should be expected to drop to about

5 percent from recent year levels, near

6 percent.

Assuming a net growth of

2 percent per year, total cow and heifers that have calved would grow to

63.0 million by

1982. If calves born as percent of cows and heifers that have calved increases to 96 percent, this number will provide 60.5 million calves, or an increase of over 12.6 million from

1972.

Assuming a

5 percent death loss for this increased number leaves a net increase of 12 million head. A possible shift of one million calves now sold as veal, to the feeder stock, could further increase beef supplies. A reduction in the death loss rate would be an additional favorable factor. The esti- mated production from these increases is more than sufficient to meet demand expansion as projected in

Chapter

IX.

Source: Various issues of

Livestock and Meat

Statistics.

34

TABLE

34.

INVENTORY OF COWS AND HEIFERS TWO YEARS OLD AND OVER THAT HAVE CALVED AND CALVES

BORN, U.S.,

Year

1965

1966

1967

1968

1969

1970

1971

1972

1973

Milk

Two

Cows and

15,380

14,490

13,725

13,115

12,550

12,091

11,909

11,778

11,651

Heifers

Years and Older

That Have Calved

Beef Cows and Heifers

Two Years and Older

That Have Calved

Thousands

33,400

33,500

33,770

34,570

35,490

36,689

37,877

38,807

41,102

Total Cows and

Heifers Calved

48,780

47,990

47,495

47,685

48,040

48,780

49,786

50,585

52,753

Calves

Born

43,922

43,537

43,803

44,315

45,177

45,871

46,739

47,889

Calves as

Percent of Cows and

Heif- ers Calved

90.0

90.7

92.2

92.9

94.0

94.0

93.9

94.7

Source:

USDA,

503,

Statistical Bulletin

Washington, December 1972; Also issues of

Livestock and Meat Statistics.

The growth in numbers will come from all reg

9ns of the U.S.

A recent study by Arsdall and Skold

-= projects the greatest increases in the beef cow and heifer herd to occur in the northeast and Lake states with

49 percent, and in the Cornbelt with

37 percent.

Both of these regions have been declining in terms of feeding and if this trend continues, these areas will become much more important suppliers of feeder calves for areas like the

Northern Plains. levels of the southern crossbreed. The majority of feeders produced in the

South have Brahma and Okie bloodlines, which are best suited for southern feeding. Also, the northern feeders are predomi- nantly a type and grade of animal which satisfies the feeder cattle preferences of the Rocky Mountain and Midwestern feeders.

FIGURE

24.

CALF PRODUCTION AND PLACEMENT IN

TEXAS

The Northern Plains, the

Southeast and Mountain states' cow herds were projected to rise by 33, 29, and 21 percent, respectively.

The Southwest and

Pacific areas would increase by 8 and 10 percent.

If these projections develop as expected, the South- east and Mountain states will probably have to supply an increasing share of

Arizona's calf crop.

While the

Panhandle area has been a major supplier, its surplus margin has been declining due to rapid expansion of feeding in Texas (Figure 24). Based on projections from the USDA study, the calf crop in the

Southeast region should rise over 30 percent by 1982 to about 11.5 million head.

This would be an increase over 1971 of about 2.7 million head.

Since little feeding is done in this area, most of the increases will be available for commercial feeders elsewhere. z

O

J

J w

8-

-

CALF PRODUCTION

CATTLE

AND CALF PLACEMENT

The Rocky Mountain area is also a surplus feeder cattle region with calf production exceeding placements by one million head in 1971 (Figure 25).

However, this surplus position has been declining as the region's placements have grown at a faster rate than supplies.

Furthermore, inshipments to

Arizona from this northern area have been limited in recent years due to the feeder cattle preferences of

Arizona feedlots.

Feeder cattle bred in the northern areas have traditionally performed below

1965 1966 1967 1968

YEARS f

1969

(

1970 i

1971

Source: Livestock and Meat Statistics, Statistical

Bulletin

No. 333, ERS, USDA.

35

FIGURE

25.

CALF

PRODUCTION AND PLACEMENTS

IN

MONTANA, IDAHO, WYOMING, COLORADO

(ROCKY MOUNTAIN REGION), 1965 and price fluctuations will react throughout the en- tire market system. As a result, Arizona, as other major feeding areas, will be at no real disadvantage relative to its competitors in the purchasing of feeder cattle on the Western, Southwestern, and

Southeastern markets.

Z.7) p

6-

J

CALF PRODUCTION

4-

u)

w

J v

2-

o

Z

_

CATTLE AND CALF

PLACEMENTS

FIGURE 26. CALF

PRODUCTION AND PLACEMENTS, NEW

MEXICO, ARIZONA, AND CALIFORNIA, 1965-

1971.

5 p 6-

J

J_

w

J

H

1965

U

1966

I

1967

I

1968

YEARS

I

1969

I

1970

I

1971 cn

w

4

-

J

-

U

0

2-

Z

CATTLE AND CALF

PLACEMENT

CALF PRODUCTION

Source:

Livestock and Meat Statistics, Statistical

Bulletin

No. 333,

ERS, USDA.

New Mexico, Arizona, and California, combined, represent a deficit area in terms of calf production

(Figure 26). Calf production has remained fairly stable in the area at around 2,600,000 head. In recent years, this has amounted to between 600,000 and 700,000 less than placements on feed.

The ex- pectations for expansion of calf production in this area are low.

For Arizona feeders, this area supplies a relatively small number of placements.

The future of supplies of

Mexican feeder cattle is in doubt due to the growing demand for beef by

Mexican consumers.

Expansion of cattle feeding to fulfill this demand will require an increasing share of

Mexico's feeder cattle crop, and reductions in feeder exports resulting from the growth in feeding will place pressure on the Arizona and California cattle feeding industries.

A decline in import num- bers will likely be a graduate process in the forth- coming years, with the availability of

Mexican fee ers in

1982 expected to be well below current levels.

Although cattle is the future price difficult to structure for feeder predict, price level changes will have a minor effect on the relative competitive positions of the major cattle feeding areas.

Each of these regions trade on the same feeder markets

w

J

H

LI 1965

Source:

1966

1

1967

1968

YEARS

I

1969

I

1970

I

1971

Livestock and Meat Statistics, Statistical

Bulletin No. 333, ERS, USDA.

The necessity to substitute more of the south- eastern crossbreed to satisfy the future feeder cattle demand is not expected to significantly under- mine the competitive position of the state's feeding industry. As indicated earlier

(Table 33), perfor- mance records of southern placements fed in

Arizona feedlots showed conversion ratios and gain rates comparable to the Okie and

Mexican breeds.

Changes in policy feeding industry. on tax investment capital continues investment capital to enter

Demand pressures the to cattle maintain in feeding may have an effect on prices.

Variations in feeder prices may arise in forthcoming years as tax in- ventory levels for tax deferral purposes tend to be less responsive to the normal economic factors af- fecting the profitability of cattle feeding.

Price levels, increased by competitive bidding on feeder cattle for tax deferral investment, will continue to complicate the market mechanisms of the feeder cattle industry unless tax policies change.

36

CHAPTER

VII

CURRENT

LOCAL, STATE,

AND

FEDERAL CONTROLS AFFECTING

LIVESTOCK FEEDING

IN

ARIZONA

AND

COMPETING STATES

The commercial cattle feeding industry of

Ari- zona operates under the guidance of numerous regula- tory agencies which represent and safeguard the wel- fare of the general public as well as the industry.

The most prominent of these includes a composite of county, state, and federal agencies. Among those which exerted the most influence on the state's feedlots have been the State Livestock Sanitary

Board, the United States Department of

Agriculture, the

Food and Drug Administration, the Environmental

Protection Agency and the local county zoning and planning boards. advantage of the zoning ordinances to attract feeders into their area.

Pinal County's Planning and Zoning Commission zoned an referred area west to as of the

"Cowtown" town

CL of

Maricopa, commonly cattle feeding.

Additional protective actions were taken by pro- viding a one in which odor easement agreements must be signed by potential developers or residents. As a result, three feedlots operate in the Cowtown region with an additional six major lots in the surrounding area, making Final County the cattle feeding center of the state.

ZONING

OF CATTLE FEEDING OPERATIONS

Regulation of land use has been one of the major issues facing the feeding industry and the metropolitan communities of the state. Due to the rapid urban sprawl into rural districts, many feed- lots operating in previously undisputed agricultural areas become surrounded by residential and industrial development.

This mix of land use has created numerous social and environmental problems and has conflicted with the goals of the communities' con- temporary land Actions by planning and zoning boards to regulate land usage, however, have been limited since these lots existed prior to the urban development and zoning ordinances, thereby creating legal complications. Only recently have legal guidelines been established in the decision of

Spur Industries,

Inc. vs.

Del Webb Development

Co. by the State Supreme Court, which will assist boards in future zoning issues.

Prior to the establishment of the legal guide- lines, non of lands by cattle feeding operators centered in

Phoenix and its surrounding metropolitan areas. In 1963, 14 to 16 firms with feeding capacities exceeding 3,500 head operated in the area. Due to relocation, the num- ber of lots in the

Phoenix area dropped to eight in

1971. The remaining operations are located in the

Litchfield Park area, extending southeastward to the Chandler lots are, at the present time, located in areas which are zoned for cattle or

Industrial the

Maricopa Planning and Zoning Commission. Although the land used by these livestock feeding operations remains commercial it can be expected that the feedlots will be subject to increased scrutiny by the county planning and zoning boards in the future.

The leasing of Indian lands by cattle feeding firms is a recent innovation. The absence of zoning boards and ordinances have attracted a number of firms to locate on Indian reservations.

Gener- ally, long of 20 to 25 years have been negotiated. Feedlots have been established on the

Gila River Indian Reservation and the

Salt River

Indian Reservation, representing a total feeding capacity of over 70,000 head.

HEALTH AND SANITATION OF

ARIZONA FEEDLOTS

Sanitation requirements are issued and enforced by the Arizona Livestock Sanitary Board in the feeding of livestock.

Feedlot operations are issued licenses upon compliance to health standards set by the Board. The areas of control include minimization of dust, use of deodorant to minimize offensive odors, manure cleanup, management Of manure stocks, control of flies and elimination of stagnant waters which breed pests. The degree of enforcement of these regulations is based on the proximity to human population concentrations and public facilities.

For example, an "A" rating designates a feeding operation in a high population area, and manure concentrations, dust, flies, pests, and odors must be kept to a minimum. Feedlots are also rated "B" and "C," which require less restrictive standards.

Operations located in areas of low population den- sity near hard roads are ranked

"B."

For the safety of passing traffic, dust must be kept at a minimum but other requirements are liberally interpreted.

Lots operating within a five limiting the need for strict sanitary requirements are rated "C."

Currently, the largest segment of the state's cattle feeding firms operate on Indian lands or agricultural lands in

Pinal County, relatively far from potential development sites. These locations

-

- an important attraction to the state's operators, and the

Pinal County Board of Supervisors has taken

Agricultural pollution of the environment also comes under the jurisdiction of the Environmental

Protection Agency.

Under provisions of the Refuse

Act of 1899, the

EPA now requires feedlots with

1,000 animal units or more, which discharge y ste into navigable waters, to apply for permits.-

37

(Navigable waters, as defined by the EPA office, means all creeks, streams, and rivers.) This permit program allows the Agency to certify or comment on discharges affecting water quality. The objective is to assist other local agencies in the certifica- tion process, since the states have the primary right and responsibility to control water pollution.

However, to date, feedlots in Arizona have not needed to register for an

EPA permit. The desert environment of the feeding regions of the state has eliminated the threat of run effluent dis- charge into the state's water courses.

Problems on the horizon for Arizona feeders may center on the seepage of nitrates and other soluble organic compounds from steer manure concentrations into groundwater reservoirs. Heavy nitrate concen- trations were found in the groundwater of

Orange

County in California which was linked to the manure waste seepage2;from the cattle feeding area of River- side-

-

Similarly, in northeastern

Colorado, some wells near feedlots were a"pndoned because of the unsuitability of the water.- Nitrate, ammonium, and phosphorous levels were measured at 10 to 15 times expected normal levels. This contamination of water has focused attention on the need for improved water quality protection and waste removal regula- tions. The Arizona Water Quality Board is planning to become more involved in groundwater quality con- trol.

Departments are being organized to oversee the mining and agricultural operations of the state.

Although extensive research is greatly needed to study the effects and rates of industrial and agri- cultural waste seepage, tighter controls on feeding operations are likely in the future. health standards have focused the

Actions by federal agencies relative feeding programs of the cattle industry.

Hor- mone and antibiotic supplements have been standard ingredients used by performance proved of to be economically beneficial as costs to fatten animals have declined with their use.

However, a recent decision by the FDA banned the use of D.E.S., the principal hormone supplement in feeding rations.

The consequences of this deci- sion on the economics of the feeding industry have not been completely determined, but many experts in the industry anticipate higher production costs for the future.

In

CONTROL OF FEED SUPPLEMENTS the cattle in industry on feed. to to to improve new the last year on the

These additions have the feeders addition to the D.E.S. ban by the FDA, an

FDA task force submitted a report advising the

Agency to restrict the use of antibiotics in animal feeds. The recommendation also advised that money be allotted to further research the problem, and for the drug4#ndustry to develop other feed efficiency agents. -

The report stated that unless tetracyc- lines, streptomycin, di- mides, and penicillins are shown to meet the guide- lines by July

1,

1973, and all other antibiotics by

December

31,

1973, they should be restricted for use in feed as a non

The potential economic impact of this recommendation to restrict antibiotics was estimated as part of a minority re- port of the Task Force, at a loss of over $148 million to the beef industry. Measured on a per head marketed basis fg; 1971, such a loss would aver- age $3.11 per animal.

However, in the spring of

1973 an extention of a

2 for additional experimentation was granted.

The recommendation of the

Task

Force, in the opinion of local nutritionists, would have had a minor effect on the Arizona and Southern California feeding industries.

Dr.

William

H.

Hale, nutrition- ist at that do not the

"A

FDA proposes to restrict next year. As a result, ban against feeding any of the three antibiotics named FDA recent announcement would have little, if any, the effect in this nuisance area." suit coming to

Dr.

Hale further stated that, "The only ones that are ever fed cattle are the tetracyclines.

Feeders sometimes feed them for two or three weeks after cattle are moved as a preventative against shipping fever and similar upsets." Hale continued, "feeders in the

Midwest stand to get hurt by the 'no antibiotic' ruling if it goes tbto effect, especially during the

ISSUES

IN

ARIZONA

The environmental issues linked with confine- ment feeding have also been publicized by the rash of public and private complaints registered against the activities of Arizona feedlots by adjacent groups and individuals. Odor, dust, dirt, flies, and other commercial residues traditional to feeding operations have united public opinion against the industry and resulted in threats of legal action.

Efforts taken by feedyards to minimize the discom- fort of neighboring residents

(caused by these residues) have, for the most part, been unsuccessful by the communities' standards.

This failure to satisfy neighboring complaints and the prospects of continued legal pressures have yielded sufficient force in the last decade to influence the location and concentration of the industry within the state. threatened by property owners in Tempe against a feedlot operation adjacent to their community.

Fearful

30,000 head operation was moved to

Yuma at the expense of the feedlot corporation. Similar legal action threats were responsible for the relocation of at least four additional feeding operations in recent years.

The lack of legal guidelines in each case placed the feedlot management in a defensive position in which relocation appeared the only logical option open to the firm. the on the University of Arizona,

Tucson, stated

Arizona and Southern California cattle feeders routinely feed any of the antibiotics which in the winter months.- of

ENVIRONMENTAL

In 1963, one of the first major lawsuits was court, the judgment of the Supreme Court of Arizona in 1972 a

The first legal guidelines available followed public and private injury suit filed in 1968.

38

This suit

Co. was brought by Del

E.

Webb Development against Spur Industries, Inc. - a cattle feeding company. The core of the decision was as follows:

There was no indication in the instant case at the time Spur and its predecessors located in western Maricopa County that a new city would spring up, full side the feeding operation and that the de- velopers of that city would ask the court to order Spur to move because of the new city.

Spur is required to move not because of any wrongdoing on the part of

Spur, but because of a proper and legitimate regard of the courts for the right and interests of the public.

ENVIRONMENTAL

ISSUES OF OTHER AREAS

Environmental issues of air and water quality have also characterized Arizona's competing cattle feeding regions. Although these regions experienced nuisance complaints due to odor, flies, and dust residues, the pollution of navigable water has been the major problem faced by feedlot operations.

Regulation of the local industry in six major feeding states (Colorado, Nebraska, Kansas,

Iowa,

Texas, and

Oklahoma) is presently under the juris- diction of the states' Water

Qualpy

Control or

Water Pollution Control agencies.-

Del

Webb, on the other hand, is entitled to the relief prayed for

(a permanent in- junction) not because Webb is blameless, but because of the damage to the people who have been encouraged to purchase homes in

Sun

City.

It does not equitably or legally follow, however, that Webb, being entitled to the injunction, is then free of any li- ability to

Spur if

Webb has in fact been the cause of the damage Spur has sustained.

It does not seem harsh to require a developer, who has taken advantage of lesser

'land values in a rural area as well as the

'availability of large tracts of land on which to build and develop a new town or city in the area, to indemnify those who are forced to leave as a result.

Having brought people to the nuisance to the foreseeable detriment of

Spur, Webb must indemnify Spur for a reasonable amount of the cost of moving or shutting down.

It should be noted that this relief to

Spur is limited to a case wherein a developer with foreseeability brought into a previously agricultural or industrial area the popu- lation which makes necessary the granting of an injunction against a /awful business and for hick the business has no adequate relief.-

Drainage control systems to retain runoff are becoming a standard requirement for livestock feed- ing firms in the temperate regions of the country.

For example, a feedlot located in northeastern

Colorado spent approximately $90,000 to build reten- tion ponds to alleviate the problem of pollutants flowing into the South Platte

River.

Similarly, water quality regulations in Texas required feedlots around Lubbock to retain lot runoff.

The list of actions to control feedlot runoff is not limited to these two areas but extends throughout the cattle feeding regions of the country.

The demand by state and federal pollution con- trol agencies to improve waste control methods will continue in forthcoming years. Since the creation of the

Rural Waste Section in the

Office of

Water

Programs of the EPA, and the passage of the 1972

Water Quality Control Bill by Congress, federal pressures will mount to eliminate agricultural pollution. Furthermore, as cooperation and coordina- tion of efforts improves between state and federal agencies, water cleanup programs should become more vigorous.

It is not premature at this time to state that waste control systems to retain runoff and other offensive residues will become standard capital costs of feeding firms, especially in the cattle feeding regions of temperate climates.

EXPERIMENTAL SYSTEMS

FOR

ENVIRONMENTAL CONTROL

The future stability of the state's feeding industry appears to be greatly enhanced by the Del

E.

Webb vs.

Spur Industries,

Inc. judgment.

Currently, with the exception of one feedlot opera- tion, every major feedyard is located on undisputed private agricultural land, Indian land, or in dis- tricts which have historically been rural areas prior to the movement of urban developments in its direction. The intent of each operation has been clearly to operate in low population areas. Con- sequently, construction and development companies must plan their ventures more prudently in the future. Since development firms are now liable for indemnification for the forceable relocation of industrial or agricultural businesses, the responsibility should limit future development projects in cattle feeding areas.

The development of new systems to control ani- mal waste and reduce the offensive residues of live- stock feeding operations has become a primary goal in agricultural pollution control.

Institutions supported by private and public funds are increasing their efforts to alleviate the problem of waste pollution. In 1971 alone, total solid waste from farm animals was estimated at 1.6 billion of which cattle deposited

1.09 billion tons.

Experiments are being conducted on the confine- ment feeding concept as a possible solution to some of the environmental problems.

The facility des- cribed in the simplest terms confines feeding ani- mals to enclosed or semi on slotted floors. Beneath the floor, a large pit collects the manure droppings and retains the waste products for removal.

The environmental spin

39

of this system are numerable. The facility protects against the uncontrolled runoff of waste material and reduces the problems of dust, odor, flies, and pests.

Implementation of the confinement system by feedlot firms has proceeded on a limited basis in the last few years.

Confinement operations were constructed in the Sacramento Valley of California and South Texas.

Construction also is planned by a few firms located in Colorado, South Dakota, and

Arizona. The lack of acceptance of the system by the industry's firms to date may be attributable to the excessive costs of construction of the facility and some management problems.

Capital investment in these new facilities is significantly higher than traditional open lots. (More detailed discus- sion of the economics of confinement feeding has been completed in Chapter X.) converting

(See it into other products such

Chapter X for more details.) as feeds.

The future of development of proteins and other by- of such products by commercial markets is uncertain.

Public opinion in the last few years has been vocal on the subject of drugs, chemicals, food, and feed additives. The stigma relative to proposals to feed recycled manure will likely create a major public relations problem for the cattle feeding industry.

Furthermore, waste by- product developers must gain acceptance of their products by the Federal Drug

Administration, which to date, has remained silent on manure recycling practices.

In addition to systems of confinement feeding which may help reduce feedlot problems in the community, there are numerous experiments being conducted with the handling of feedlot waste.

These involve recycling and control of the waste,

It is expected by the industry that environmen- tal, and health issues, will continue to be a problem for feeders.

In order to reduce the impact of con- trols, feeders must try to reduce the environmental conflicts and to use the utmost discretion in employ- ment of feed additives and antibiotics. At the same time, discretion needs to be employed by the public in its demand for controls. These should be limited to useful and desirable results, in full recognition of associated costs and benefits.

CHAPTER

VIII

SOURCES, METHODS, AND COSTS

OF

FINANCE

FOR FEEDLOTS AND FEEDING

BANKING PRACTICES

FOR

SHORT AND

INTERMEDIATE TERM FINANCE credit ratings of the client, management ability, location of operation, and potential profitability to the bank also were considered before making a decision on loan requests. Commercial banks making short and intermediate term loans follow a set of management policies and practices intended to optimize returns to credit operations.

Each banking firm develops a unique set of needs of discusses the of criteria for financing due to special credit its locality and customers. cattle and feedlot loans.

This chapter practices followed by a sample of

Western, Southwestern, and Midwestern commercial banks of the Tenth, Eleventh, and Twelfth Federal

Banking Districts during the second and third quar- ters of 1972, in the short and intermediate finan- cing

The frequency with which loans were inspected varied significantly among the surveyed banks. Over half of the banking houses stated that short and intermediate loans for cattle feeding were reviewed more frequently than other agricultural loans.

Generally, monthly financial reports were requested of customers rated "high risk" and appraised quar- terly by banking officials. Established cattle feeding customers with strong credit ratings, on the other hand, needed only to supply annual balance and income sheet statements to banks when reestab- lishing or increasing their credit line.

General Lending Procedures

Commercial banks, as a standard procedure, re- quest financial information of all clients seeking short and intermediate cattle feeding loans. Income and balance sheet statements, along with lists of security holdings, are standard documents requested of private and corporate clients to establish their financial strength. Financial strength, however, was only one factor listed by banking firms as an important consideration in approving loans. General economic health of the cattle feeding industry, past

The banking regions of the Midwest and Southern

Plains registered the most frequent inspections on cattle loans of the three

Western federal banking districts.

Frequency of inspection often numbered six times a year and never less than twice a year.

Movement of collateral, collateral imbalances, and fluctuating markets were reasons given by Midwestern and High Plains banks for the more intensive reviews of loans.

A number of branch banks in California also conducted more extensive inspections on cattle loans due to the dynamic nature of the feeding industry.

40

Interregional Banking Practices

Only the commercial banks in the

Panhandle surpassed the customer utilization rate in the

West, utilizing approximately

86 percent of its full line.

Financing of cattle on feed has extended beyond state borders in recent years due to the growing capital requirements of cattle feeding.

Demand for credit has frequently exceeded local bank reserves, requiring the participation of larger correspondent banks.

Arrangements for financing with the larger banking institutions located in major cities as

Chicago, Dallas, Amarillo, New York, San Francisco, and Denver have increased substantially.

Regional banks have also become more liberal in financing cattle feeding investors. Approximately

55 percent of the surveyed banks assisted out state interests to finance local cattle on feed, and 65 percent of these same firms financed cattle

-of

Banking offic- ials in the three regions predicted an increase of interstate financing of cattle.

Intermediate Term Financing for Feedlot Operations

Intermediate term financing of feedlots for other than operating credit was not undertaken by the majority of banking institutions surveyed during the second and third quarters of 1972. The need for liquidity in credit portfolios was the major factor which restrained many commercial banks from partici- pation in longer term feedlot financing. Those banks which participated in feedlot financing also gener- ally granted credit to their clients to supply oper- ating capital and funds for cattle and feed purchases.

Acceptance of loan requests for expansion of feeding facilities among the surveyed banks was limited.

Lending Agency Requirements and on

Short Term Cattle Financing

Costs

The financing of short term loans for cattle feeding was practiced by every bank surveyed within the

Tenth, Eleventh, and Twelfth Federal Reserve

Banking Districts. The share of feeder cattle loans granted by these banks ranged from

2 to 25 percent of their total credit portfolios. West Coast banks revealed feeder loans ranging from

2 to 20 percent of their total inventory of loans, while the Southern

Plains banks recorded the highest share of cattle loans.

Requirements of financial strength for inter- mediate term financing varied among the regional banks servicing feedlot customers. Southwestern banks granted their feedlot clients the most liberal lines of credit, which resulted in the highest credit asset and credit within the survey

(Table

36).

These liberal credit lines, however, were accompanied by the most restrictive security requirements to support loans.

Co- signatures, secur- ity interest in cattle, real estate and /or private assets were the common array of conditions requested.

Banking institutions on the

West Coast and Midwest only required co- signatures and liens on cattle to secure most of their term financing. loans

Requirements for customer financial strength appeared to be more liberal within the

Midwestern and Southern Plains banking communities. Credit worth ratios averaged

1.2 for a sampling of banks from both areas with security requests assets representing only

15 percent of their out- standing loans.

West Coast and Southwestern banks revealed a more conservative credit ranging from collateral

0.47 quested by West Coast commercial banks was generally limited to co- signatures while over

70 percent of approved of by to 0.52.

Security

Southwestern banks required the business and personal on business on loans re- assets.

The utilization of lines of credit, indicated by the survey, appeared to be lowest for the South- western feeding industry.

Amounts of the original notes averaged

14 percent of the line of credit granted by local banks.

This low level of utiliza- tion, however, does not reflect the withdrawal of capital by draft accounts.

In the last few years, banks in the Southwest have implemented draft systems on lines of credit to service the capital require- ments of the cattle feeding customers. Allowances for the use of draft accounts places the utilization of established lines of credit above the levels in- dicated for the middle quarters of 1972. Interest rates on capital used to finance these Western feed- ing firms ranged from

7 to

8 percent

(Table 36).

The lower financial strength requirements of the

Midwestern banking community, however, was accom- panied by higher interest rates and margin require- ments.

Margin requirements averaged

33.3 percent in the

Panhandle and

25 percent in Illinois while com- mercial banks on the West Coast required margins of

20 to 25 percent, with occasional requests of

30 percent. Southwestern banks requested a straight margin of

30 percent. Interest rates in the

Midwest ranged from

7 to

8 a point higher than the range of rates in the

Western states

(Table 35).

Utilization tomers of the full line of credit by cus-

Western banks ranged between percent during of the

60 and second and third quarters

70 of 1972.

ALTERNATIVE SOURCES OF

SHORT AND

INTERMEDIATE TERM FINANCING

FEEDER CATTLE AND

FEEDLOT COMPANIES

OF

Commercial banks during the last century have been the primary outside source of capital used by this nation's livestock sector to finance its beef feeding operations.

Not until the middle 1960's, when large corporate feeding firms began to develop were alternative sources of capital available to the feeding sector.

These large agribusiness firms established means of obtaining capital by operating

41

TABLE

35.

COMMERCIAL BANKS:

CHARACTERISTICS RELATIVE TO SHORT TERM CATTLE FEEDING

LOANS.

Location Institution Margin Interest

Line of

Credit

Net Worth

Current

Loan

Line of

Credit

None

Security on Loans

Co

Business

Assets

Personal

Property

Southwest Commercial

Bank

30

Percent

6

1/4 -

7

1/2

Ratios

.480 .607

30

Percent

24 46

West Coast

Midwest

Southern

Plains

Mountain

Commercial

Bank

Commercial

Bank

Commercial

Bank

Commercial

Bank

33.3

6 -

6

1/2

7

-

8 3/4

8

1/4

-

8

3/4

7

1/2 -

8

1/2

.493

1.240

1.208

.959

.679

.441

.860

.979

45

50

57

55

25

28

25

25

15

75

Source:

Primary data from survey of commercial banks,

1972.

TABLE

36.

INTERMEDIATE AND SHORT TERM CREDIT ARRANGEMENTS.

Location Institution

Credit Credit Original Present

Note

Assets

Net Note

Worth Credit Credit

Interest

Rate

Ratios

Percent

Southwest

Commercial

Bank

0.65 2.55 0.14 0.11

7

- 8*

Purpose

Loan of

Expansion, operating capital

Security

Method of

Repayment real estate, cattle, other assets

Refinance lump sum

Southern

Plains

Commercial

Bank

0.33 1.06 1.02 0.40 Operating capital, feed and cattle purchases cattle

Refinance

Midwest

Commercial

Bank

0.41 1.20 1.00 0.88

7

Cattle and feed purchases

Cattle, other

Revolving

West

Coast

Commercial

Bank

0.39 0.96 0.72

6

1/4

-

6

3/4

Operating capital, feed and cattle purchases

Cattle, real estate

Lump sum or in- stallment

*Variable rate (tied to prime rate).

Source:

Primary data from survey of commercial banks,

1972.

42

as public corporations, providing greater indepen- dence from commercial banks.

Issuance of preferred or common stock on the major exchange markets drew new funds into the firm. In addition to stock offerings, public feedlots also issued debentures on an intermediate term basis to fulfill long range financing requirements.

The maturity periods and interest rates on debentures, of course, vary by capital demands of each corporate feedlot, the con- dition of the money market, and the health of the livestock economy. term loans to finance the construction of feedlot facilities.

Feedlot corporations also use warehouse receipts as a source of credit. Short term credit on feed stocks supplement the numerous other sources of capital and credit available.

The magnitude of this form of credit and its role in the financing of the industry, however, is minor compared to flow of capital and credit from financial institutions and the investment community.

Movement away from commercial banks as primary suppliers of capital is also taking place in fin- ancing custom feeding.

Institutional investors are becoming more involved in committing large capital holdings into the feeding of beef cattle for invest- ment purposes.

Utilization of capital from trust funds, pension funds, and other capital pools is be- coming more common in the livestock sector of the agricultural economy.

Similarly, large private holdings of capital are also financing the produc- tion of beef cattle for market.

Optimistic market expectations in the livestock sector have increased the flow of large capital holdings into the live- stock feeding economy.

FINANCIAL SERVICING OF CUSTOM FEEDERS

BY THE

CATTLE FEEDING INDUSTRY

There is a growing trend among cattle feeding corporations to help finance their custom feeder cli- ents.

Often large cattle feeding firms establish separate revolving credit lines with banks which are used primarily for financing clients. Financing of this type appears to be economical and convenient for clients since interest rates are comparable to commer- cial bank levels and paperwork for credit is minimal.

Large corporate firms in recent years have also offered limited partnerships in cattle feeding pro- grams to attract capital to finance animals on feed.

Typical partnership arrangements, as described in

Chapter

IV, tied funds to the feeding program for three to five years with a cash penalty clause for liquidation before the maturity of the contract.

This type of financial arrangement is of great bene- fit to feeding corporations to maintain a high utilization of plant facilities and stability in operations.

Federally supervised lending agencies tradition- ally providing long term loans for the agricultural sector are currently becoming more involved in feed- er cattle financing.

P.C.A.'s are increasing their portfolios of feeder cattle paper which is being discounted at the Federal Intermediate

Credit Bank.

The Small Business Administration has also made long

A small number of Arizona's largest feedlots have assisted clients in financing cattle in recent years.

These programs have proved to be successful and offer a major service to prospective clients.

Other feedlots assist their clients to establish lines of credit, either by co- or guaran- teeing notes at the bank.

Cattle management companies are a relatively new concept in the livestock sector. These firms manage the purchase, feeding, and sale of cattle for clients interested in speculating, investing, or seeking tax deferrals in the feeding of beef cattle. Generally, investors with little experience in cattle feeding as an investment venture are major clients for this ser- vice. ing.

These companies also aid with customer financ-

Knowledgeable management companies provide cer- tified monthly cattle inventory reports reflecting ket values and feed costs. These reports are highly acceptable to the lending agency and are used as a control factor, in many cases eliminating the need of an in

CHAPTER

IX

MARKETINJG

OF FAT

CATTLE AND BEEF

FAT CATTLE

MARKETING

Numbers and Markets for Fat Cattle

Fat cattle marketings in

Arizona have been rising steadily during the last decade.

Numbers marketed in this period expanded an average of

6 percent per year, reaching 899,000 head in 1972

(Table

37). remains the major market for

Arizona beef cattle.

Marketings to local packing plants totaled 477,064 in 1972, equivalent to 53 percent of the year's fat cattle supply.

This 1972 total also comprised

88 percent of the 541,500 head slaughtered in

Arizona.

The growth of fat cattle marketings has paral- leled the increase in cattle slaughterings by the state's beef packing industry. As a result of this expansion in slaughter, the local packing industry

Sales of fat cattle also extended beyond the borders of Arizona. Southern California packers bought 385,691 head of fat cattle from Arizona in

1972 or about

43 percent of the state's output.

Marketings to packers in other states as

Texas,

Colorado, and Tennessee have been relatively small, amounting to

25,000 to

30,000 head in recent years.

43

TABLE

37.

MARKETINGS OF

Year

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

FAT

CATTLE IN ARIZONA,

Numbers Marketed

568,000

608,000

600,000

650,000

608,000

665,000

703,000

835,000

860,000

901,000

As a result of the direct sales practices, feedlot managers need more market information at hand. In addition to the traditional market news service of the USDA, feeders have developed their own sources.

For example, the American National

Cattleman's Association has established a centralized system employing computers to analyze market data on a continuous basis.

Feeders may belong and obtain the service by paying a fee. They are linked di- rectly to the computer center to which they send information on placements, marketing plans, etc.

The center analyzes the data, and with other sources of market information, gives an up -date report back to the members as a guide in their marketing decisions. The center also provides longer term analyses and recommendations. This information service can assist the industry to develop inventory policies to help prevent surpluses or shortages in the fat cattle markets.

Source:

1972

Arizona

Crop and Livestock Reporting

Ser- vice, Arizona Agricultural Statistics,

Phoenix, Arizona.

Methods of Sale

899,000

Fat cattle sold by feedlots to packing plants are generally direct sales. Information obtained from

21 feedlots indicated all sales of fat cattle were made direct to packer buyers. Standard purchase agreements on price, time of delivery, and shrinkage were generally negotiated among the buyers and feed- lot operators. The feedlot operators act as mar- keting agents for their custom feeder clients.

While all feeders do not belong to the system described above, 60 percent of Arizona's feeders representing a major part of the cattle fed in

Ari- zona were included in early

1972. In addition, some

Arizona feeders have their own teletype, telephone, or other communications systems. A major part of the cattle fed are represented at a weekly marketing meeting sponsored by

Arizona Cattle Feeders Associa- tion. At these meetings, feeders discuss market plans and have access by phone hookup to buyers and other feeders in all parts of the country.

These modern means of operation and communica- tion reduce or eliminate the bargaining advantage of packers or buyers of earlier years.

Feeders no longer feel the need to absorb the additional costs of selling through terminal markets or at auctions to obtain competitive prices.

Sales to terminal markets have declined all over the United States. In 1955, direct sales accounted for 55.3 percent and terminal markets

25.8 percent of cattle producers' sales in the

Western states. By 1964, only 6.8 percent were,/

Growth factor in in the feeders have become large more standardized. Single feedlots with 20,000 to

60,000 head capacity and marketing up to

100,000 head per year are capable of meeting the entire capacity of some smaller packers. Feeders stagger their sales and therefore, more nearly meet the needs of packers on a day to day basis.

The has led feedlot. commercial feedlots terminal market has been decline. and their a major

Individual products much volume available and uniformity of product packers to go to direct buying from the

This action reduces the number of hand- lings and their associated costs.

It also increases the problems of price reporting and price compari- sons. to

However, the larger volume feedlot has led more sophistication on the part of the feeder.

The operation becomes large enough to allow at least one individual to become a specialist in marketing. Arizona feedlot owners or managers are knowledgeable both in terms of market prices and livestock quality.

The uncertainty of future prices, however, remains a major marketing problem in the feeding industry. The profitability of marketing decisions hinges upon the ability of the feeder to anticipate prices and market trends. Although unexpected price changes appear frequently on the fat cattle market, forward contracting and hedging are seldom practiced by cattle feeders.

Most Arizona feeders feel they own market insurance by attempting uous average market price which they can to provide have a

This policy, while good in theory, does not always function in practice. Variations do occur in capac- ity use and in feedlot marketings by months. Price variations are often quite large, associated with changes in volume marketed.

Under such circumstances, a good system of prediction of short run price changes should provide opportunities for gain through varying the numbers on feed, by forward contracting and of the futures market. their contin- inward and outward flow, on a weekly or monthly basis. By this method, they are able to obtain an consider better than would be possible by trying to guess price variations.

44

Packing Plant Facilities

Arizona and California in

The numbers of livestock slaughtered in Ari- zona have increased substantially since

1967. In

1967, there were 245,400 head of cattle and 154,700 head of hogs slaughtered in commercial plants.

In

1972, the numbers had increased to

541,500 cattle and 180,200 hogs (Table

38). estimates supplied by the larger firms in the indus- try and by data variations in slaughter of some of the smaller plants, there appears to be a potential capacity to handle at least 600,000 cattle. This assumes normal operating periods and a continuation of slaughter of hogs and other livestock. There- fore, an estimated

12 percent of capacity re- mained unused in 1972.

This suggests that some further small increases in slaughter can occur in the state without expanding or adding new plants, but for significant increases, more plant facility will be required.

TABLE 38.

COMMERCIAL LIVESTOCK SLAUGHTER, ARIZONA

A.

Arizona

1972

1971

1970

1969

1968

1967

1966

1965

1964

Cattle Calves

2.5

2.5

2.4

3.6

4.4

5.3

5.5

7.5

6.5

Hogs

1,000 Head

180.2

219.0

183.4

177.7

179.4

154.7

130.6

123.3

134.6

Sheep and

Lambs

1.2

1.4

1.6

1.5

13.6

16.6

14.8

14.0

13.8

Since California is a major market for Arizona cattle, some of which are shipped alive and some in carcass form, slaughter facilities in California tend to compete with Arizona. Much of the facilities in the Los Angeles area tend to be relatively old and over the past few years, a number have ceased operations. 541.5

520.5

508.5

499.5

417.1

245.4

243.2

239.5

227.4

The trend in livestock slaughter in California has been downward. In 1967, a total of

3,050,000 head of cattle, 287,200 calves, 1,649,000 hogs and

1,966,000 sheep and lambs were slaughtered in Cali- fornia. By 1972, the numbers declined to

2,761,000,

119,300. 1,504,000, and 1,741,000 head, respectively, for each of the livestock groups. Thus, California has had to import an increasing supply of carcass meat to provide for its growing needs. Indications are that this trend will likely continue, suggesting facilities in supplying states such as

Arizona will be needed in the future to meet the

California mar- ket requirements.

B.

California

1972

1971

1970

1969

1968

1967

1966

1965

1964

2761.0 119.3 1504.0

2854.0 152.5 1565.0

2849.0 188.7 1593.0

2936.0 235.0 1549.0

2919.0 255.4 1628.0

3050.0 287.2 1649.0

3121.0 337.0 1520.0

3004.0 387.0 1593.0

2957.0 348.3 1730.0

1741.0

1751.0

1653.0

1748.0

1910.0

1966.0

1844.0

2038.0

2154.0

Nature

Beef

CHARACTERISTICS of the Demand for in the United States

OF

BEEF MARKETS

Growth in

Consumption and Expenditures.

Meat consumption in the United States has been rising at a fairly steady rate since 1950.

In the early

1900's total meat consumption per capita ranged between

150 and 160 pounds. At that time, pork consumption exceeded beef and amounted to about 47 percent of the total. Lamb and mutton consumption per capita ranged between six and seven pounds.

Source:

U.S.D.A., Livestock and Meat Statistics,

Annual Reports, Economics Research Service,

Consumer and Marketing Service, Washington.

The greatest increase in slaughterings occurred in 1968 with the opening of one major new plant in the state. Since then, slaughterings of both cattle and hogs have increased slowly, reflecting increased supplies in the area and some further adjustments in individual plant capacity.

From a peak level of 162.6 pounds per capita in 1908, meat consumption gradually fell to a low of

116.4 pounds in 1935. It rose over the next

15 years to

144.6 pounds in 1950.

During most of this time, pork consumption exceeded beef with a differ- ence in some years of as much as 20 pounds. Lamb and mutton consumption began to drop after World

War

II and amounted to only

3.4 pounds in 1951.

There

1971, of volved percent seven was of the of the a total of 31 largest plants. plants in the

On the basis state cattle slaughtered were handled of in which four were federally inspected and in- in out

-state shipments of meat. Over

90 in

Following

1950, some interesting changes have occurred in the meat consumption patterns of the

United States (Figure

27 and Table

39).

Total red meat consumption rose from 144.6 pounds per capita in 1950 to 187.8 in 1972, an increase of 31 percent.

In addition, beef became the major source of

45

TABLE

39.

MEAT:

PRODUCTION AND PER CAPITA CONSUMPTION, BY CLASS, 1950 -72.

Year Beef

Veal

Production

Lamb and

Mutton

Pork Total Beef

Per

Capita Consumption

Lamb

Veal and

Pork

Mutton

1950 8.0

Pounds

4.0

59.2

1951

1952

1953

1954

1955

9,534 1,230

Million Pounds

597 10,714

8,837 1,059 521

648

11,481

11,527

9,650 1,169

12,407

1,546

10,006

729

734 12,963 1,647

13,569 1,578 758

9,870

10,990

22,075

21,898

22,994

24,688

25,214

26,895

63.4

56.1

62.2

77.6

80.1

82.0

6.6

7.2

9.5

10.0

9.4

3.4

4.2

4.7

4.6

4.6

71.9

72.4

63.5

60.0

66.8

1956

1957

1958

1959

1960$/ 14,753 1,109

1961

1962

15,327 1,044

15,324 1,015

1963

1964

1965

14,462 1,632

14,202

13,330 1,186

13,580 1,008

16,456

1,526

929

18,456 1,013

18,727 1,020

741

707

688

738

768

832

808

770

715

651

11,200

10,424

10,454

11,993

11,607

11,408

11,827

12,427

12,513

11,141

28,035

26,859

25,658

27,319

28,237

28,611

28,974

30,582

32,697

31,539

85.4

84.6

80.5

81.4

85.1

87.8

88.9

94.5

99.9

99.5

9.5

8.8

6.7

5.7

6.1

5.6

5.5

4.9

5.2

5.2

4.5

4.2

4.2

4.8

4.8

5.1

5.2

4.9

4.2

3.7

67.3

61.1

60.2

67.6

64.9

62.0

63.5

65.4

65.4

58.7

1966

1967

1968

1969

1970

1971

1972

19,726

20,219

20,880

21,158

21,685

21,904

22,212

910

792

734

673

588

546

426

650

646

602

550

551

554

533

11,339

12,581

13,063

12,953

13,436

14,795

13,456

32,625

34,238

35,279

35,334

36,260

37,799

36,621

104.2

106.5

109.7

110.8

113.7

113.0

115.6

4.6

3.8

3.6

3.3

2.9

2.7

2.1

4.0

3.9

3.7

3.4

3.3

3.1

3.3

58.1

64.1

66.2

65.0

66.4

73.0

66.8

211960 on includes Alaska and Hawaii.

Source:

Livestock and Meat Situation,

USERS,

Washington.

Total

169.7

174.7

167.1

170.9

178.3

183.2

182.5

186.3

191.8

187.8

144.6

138.0

146.0

155.3

154.7

162.8

166.7

158.7

151.6

159.5

160.9

160.5

163.1 increases in consumption, rising from 63.4 pounds to

115.6, an increase of nearly

85 percent. Veal con- sumption fell from between eight and ten pounds per capita in the 1950's to 2.1 pounds in 1972. Lamb and mutton declined from between four and five pounds to 3.3.

Pork consumption remained relatively stable, fluctuating between

58 and

73 pounds,

Much of the increasing beef consumption per capita has been associated with increasing incomes.

However, population has been rising also which has added to the total demand for meat, especially beef, in recent years. Total United States beef and veal consumption rose from 11.0 to 24.2 billion pounds between 1950 and 1972, an increase of 120 percent.

During this period when beef consumption was rising rapidly, poultry consumption was also in- creasing.

In 1950, total poultry consumed per capita amounted to 24.7 pounds whereas in 1972, it was 51.8 pounds. Thus, poultry has become an in- creasing part of the total meat diet rising from

14 percent in 1950 to over 20 percent of the total meats consumed in 1972.

As the per capita consumption of beef has risen, retail costs per capita have also gone up at a fairly steady rate. In 1950, the retail cost of per capita purchases of beef based on2yrices of choice beef was estimated to be $37.37,

-

(Table 40). The

1972 estimate was

$97.42.

Average per capita choice beef costs in

1950 would have amounted to

12.3 per- cent of the total food expenditures and

2.7 percent

46

of per capita disposable income. In 1971, choice beef costs per capita were estimated at 2.4 percent of disposable income.

There was a small, but fairly steady decline in the relationship of beef costs to disposable income until 1972 when the percentage climbed to 3.0.

FIGURE

125

-

-

F-

I

100-

- w

75-

27.

Ú

-

50- cn

Z

o

25-

1950

MEAT CONSUMPTION PER PERSON.

C

LAMB a

MUTTON

---

------ --- ----- e55

1960

YEAR e65

1970

_

1975 percent of the average.

Those with incomes between

$5,000 and $6,000 consumed 6.2 pounds and those with

$15,000 or more consumed 8.59 pounds.

The increases were not constant between income levels and were less for changes at higher than lower levels.

The per household consumption for the highest income group was

267 percent of the two lowest categories. Ex- penditure differences were even more pronounced.

Those under $2,000 spent an average of

$1.67 per week on beef while those with $15,000 or more spent

$8.62. Thus, the highest income group spent more than five times the amount spent by the lower income categories.

FIGURE

28.

BEEF PRODUCTION, BY GRADE.

PRIME

Source:

Livestock and Meat Situation, U.S.

Economics Research Service, February

1973.

The rapid increases in consumption have put stress on the beef industry to meet the growing demand. In addition to the large increases in the quantity, consumers have demanded a better quality product with much more service provided.

Between

1961 and 1971, the amount of beef produced classi- fied as choice and prime rose from

48 to 63 percent of the total (Figure 28).

The lower grades involving utility, canner and cutter, and standard commercial beef dropped from 33 to 21 percent.

While some of this shift was associated with changes in grading standards during the period, the major factor is considered to be pressure from consumer demand.

Effects of

Income on

Demand. The effects of increasing income on food consumption in the

United

States tends to be relatively small.

The major cause of increased expenditures in recent years has resulted from a rising demand for services and some changes in diets.

Beef is one of the commodities which is still in a favorable position. Higher in- come groups continue to demand more of the best cuts of beef, though their total beef consumption may not be rising significantly.

Lower income families continue to substitute more beef for cheaper forms of foods as their incomes rise.

A detailed study on food consumption in the

West in

1965

revpled

some interesting patterns with respect to beef.- All households surveyed consumed an average of 5.83 pounds per household per week with about

45 percent being steaks. Expenditures averaged $4.18 with 53 percent spent on steaks.

1961

1971

Source: 1972

Yearbook of Agricultural Charts,

USDA, Agriculture Handbook, p. 70.

The lowest income categories purchased less than one pound of steak per household per week ver- sus 5.63 pounds for the high income group.

Addi- tionally, the low income group bought cheaper steaks.

Significant increases in both consumption and expenditures occurred in shifting to those with incomes between $2,000 and $3,000 and again for those in the

$4,000 to $5,000 income levels. How- ever, even families with incomes between $5,000 and

$6,000 consumed only

72 percent of the amounts con- sumed by families with over $15,000.

Furthermore, their expenditures were less than half of the higher income families.

More detailed studies have been carried out which support the above relationships between in- come and consumption patterns for beef.

Ethridge's analysis of the household survey data determined that a change of

3 percent in income in 1965 re-

4/ sulted in about

1 percent change in beef consumption:-

There was a significant difference between high and lower valued cuts of meat.

For the higher valued cuts, a

3 percent change in income resulted in nearly

1.5 percent change in consumption. For lower valued cuts, the response was negative, indicating a slight reduction in the quantity occurred as income rose.

Households with less than

$2,000 income after taxes consumed 2.7 pounds of beef per week, or 46

47

TABLE

40.

PER

CAPITA RETAIL COSTS AND PERCENT

OF

DISPOSABLE INCOME FOR CHOICE BEEF, 1950 TO 1972.

Year

Consumption

Retail

á

-

-Pounds-

-

Choice Beef

Average Retaílb/

Price Per

Pound-

Costs of

Choice Beef

'

Expenditures

All Food

Dollars

Disposable

Income

Percent of

Disposable Income

For Choice

Beefy

Percent-

- -

1950

50.1 74.6 37.37 303 1,364 2.7

1951

1952

1953

1954

1955

44.3

49.1

61.3

62.9

64.0

87.3

85.7

68.4

67.8

66.8

38.67

42.08

41.93

42.65

42.75

338

348

347

348

351

1,468

1,518

1,582

1,585

1,666

2.6

2.8

2.7

2.7

2.6

1956

1957

1958

66.2

65.1

61.6

65.4

69.9

80.2

43.29

45.50

49.40

359

373

383

1,743

1,801

1,831

2.5

2.5

2.7

1959 61.9 82.0

50.76

386

2.7

1960

1961

1962

1963

64.2

65.8

66.2

69.8

80.2

78.4

81.7

78.5

51.49

51.59

54.09

54.79

388

392

399

404

1,905

1,937

1,983

2,064

2,136

2.7

2.6

2.6

2.6

1964 73.9 76.5

56.53 419

2,281 2.5

1965 73.5 80.1

58.87 2,432 2.4

1966 77.0 82.4

63.45

441

467 2,600 2.4

1967 78.6 82.6

64.92

472

2,744 2.4

1968 81.0 86.6 70.15 495

2,939

2.4

1969

1970

1971

1972

81.8

84.0

83.4

85.6

96.3

98.6

104.3

113.8

78.77

82.78

86.99

97.42

518

566

574

597

3,108

3,366

3,595

3,807

2.5

2.5

2.4

3.0

'Per capita carcass weights converted to retail weight with a factor of .738.

'Prices

based on choice beef carcasses and obtained from

U.S.

Department of

Agriculture, Farm

Spreads for Food Products, Misc. Pub. No. 741, January 1972.

-/Computed by multiplying total retail consumption at average retail prices for choice beef.

Over a 10

1955 to 1965, apparently the positive response to income for higher grade beef increased.

Similarly, the size of the negative relationship between income and lower valued cuts increased. Other studies tend to support the relatively high income elasticity estimates

(see the

Journal of Farm Economics,

Feb.

1967, pp. 169 -183, and

Oklahoma State University

Technical Bulletin

T

Marketing Margins and Costs

The increasing demand and cost for services has been reflected in rising marketing margins for beef and a declining share of the consumer's dollar going to the farmer. From 1950 to 1952, the farmer's share averaged

75 percent, whereas for 1960 to 1972, it averaged

64 percent. In 1950, the average retail price of choice beef in the United States was estimated at 74.6 cents per pound. The farm to car- cass or wholesale spread was

6.5 cents per pound and the carcass to retail spread was 12.9 cents.

The 1972 average retail price for choice beef was

$1.14 per pound while the farm to carcass spread was

7.5 cents and the carcass to retail spread was

33.8 cents.

Thus, during the past 22 years, retail prices of meat rose by 53 percent.

The farm to carcass spread has varied from

6.2 to 8.9 cents per pound and was actually higher during the 1950's than in

48

the 1960's. The carcass to retail spread has risen fairly steadily with significant increases in the past three years. The 1972 carcass to retail spread was nearly three times as large as in 1950 (Figure

29). livestock rose by about

50 percent whereas rates on meat in 1970 were about the same as 1950.

Profits of retail food chains in terms of equity appears to be declining though it remains fairly steady in terms of sales.

FIGURE

29.

FARM

PRICE SPREADS.

Market Supply and Demand in

California

120-

100-

D

80

,

60- z

w

40-

20-

I

W w m w

U

O

I o

0

40

20--......

RETAIL PRICE

CARCASS VALUE

FARM VALUE

1

' ' '

1

FARM- RETAIL

SPREAD

I

' '

'

1

' beef.

California has been a major market for Arizona

Furthermore, it has, in the past, been a rel- atively fast growing market as a result of both population and income increases.

For California, Ethridge estimated per capita consumption g beef to be about 140 pounds in the late 1960's.- This was approximately 25 pounds more than the national average.

In fact, per capita consumption of beef for the U.S., at

112.5 pounds in

1969, was nearly 20 pounds less than the estimated

California consumption of the years 1953

0

1949

1953

M-CA i

1

1957

CARCASS -

RETAIL

1961

YEAR

1965 1969 1973

Part of the differences between the

U.S. and

California beef markets is due to differences in in- come levels.

For recent years, income in California has been about

20 percent above the

U.S. average.

Average income in California in 1953 and 1954 was slightly higher than the

U.S. average

10 years later.

Source:

Farm

U.S.

Economic Research Service,

Misc. Pub. No.

741, Fig.

7, p. 27;

Marketing and Trans- portation Situation,

U.S.

Economic Research

Service, February, 1973.

Major factors in maintaining farm to carcass spreads have been new technology, efficiencies in plant organization and byproduct values. Labor and other costs have been rising for packing plant operations but new streamlined methods have kept these costs down in terms of unit output. The mar- keting system has also changed, resulting in greater efficiency of transfer of products.

Carcass to retail spreads have risen signifi- cantly, reflecting some added costs associated with improvement in product and service but most of the increase has resulted from higher labor and other input costs.

Retail handling and distribution techniques have not changed significantly with the result that increased costs have had to be passed on to the consumers.

In fact, increased trimming demanded by consumers has added to retail labor costs and reduced poundage on higher priced cuts.

Some offsetting economies have resulted from the use of volume self- of chain stores and supermarkets.

The hourly labor costs for

retailersn

general rose from $1.10 in 1950 to

$2.70 in

1970.-

Slightly larger increases occurred in wholesaling and manu- facturing hourly earnings. Costs of other inputs such as containers, plant and equipment, services, etc., for food marketing firms have nearly doubled in price.

Interest rates on short term bank loans more than tripled in 20 years. Freight rates on

The higher levels of income and of beef onsump- tion in California have resulted in a slowing down of the growth in per capita demand.

Ethridge's analyses of consumption, based on the years 1953 to

1969, estimate it took a 4 percent change in income for California consumers to increase beef consumption

1 percent. A high preference for fed over nonfed beef was also demonstrated.

For fed beef, it was determined that a

3 percent change in income would increase beef consumption

1 percent.

There are some indications California may have to depend increasingly on outside sources for any growth in supplies of beef needed. Feedlot market ings in

California supplied about 53.1 percent of the estimated total consumed in711.961 but this de- clined to

45.2 percent in 1969.- Since feedlot marketings were less in 1970, 1971, and 1972 than in

1969, the percentage has dropped still further.

A recent study- indicated that about one of the beef consumed in California in fiscal 1972 was trucked in as carcass beef. Arizona, Colorado,

Idaho, and Texas supplied over

50 percent of the beef inshipments. Arizona alone supplied

14.7 per- cent. California also imports live cattle for slaughter.

In fiscal

1972, a total of

497,517 were shipped in, of which nearly

70 percent came from

Arizona. Thus, approximately

46 percent of the beef consumed in California was imported by truck, either as dressed beef or fat cattle for immediate slaughter, of which

30 percent came from Arizona. Quantities shipped in by rail were not estimated but indications are they probably were relatively small.

Including a rough estimate of these quantities, California imported approximately

50 percent of its total beef supplies in the 1972 fiscal year.

49

Arizona's Beef Markets

There are currently no accurate estimates of beef and veal consumption in Arizona.

However, since per capita income tends to be approximately

5 percent below the U.S. average, probably the best assumption would be that Arizona beef consumption is similar to the national average.

Arizona's population has been growing over the past 10 years at more than

3.5 percent per year.

However, the rate of growth appears to have been declining.

Based on population estimates and a per capita consumption level of 118 pounds, the 1972 total beef used in the state is estimated at

223,849,000 pounds. Based on 600 this would be the equivalent of nearly 373,000 head. relatively high levels of beef consumption. Further- more, even this rate of growth assumes increased supplies will be available as demanded and relative price levels between beef and alternative foods will not change significantly.

In addition to growth in per capita consumption, population is expected to continue to grow at about

1 percent per year.

Thus, the total annual growth rate in beef and veal consumption would be over

2.5 percent.

Since the increases are compounded each year, a conservative estimate of growth in U.S. de- mand for beef and veal from 1971 to 1982 would be between 31 and

33 percent.

These estiptes are about the same as those projected by

Seaborg- in 1970 for

1980, although he indicated the growth rate for per capita consumption might be as low as

1 percent or as high as

3 percent per year. The use of either of these extremes would make a significant difference in the total amount of beef and veal consumed.

A total of

477,064 head of cattle were shipped from feedlots to

Arizona packers in 1972.

Estimates are that

541,500 cattle were slaughtered in Arizona packing plants in 1972.

Nearly 70,000 of these originated from feedlots outside the state.

Since over 500,000 head were slaughtered in

Arizona packing plants, there was a large enough volume to exceed local demand.

However, from July

1971 through June 1972, over

149 million pounds of fresh or frozen beef was shipped to

California from

Arizona.

Thus, a total of about 250,000 head of fat cattle were needed to satisfy these shipments. This export of beef left about 290,000 head to meet Ari- zona needs, leaving the equivalent of about 85,000 fat cattle as a deficit.

This is the estimated amount of fresh or frozen beef that must have been shipped into the state or produced in the state as nonfed beef.

An increase of

31 percent in the demand for beef in the

United States by 1982 would amount to about 7.5 billion pounds, of which 6.9 billion would be produced domestically, if the current ratio of imports to consumption is maintained.

Based on fed cattle output at 600 pounds per carcass, a total of

11.5 million additional animals would be needed.

In

1972, nonfed beef was estimated to make up about

30 percent of total supplies.

This is declining as feeding increases.

Probably by 1982, over nine million more fed cattle will be needed, with the re- mainder made up of nonfed beef.

This would be equivalent to approximately 40 percent of total fat cattle marketings in 1972, and nearly double the cattle marketed from feedlots in

California, Texas,

Arizona, and Colorado, combined.

In addition to beef shipments to California in fiscal 1972, a total of 373,117 head of cattle were shipped from feedlots to

California packing plants.

Adding these to the estimated numbers shipped as meat, the total amounted to the equiva- lent of nearly 625,000 head.

Thus, the California market purchased approximately 70 percent of

Ari- zona's total feedlot production for fiscal

1972. cent

While income for Arizona is slightly below the national average, it is to be expected the level of response in terms of increased beef consumption per capita relative to income growth will be about the same as the U.S. average at 1.5 percent.

Population growth cannot be expected to average more than

3 per- per year to

1982.

Market Expansion to 1982

The average annual rate of increase in per capita consumption of beef and veal in the United

States has been approximately 2.5 percent compounded over the past

20 years.

Assuming real per capita incomes continue to rise at about

3.0 percent per year, it seems reasonable to expect

U.S. per capita beef and veal consumption to rise to between

136 and

138 pounds by 1982. This would require a compound rate of increase of about 1.50 percent per year and would put per capita consumption just below the level of the estimated California consumption in the late 1960's. This rate of growth in consumption is well below the 2.5 percent rate of the past two decades.

While it may indeed turn out to be a con- servative estimate, it does seem reasonable to expect a declining growth rate, given present

The above assumptions on growth in Arizona would provide a growth rate of about 4.5 percent per year or a total increase of 55 -60 percent in beef and veal usage in 10 years. Based on 1972 consump- tion estimates of 118 pounds per capita, total consumption in 1982 should be expected to increase by about 122 million pounds. This would be the equivalent of

203,000 head of fat cattle.

The California market will also continue grow but at a slower pace. consumption will probably

Growth continue in per to more expensive cuts and on services.

Increases in per capita consumption over the next

10 years probably will amount to less than

1 percent per year, compounded. to capita decline with further increased expenditures being focused largely on

The California population growth rate has also been declining. Based on experience of the last few

50

years, population growth in

California probably will be less than

1 percent per year over the next

10 years.

Assuming a growth rate of

1 percent, the total increase in consumption of beef in California, including per capita growth, would amount to about

20 percent.

Exports of hides and skins have increased sharply in the past year and were reported at a value of $237 million for fiscal year 1971

Beef sales have also increased significantly "with exports of high quality cuts to Canada and for the tourist

10/ trade of the Caribbean, Asia, and Europe."

Based on the assumptions stated above, result- ing in a 20 percent increase, total consumption in

California would rise by about 600 million pounds or the equivalent of one million head. This would exceed the number of fat cattle marketed in

Arizona in 1972.

World beef and veal production for 1971 was estimated at 75 billion pounds.

U.S. production was

30 percent of this and consumption nearly one third.

Production in Brazil was estimated to be 4.0 billion pounds; Argentina, 4.5 billion; USSR, 11.9 billion; Australia, 2.3 billion; France,

3.6 billion;

West Germany,

3.0 billion; and the United Kingdom,

2.1 billion pounds.

If

California continues to supply about 50 per- cent of its beef requirements, about one increase in consumption estimated to 1982 would be imported.

This would be about

300 million pounds or the equivalent of 500,000 head of fat cattle. Based on fiscal 1972 ratios, Arizona's share of this would be about 90 million pounds or 150,000 head.

If

California feedlot operations do not increase at the rate of growth projected for demand, a larger pro- portion of beef will have to be imported. Whether or not

Arizona will be able to increase its share of the growing California market will, of course, depend on its competitive position with neighboring states.

World production has been rising fairly con- tinuously but not uniformly by area. The 1971 world output was 26.1 percent above the

1961 which was less than the

U.S. growth of 30 percent.

South America increased by only

6.5 percent for the same period and, in fact, declined between 1970 and

1971. Western Europe increased

20.6 percent while

Eastern European production was up 30.7 percent.

The USSR production rose 66.2 percent from

7.14 billion in 1961 to

11.87 billion in

1971. Pro- duction in Africa and Asia rose 18.7 percent to 3.6 billion pounds. Production in Mexico rose nearly

40 percent from 1.04 to

1.4 billion pounds (Table

41).

While the U.S. market in total should be strong over the next decade, for Arizona feeders the major concern will be the changes that occur in the Ari- zona- in the Cali- fornia market appears to be slowing, it is a large market and increases will be significant to

Arizona feeders. Furthermore, conservative estimates of

Arizona's potential share of this growth over the next 10 years suggests a market for the equivalent of over 350,000 additional fat animals by

1982. A major part, probably amounting to as many as 300,000 head, could be expected to be supplied by Arizona's feedlots.

The world population been growing slowly. of cattle and buffalo has

The average annual inventory to

1.23 billion by

1972, an increase of 16.4 percent

(Table 42).

For the same period, numbers were up

21.1 percent for North America; 22.5 percent for

South America; 26.7 percent for the USSR; 46.2 per- cent for Oceania; 14.0 percent for Africa; and 12.0 percent for Asia.

European numbers rose by only

5.8 percent.

International Developments in

Beef Markets

Over

37 percent of the cattle are in Asia where beef and veal production was estimated at

2 percent of the world total. Africa had 11.4 percent of the cattle with only 2.9 percent of the production.

The

U.S., with

9 percent of the world cattle population, produced

30 percent of the beef and veal.

U.S. and world trade in livestock and meat products has been growing in recent years and indi- cations are the rate of growth will be increasing for the future. The United States is a net importer of red meats. Beef and veal imports, under quota, amounted to 1.76 billion pounds in

1971 or about

7 percent of U.S. consumption. These imports were largely of lower grade beef and did not compete directly with the fat cattle market.

Imports of cattle, largely feeders from Mexico and Canada, have averaged close to one million head in recent years.

Beef and veal consumption varies considerably from country to country. Argentina had the largest per capita consumption with

176 pounds in

1970

(Table

43). Uruguay, the

United States, and New

Zealand consumed

133, 117, and 114 pounds, respec- tively. Most of the countries of the world had con- sumption levels below

60 pounds per capita. The

European Community consumption was

54 pounds; USSR,

47; Mexico,

24; and Japan, only

6 pounds per capita.

Exports of livestock and livestock products from the U.S. have been increasing but are relatively small.

The total value of these exports in 1971 was

$706.6 million.

Over 50 percent of these were made up of tallow, hides, and skins. Beef and veal exports amounted to 52.8 million pounds.

Live animal exports valued at $45.9 million were largely breeding stock.

Consumption in Europe, the USSR, Japan, and

North America can be expected to grow significantly as incomes continue to rise. In general, most other countries probably will be limited for the near future, largely due to the relatively low levels of income.

The traditional sources of beef and veal will continue to be the areas from which growth in output will have to come to meet the increasing

51

TABLE 41.

BEEF AND VEAL:

PRODUCTION

IN

SPECIFIED COUNTRIES AVERAGE 1961

-65 ANNUAL

1967

Average

Region and Country

1967 1968 1969 1970

12./

1971

Thousand Pounds

North America

Canada

Mexico

United States

Other

Total

1,617.6

1,045.7

17,862.0

416.2

20,941.5

1,887.3

1,058.2

21,010.8

489.6

24,445.9

1,990.1

1,173.9

21,613.8

544.4

25,322.2

1,908.9

1,250.7

21,830.8

584.7

25,575.1

1,902.9

1,332.0

22,271.8

611.5

26,118.2

1,929.1

1,401.0

22,456.8

566.8

26,443.7

South America

Argentina

Brazil

Columbia

Uruguay

Other

Total

Europe

European Community

United Kingdom

Other

Total Western Europe

Eastern Europe

Total

U.S.S.R.

Africa

Asia

Oceania (New Zealand and Australia)

4,913.4

3,095.3

836.5

690.6

1,180.0

10,715.8

8,166.2

1,978.1

2,444.9

12,589.2

2,727.8

15,317.0

7,141.9

1,943.7

1,097.6

2,542.4

5,559.9

3,319.0

858.5

531.7

1,314.9

11,584.0

8,843.8

2,031.2

3,014.0

13,889.0

3,325.8

17,214.8

10,417.5

1,914.6

1,094.4

2,589.2

5,646.7

3,735.6

901.2

638.8

1,173.1

12,155.4

9,200.7

1,996.7

3,035.6

14,223.0

3,636.8

17,659.8

11,303.2

1,912.0

1,118.8

2,731.5

6,355.9

4,027.8

978.8

524.5

1,286.4

13,173.4

9,163.0

1,919.7

3,163.0

14,246.3

3,623.2

17,869.6

11,418.0

2,007.2

1,304.7

2,864.7

5,754.0

3,628.8

1,111.1

689.2

1,296.5

12,479.6

9,493.7

2,087.0

3,325.7

14,906.0

3,489.9

18,395.9

11,122.8

2,043.2

1,442.7

3,114.5

4,537.1

4,023.4

1,141.5

451.8

1,265.7

11,414.5

9,686.6

2,095.7

3,405.2

15,187.5

3,564.4

18,751.9

11,871.5

2,162.3

1,447.2

3,199.8

GRAND TOTAL

59,699.9 69,260.3 72,402.8

74,212.7 74,716.8 75,290.9

'Carcass

weight basis, excludes offals.

'Preliminary.

Source: Foreign Agriculture Circular, May

1972, p.

7. demands in the more affluent countries. The limited potential for expansion of production over the next

10 years in areas such as Japan and Western Europe will strain the resources of other areas of the world.

Oceania can be expected production but this to continue increasing area currently produces only about

4 percent of the world total beef and veal.

If the Japanese consumption rose from six to ten pounds, for example, this would take an increase of nearly

30 percent in the production of

Oceania to satisfy this growth in demand.

With incomes rising and more liberal trade policies developing in Japan, beef con- sumption may far exceed such a growth rate by 1982.

52

TABLE

42. CATTLE AND BUFFALO:

NUMBERS

IN

SPECIFIED COUNTRIES, AVERAGE

1961

-65, ANNUAL 1968

Average

Region and Country

1968

1969 1970

1971/

Thousand Head

North America

Canada

Mexico

United States

Other

Total

South America

Europe

Western

Eastern

Total

U.S.S.R.

Africa

Asia

Oceania

11,332

20,210

103,892

26,390

151,551

168,937

83,538

32,964

116,503

83,493

124,453

405,650

25,338

11,775

23,627

109,152

29,389

163,516

192,726

87,598

35,453

123,051

97,167

134,449

443,582

27,865

11,475

24,876

109,885

29,483

165,661

193,505

88,895

34,675

123,570

95,735

135,296

446,235

29,622

11,828

25,123

112,303

30,145

169,084

197,123

88,443

34,054

122,497

95,162

135,801

447,507

31,354

12,217

26,081

114,470

31,060

173,185

200,815

87,122

34,688

121,810

99,225

137,618

448,632

33,616

GRAND TOTAL 1,075,924 1,182,356

1,189,624

1,198,528

1,214,901 b

1972-

12,633

26,830

117,916

31,818

178,204

202,263

86,911

35,270

122,181

102,500

139,057

449,404

36,135

1,229,744

áPreliminary bForecast

Source: Foreign Agriculture Circular, May 1972.

The same is true of Western Europe.

If incomes con- tinue to rise, the demand potential may well be similar to the United States. one recent report suggests111at this country "will soon become an importer."

South American countries such as

Argentina and

Brazil have potential for considerable expansion.

Brazil has a major program in operation to expand beef output but the'problems are large and it is questionable whether rates of growth can be achieved at levels substantially above those of recent years.

Argentina, for various reasons, has actually had a reduction in output since 1969. This has caused prices in

Argentina to soar and exports to drop.

Undoubtedly, the higher prices will bring increased production in the future.

An intergovernmental study group on meat at a meeting in

June 1972 concluded that there would be substantial increases in demand for meat in the world for the future. Furthermore, there would be a growing gap between supply and demand, with the greatest shortages in beef, veal, lamb, and mutton.

. .

As a result it was concluded,

". upward

trendip

beef and veal prices is likely to continue."

-

Some

African countries have been trying to expand production but so far, the success has been limited and very little growth occurred in the last

10 years.

The

Republic of

South Africa produces about

50 percent of the beef and veal of

Africa and

While there is potential for increasing beef supplies in other areas of the world, the United

States has a distinct advantage in terms of levels of technology. In

Western Europe and in countries like Japan, where income levels are relatively high, major markets may be developed for beef of the qual- ity produced in the

United

States.

Relatively small numbers of cattle are fed and finished in other pro- ducing countries as they are in the

United

States.

53

TABLE

43.

BEEF AND VEAL:

PER

CAPITA CONSUMPTION

IN

SPECIFIED COUNTRIES, AVERAGE

1961

-65,

Continent and

Country

North America

Canada

United States

Mexico

Guatemala

Nicaragua

Panama

Average

169

39

40

104

179

85

99

24

18

27

46

1968

Pounds

96

113

22

20

29

46

182

40

43

91

141

1969

96

114

23

18

30

50

194

41

40

116

95

19708'

94

117

24

17

28

48

176

35

40

101

133

Mexico, the other major external source of calves, has been an erratic supplier. Quotas have been applied by the

Mexican government on live cattle exports.

In 1970, there were 936,500 animals imported from Mexico, but in 1971 this dropped to

752,200.

Even though cattle numbers and beef pro- duction have both been growing in

Mexico at faster rates than in the

United States, increasing demand in

Mexico has absorbed the growth. No change in per capita consumption of beef and veal occurred during the 1960's. Since incomes are rising in Mex- ico, per capita consumption should be expected to rise if supplies were available. Unless government policies limit internal demand, therefore, it would seem more likely that the outflow of feeder calves to the

U.S. would be reduced rather than increased over the next decade.

South America

Argentina

Brazil

Chile

Paraguay

Uruguay

Western Europe

Belgium and

Luxembourg

France

West Germany

Italy

Netherlands

Spain

Sweden

United Kingdom

U.S.S.R.

53

57

59

61

The Challenge of Synthetics

Synthetic products have had significant effects on various agricultural products.

In fibers, leather, and dairy products, for example, the levels of sub- stitution have been relatively high.

In foods gen- erally, however, synthetics have played a limited role to date.

63

48

36

44

16

43

57

32

66

51

44

44

24

42

53

46

65

52

45

42

25

42

54

45

65

55

46

44

27

41

55

47

For meat products, the competition will likely come from soybean product substitutes rather than synthetics, at least for the near future.

In- creasing worldwide needs for protein sources and the preference for beef or other meat has helped spur the search for acceptable substitutes.

The relatively lower cost of vegetable protein has provided the incentive for the development of meat substitutes from vegetable products.

Republic of

South Africa

Asia

Israel

Japan

Oceania

Australia

New Zealand

56

28

4

99

103

46

45

4

93

126

50

44

5

94

109

45

44

6

89

114

As of 1973, most meat substitutes were used in processed food items and as extenders for meat prod- ucts.

They were used in hot dogs, hamburger, sausages, meat loaf, stews, etc.

Institutions and restaurants are major users.

Extensive use is also made for pet foods.

á

12/Preliminary basis.

Source: Foreign Agriculture

Circular,

December 1971.

A major limiting factor in increasing beef and veal output in the

United

States and other countries is the availability of feeder calves. These can be increased by improved management and by withholding potential breeding stock from the market.

However, any attempts to increase the flow of calves tend to be slow and to accentuate the short of beef. Canada has been a traditional outside source for feeder calves in the U.S. but depletion of herds in the late 1960's and the fast growth in domestic demand for beef has reduced this flow from a peak of

560,000 head in

1965 to

180,600 in

1971.

Further- more,

Canada has been importing beef from Australia in recent years to meet domestic requirements and will probably continue to do so for several years.

There has been some limited use of meat substi- tutes such as bacon products. Indications are that interest in the development and promotion of such meat "analogs" has been increasing.

One USDA study reports, "The recent entrants into meat analog pro- duction are large firms that have the capability to analyze market potent+

3. and develop large production methods." This report also indicates that although costs are higher on a portion served basis, on a protein utilization basis, the substitute products compare favorably with meat.

The

USDA study estimates that up to 1980, vari- ous factors will prevent meat "analogs" from becoming competitive for direct consumer sale. Institutional usage will grow and there will be increased use as processed meat extenders. Manufacturers of sausage, hamburger, weiners, bologna, and other miscellaneous meats will make increasing use of the vegetable pro- tein substitute with the amounts ranging from 10 to

15 percent of the total product. Three levels of use were projected.

With use at a low level, it was

54

estimated nearly two million cattle and calves would be replaced and about

4 percent of the total produc- tion of beef and veal for 1980 would come from soy substitutes.

The high level use estimate would replace over four million head and provide 8.5 per- cent of the total beef and veal supply (Table 44).

There appears to be little doubt meat substi- tutes will increase in importance. The level of use will depend on beef supplies and prices, technolog- ical advancements and public attitudes towards the substitute products. If beef supplies are short and prices relatively high, it will stimulate consumers to look for the substitutes and also stimulate interested firms in their development and promotion.

TABLE

44.

PROJECTED IMPACT OF

SOY

SUBSTITUTION ON

POUNDS OF MEAT, KIND, AND

NUMBER OF LIVE-

STOCK REPLACED, 1980.

Meat Head

Percentage of

Replaced, Replaced,

Estimated 1980

Million Thousands Production,

Pounds Percent

Impact of low level

Cattle and calves

Hogs

Sheep and lambs

1,166

602

18

1,943

3,984

357

4.0

4.0

4.0

Impact of med- ium level

Cattle and calves

Hogs

Sheep and lambs

1,892

977

29

Impact of high level

Cattle and calves

Hogs

Sheep and

2,471

1,275

38

3,154

6,468

580

4,118

8,444

757

6.5

6.5

6.5

8.5

8.4

8.5

Source: USDA,

Synthetics and Substitutes for Agri- cultural Products: Projections for

Z980,

ERS,

Marketing Research Report

No. 947,

March

1972.

CHAPTER

X

ASSESSMENT

OF

ARIZONA'S COMPETITIVE POSITION

IN

BEEF

PRODUCTION

AND

MARKETING

BEEF SHIPMENTS volume coming from Texas, Colorado, Idaho, Washing- ton, and Kansas (Table 46).

Chapter IX discussed the market situation for

Arizona beef.

As indicated, the major markets for

Arizona feeders are in

Arizona and California.

California, a major deficit market area, received approximately

15 percent of its fresh beef supplies

-72 from Arizona packers (Figure

30).

Ship ments to

California of live fat cattle, for the last three years, have averaged over

43 percent of Ari- zona's total fat cattle marketings. Almost all of

Arizona's exports are to California.

Numerous states compete with Arizona feeders in the California and competition has intensified in recent years.

Major areas are the

Northwest, the

Southern and Northern Plains and the

Rocky Mountain regions where commercial slaughter has doubled in the last

10 years (Table 45). Shipments from these areas to

California exceeded one half billion pounds in fiscal 1971 with the largest

Arizona ships a substantial number of live fat cattle to

California packers and some live animals are shipped in to

Arizona packing plants from the

Midwest or Plains areas.

Live fat cattle shipments from these areas to

Arizona or California are rela- tively small because of the freight costs and shrink- age associated with the longer distances.

Shipping costs alone on live fat cattle to

Arizona and Cali- fornia markets are estimated to be $16 to $20 per

1000 steer.

Combined with cost allowances for additional shrink, the total cost to ship cattle f om the Midwest rises by

$23 to

$30 per animal.'

TRANSPORTATION COSTS FOR FRESH BEEF

While some live animal movements occur over relatively long distances, there are definite

55

advantages associated with shipping slaughtered beef.

Competition among motor carriers and railroads have assisted in raintaini g relatively favorable shipping rates on fresh beef.2 The 1972 tariff schedules for shipment of dressed beef by rail or motor carrier into

Southern California provided an advantage of $2 to $4 per 600

-pound carcass to the

Southern Plains and Colorado areas, relative to Omaha, Nebraska, and similar locations (Table 47).

TABLE

45.

LIVEWEIGHT COMMERCIAL SLAUGHTER, WESTERN

CATTLE FEEDING REGIONS, 1962

Year

Northern Southern

Plains

Plains

Rocky Pacific

Mountains Northwest

Million Pounds

FIGURE

30.

FRESH AND FROZEN BEEF SHIPMENTS FROM

ARIZONA TO

CALIFORNIA, JULY

1,

1971 TO

JUNE

30, 1972.

14

-

ARIZONA

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

4,028

4,371

5,193

5,219

6,053

6,419

6,558

6,957

7,705

7,960

8,460

1,737

2,006

2,525

2,750

2,855

3,017

3,361

3,672

3,836

4,090

4,188

1,533

1,597

1,839

1,993

2,197

2,247

2,229

2,432

2,761

3,069

3,333

730

750

850

903

909

902

962

983

927

983

968

12-

FRESH HANGING

Northern Plains: North Dakota, South Dakota,

Nebraska, Kansas

Southern Plains: Texas, Oklahoma, New Mexico

Rocky Mountain:

Idaho, Montana, Colorado, Wyoming

Pacific Northwest:

Oregon, Washington

Source:

Livestock and

Meat Statistics, USDA,

SRS

Supplement for 1962

Bulletin

No. 333.

CD o z

6-

- o

4-

2-

0

JULY

'

I

SEPT

FRESH OR FROZEN

I

MAR

'

I

MAY

'

TABLE

46.

SHIPMENTS OF FRESH BEEF INTO

CALIFORNIA

BY

REGIONS

OF

ORIGIN

(JULY 1971

-JUNE

1972).

INSHIPMENTS BY

MOTOR

CARRIER.

Region

Shipments

Shipments of of

Suspended

Beef

Boxed

Beef

Total

Northern Plains 61.1

Million Pounds-

- - -

50.2

111.3

I

NOV

I

JAN

MONTHS

Southern Plains

59.0 36.9

95.9

Source:

California Beef Council.

Mountain

267.5 94.6 362.1

Movements of fresh beef since 1971 have been primarily by motor carrier.

Recent tariff increases by the railroads have reduced their competitive position (Table

48).

Costs to transport suspended beef by rail (piggy back) from Amarillo, Denver, and Omaha to the

Western markets in

1972 for com- parable load weights were eight to thirty cents per hundredweight higher than truck rates.

Pacific Northwest

Great Lakes

Arizona

Other

43.5

27.1

114.9

2.9

28.7

73.3

19.5

10.1

72.2

100.4

134.4

13.0

Shipment costs for

Arizona to the Los

Angeles market were estimated to average $5.10 per 600 pound carcass.

From Colorado and the Southern

Plains, rates were $11.30 and $11.53, respectively, giving Arizona about $6 per carcass advantage.

Northern Plains: North Dakota, South Dakota,

Nebraska, Kansas

Southern Plains:

Oklahoma, Texas, New Mexico

In addition to shipping charges, shrinkage in transit constitutes a cost.

Numerous studies have been conducted on the variation of shrink by time in transit and by type of packaging. Average shrink- age used by commercial packing firms averaged one- half of one percent for beef in transit for 24 hours.

Mountain:

Wyoming, Montana, Nevada, Utah, Colorado,

Idaho

Pacific Northwest:

Washington, Oregon

Source:

California Beef Council

56

TABLE 47.

TRANSPORT COSTS FOR SUSPENDED BEEF CARCASSES TO WHOLESALE MARKETS

BY

MOTOR CARRIER,

1972.

Transportation Costs

Point of

Origin

Destination

Minimum Load a/

Tariff Rate- Average

Actual b/

Load-

Costs Plus

Allowance For

Unused Space

1,000 lbs.

$

/cwt. 1,000 lbs.

$

/cwt.

Amarillo

New York

Los Angeles

Phoenix

San

Francisco

38

38

35

38

3.23

1.71

1.68

2.10

37

37

34

37

3.32

1.92

1.73

2.35

Omaha

Denver

New York

Los Angeles

Phoenix

San

Francisco

New York

Los Angeles

Phoenix

San Francisco

38

38

38

38

40

40

40

40

2.61

2.68

2.68

2.68

3.06

1.82

1.82

1.82

37

37

37

37

39

39

39

39

2.68

2.75

2.75

2.75

3.11

1.88

1.88

1.88

á/Armour

Food Company, Department of T b

/An average -pound minimum load was assumed as 55 to 56 carcasses at

650 to 670 pounds per carcass.

(Source: In the Matter of Processed

Beef Express, Inc., Docket

Verified Statement of Starr

H.

Lloyd for Iowa Beef Processors Inc., September

1,

1972.)

TABLE

48.

MOTOR CARRIER AND RAILROAD T.O.F.C. TRAILER TARIFF RATES TO SHIP SUSPENDED FRESH BEEF

TO

EASTERN

AND SOUTHWESTERN MARKETS.

Point of

Origin

Motor Carrier Minimum Load

T.O.F.C. Plus

Cartage

Minimum Load

Average Tariff

$

/cwt. 1,000 lbs. Average Tariff

$

/cwt. 1,000 lbs.

SOUTHWESTERN BEEF MARKETS

(Phoenix, Los Angeles)

Amarillo, Texas 1.71

38 2.09

1.84

38

76

Omaha, Nebraska 2.96

2.68

33

38

2.76

2.45

38

76

Denver, Colorado

2.21

1.82

30

40 2.10

1.85

38

76

NORTHEASTERN BEEF MARKETS

(Baltimore, New York)

Amarillo, Texas

3.27

35

Omaha, Nebraska

Denver, Colorado

3.36

3.17

2.71

2.63

3.11

3.08

35

38

35

38

37

40

2.60

3.15

35

35

Source:

Armour Food Company, Department of

Transportation Pricing and Research.

57

These figures can vary, however, depending on the time which the carcass has been hanging in the pack- ing house cooler.

A study published in

Texas esti- mated shrinkage at .378 percent per hour for naked primais to .093 percent per hour for primais pro- tected by film.

Correspondingly, shrinkage of naked quarters measured .015 percent per hour compared to

.006 percent protected by film (Table 49).

(These figures are, of course, averages and individ- ual locations and circumstances will result in varying differentials.)

MARKET PRICE DIFFERENTIALS AND

BEEF SHIPMENT PATTERNS

TABLE

49.

SHRINKAGE RATES BY TYPE

OF PACKAGING AND

CARCASS FORM.

Packaging

Sections of Carcass

Primal Quarter

Percent Per Hour in

Transit

While the competitive position of each area in terms of costs will ultimately dictate locational advantages for cattle feeding in the different areas, current shipment patterns are largely a function of price differentials in the different markets. Trans- portation differentials tend to limit the flow of live animals to shorter distances.

Naked

Polyethlene Bags

Paper Bags

Film

Source:

.378

.097

.170

.093

.015

.011

.007

.006

Primary Packaging

Costs Analysis for Fresh Beef from Packer to

Retail Distributor Center: A Case

Study,

Texas

A

&

M

University, The Texas

Agricultural Experiment Station, 1972.

Large feeding areas in the Southern and Northern

Plains states and Colorado, however, can and do ser- vice both Eastern and Western markets.

These areas ship most of their supplies east but when market conditions are favorable, shipments are made to

Western markets since they have certain cost advan- tages which permit them to be competitive in those markets. This situation, of course, gives these areas an advantage in total over Western producers who are relatively vulnerable to shifts in

Eastern market conditions and to supply patterns of the

Plains feeders.

Based on Los Angeles beef prices, the cost of shrink on choice steer beef in transit for

24 hours packaged in paper bags was approximately $1.00 per

600 carcass.

Naked quarters of beef in transit for the same period would have shrinkage costs of

$2.15 per 600 carcass.

Comparisons of shipping costs and market price differentials for 600- to 700 -pound choice steer carcasses shipped from the

Amarillo area into the

Los Angeles markets during 1972 showed revenue earnings exceeded transportation and shrinkage costs approximately

60 percent of the time (Figure 31).

The margins over costs were greatest in the months of

March, April, November, and December.

Shipments for March and April rose from around four million pounds to over 11 million (Figure 32).

Based on shipment of carcasses into the Los

Angeles market, transportation and shrinkage costs were estimated to be about the same for the Southern

Plains and Colorado at

$13.50 per 600 carcass.

For Arizona, the total would be nearly

$6 and for

California, the charge would only be the cost of moving live cattle to local plants as estimated at

$2.52 per head.

Thus,

Arizona has an estimated advantage on transportation over the

Southern Plains of about $7.50 per carcass, while California pro- ducers have about

$11 advantage.

Northern California is slightly different.

Distances are greater to

Northern California markets for Arizona, the

Southern Plains and

Southern

California feeders. However, Central and Northern

California feeders have a distinct advantage and

Colorado is in a more competitive position relative to

Arizona than for shipments to

Southern

California.

Shrinkage and transport costs combined for the

Southern Plains amount to

$16.17 per carcass. For

Colorado, these costs amount to $13.27 and for

Arizona,

$10.98. These respective costs must be balanced with savings in other aspects of production to provide the more distant areas an economic advan- tage for entering the

Northern California market.

FIGURE

31.

TRANSPORT COSTS

BY

MOTOR CARRIER AND

WHOLESALE PRICE DIFFERENTIALS PER HUN-

DREDWEIGHT BETWEEN LOS

ANGELES, CALI-

FORNIA AND AMARILLO, TEXAS,

FOR 600 TO

700

POUND CHOICE STEER CARCASSES,

1972.

5-

-

V q_

Cr

Ó

3-

á

Z w

LL

Ó I- a

0 o

JAN,1972

T

."

1.A

LOS ANGELES

(WEEKLY PRICE

ENTIALS)

-

AMARILLO

DIFFER-

.

COST PER

TP

FRESH

BEEF TO LOS ANGELES

20 25

WEEK

OF

YEAR

30 35

40 45

Source:

Market News

-

Livestock; Meat, Wool.

Weekly Summary and Statistics, Vol. 40,

No. 1,

Vol.

40,

No. 50, 1972.

50

DEC.1972

58

FIGURE

32.

SHIPMENTS OF BEEF, FRESH OR FROZEN, FROM

THE SOUTH AND NORTH PLAINS TO the West Coast markets and when they exceed the

CALIFORNIA average, are cause for diversion of even larger

JULY

1, 1971

TO

JUNE

30, 1972. supplies.

12-

SOUTH

PLAINS

10-

8-

FRESH HANGING

FIGURE

33.

TRANSPORT COSTS BY MOTOR CARRIER AND

WHOLESALE PRICE DIFFERENTIALS PER HUN-

DREDWEIGHT BETWEEN LOS

ANGELES, CALIFOR-

NIA AND DENVER, COLORADO,

FOR 600 TO 700

POUND CHOICE STEER CARCASSES, 1972.

5-

LOS

ANGELES- DENVER

(WEEKLY PRICE

DIFFERENTIAL)

6-

.

\

\

'

4-

/COSTS

PER

HUNDREDWEIGHT TO

SHIP FRESH BEEF TO LOS

ANGELES

(I) o

2

J

J

o

I

11-

FRESH OR FROZEN

I I (

30

35

40

15

20

25

WEEK

OF

YEAR

45 50

DEC.1972

JAN.I972

NORTH

PLAINS

Source: Market News -

Livestock; Meat, Wool.

Weekly Summary and Statistics, Vol. 40,

No.

1,

Vol. 40, No. 50, 1972.

6-

FRESH HANGING

.

`.

. .

. `.

.

`.

2-

FRESH OR FROZEN

FIGURE

34.

SHIPMENTS OF BEEF, FRESH OR FROZEN, FROM

COLORADO TO

CALIFORNIA, JULY

1, 1971

TO

JUNE

30, 1972.

14-

COLORADO

12-

0

JUL

1

SEPT

I I

NOV

I

I

JAN

I

I

MAR

I

I

MAY

I

Source:

California Beef Council

The situation was much the same for Colorado.

Average weekly carcass prices in the Los

Angeles market exceeded those in the Denver market by more than the shipping costs 40 weeks of the year (Figure

33). The highest differentials were in March,

April, July, August, November, and December.

Reflecting these price advantages, shipments of fresh beef from Colorado to California rose to nearly

14 million pounds in

April 1972 from more normal levels of between five and eight million pounds

(Figure

34). cn z o

10-

cn o z

D o

G-

6

4-

FRESH HANGING

..

N.

2-

Prices for choice 600- to 700 car- casses in Los Angeles averaged $57.52 per hundred- weight in 1972, compared to $54.58, $55.04, and

$55.85 in Denver, Omaha, and Chicago. Similarly, prices for primal cuts on the Los

Angeles market ex-

0

JULY

I

SEPT

I

NOV

I

JAN

MONTHS ceeded Midwestern prices by

$2 and

$3 per hundred- weight.

These differentials are, of course, higher in some months and lower in others, ranging from

$1.08 to $4.55.

They are sufficiently large to main- Source: California Beef Council tain a continual flow of beef from these areas to

__,

,

I

FRESH OR FROZEN

I

MAR

I

.

MAX

59

Colorado and the Plains states also compete with the Cornbelt states for the large markets of the

Midwest, East, and Southeast.

These markets have traditionally been the primary trading areas of the three producing regions.

Movements of beef into

Eastern markets do not seem to be affected signifi- cantly by variations in the price differentials in the West.

There is much more stability in the rela- tionships of carcass prices between both Denver and

Omaha and the East Coast markets (Figures

35 and

36), than exists relative to the West Coast markets. As the price differentials on the West Coast markets climbed and shipments of beef to

California increased during March and April

1972, price differentials relative to

East Coast markets remained relatively constant, fluctuating less than

4 percent per week.

FIGURE

35.

TRANSPORT

COSTS BY

SALE PRICE

MOTOR CARRIER WHOLE-

DIFFERENTIALS PER HUNDRED-

WEIGHT BETWEEN EAST COAST MARKETS AND

OMAHA, NEBRASKA FOR 600 TO 700

POUND

CHOICE STEER CARCASSES, 1972.

It is possible a major factor permitting the wide price differentials, relative to the West Coast markets, is trade policy relative to established markets.

Midwestern packers may follow a policy of meeting requirements of established Eastern markets first, which would limit their flexibility in di- verting supplies to seek higher profits in temporary markets elsewhere. Packing firms, killing capacity, and availability of fed cattle also place constraints on efforts to produce additional supplies to meet seasonal needs of outside markets.

This linkage

Eastern markets of is

Midwestern packing of the largest beef packing firms to illustrated by the distribution patterns by Iowa Beef Processors, Incorporated, one firms in the industry.

During the period November 1,

1971 to April

30,

1972 eight of the firm's plants in Iowa and

Nebraska shipped a total of 405 million pounds to Eastern markets while

1.22 million pounds were shipped west to Colorado (Table 50).

TABLE

50.

FRESH

MEAT SHIPMENTS

BY IOWA BEEF PRO-

CESSORS, NOVEMBER

1,

1971 -APRIL 30, 1972.

Destination

Number of

Loads

Fresh Beef

COST PER HUNDREDWEIGHT

-TO

SHIP

FRESH BEEF

TO EAST COAST

Million

Lbs. o

JAN.1972

Source:

0

EAST COAST MARKET

-OMAHA

(WEEKLY PRICE DIFFERENTIAL)

5 20 25

WEEK OF

YEAR

30

35

40 45

50

DEC.1972

Market News

- Livestock; Meat, Wool.

Weekly Summary and Statistics,

Vol. 40,

No. 1,

Vol.

40, No. 50,

1972.

Rocky Mountains

New England

Middle Atlantic

South Atlantic

Southeast

Great Lakes

Northern Plains

Cornbelt

33

2,595

7,116

1,014

225

4,679

2,196

4,694

1.22

96.02

263.29

37.52

8.33

173.12

81.25

173.68

Source: Interstate Commerce Commission, Verified

Statement of

Starr

H.

Lloyd for Iowa Beef

Processors, "Matter of

Processed Beef Ex- press Inc." Docket 136669, Sept.

1, 1972.

FIGURE

36.

TRANSPORT COSTS

BY

MOTOR CARRIER AND

WHOLESALE

PRICE

DIFFERENTIALS PER

HUN-

DREDWEIGHT BETWEEN

LOS

ANGELES, CALIFOR-

NIA AND DENVER, COLORADO,

FOR 600 TO 700

POUND CHOICE STEER CARCASSES, 1972.

5

FACTORS AFFECTING PRODUCTION COSTS

Q

4

ó

J a

1--

W

W

2-7

°

D

O

JAN.1972

5

I

10

EAST COAST MARKET

-

DENVER

(WEEKLY PRICE DIFFERENTIALS)

I

15

COSTS PER

SHIP

HUNDREDWEIGHT

TO

FRESH

BEEF TO EAST COAST

I

20

I

25

WEEK OF

YEAR

I

35

40

415

50

DEC. 1972

There are numerous factors affecting the rela- tive costs of production in each region which help to determine the competitiveness of the area, in addition to market demands and final product trans- port costs.

These include availability and cost of feed and feeder calves, efficiency in organization and operation of feedlots and such things as environ- mental issues. These factors all affect the cost of production and help to determine the relative advan- tage of one area over another.

Source: Market News

-

Livestock; Meat, Wool.

Weekly Summary and Statistics, Vol. 40,

No. 1, Vol. 40, No. 50, 1972.

It is extremely difficult to determine or obtain representative cost figures for each area.

Varia- tions are considerable between firms within areas

60

since each operation has certain unique operational characteristics.

Additionally, conditions vary from season to season and year to year.

Nevertheless, attempts have been made to derive meaningful cost data for the major competing regions.

Arizona in 1971.

Based on 410 per head costs were $7.75 and $6.80, respectively, for California and Arizona. Rates for shipment to local feeders in the Texas areas were estimated to average $2.50 to $2.75 per head. Thus, feeder cattle shipped to

Arizona and

California were estimated to average $4.05 and $5.00 per head, respectively, more than in Texas.

Based on data obtained from various sources relative to costs in 1972, Texas appears to have a small margin over Arizona and California. Estimated costs of gain for 400

24.20,

25.70, and 25.22 cents, respectively, for Texas,

Southern California, and Arizona.

While data on feeding costs for Colorado were limited, indications were that this area had an advantage relative to

Arizona and California, largely due to availability of feed supplies and feeder calves, but costs of gain were probably slightly above those in the

Southern Plains areas. add

Additionally, to the study carried the shrinkage experienced out in increased shipping distances in

Wyoming indicated shrinkage occurred at a decreasing rate as distance increased.

Net shrink on feeder cattle after fillback was about

1 percent for each of the first two hours in transit.

At five hours, the shrinkage totaled33 percent, in- creasing to

6 percent at

35 hours. each area. A

Transportation of Feeds

Arizona, California, Texas, and Colorado of

A of 7.5 and major contributor to

Feeders cost grain price differential results differentials in is

(Chapter V). As a result, feed costs reflect a for the cost transportation of feed and feeders. Arizona imports grain from Texas and the Northern Plains major part of freight differences, averaging

$12 to

$16 per ton.

Since grain constitutes about

65 per- cent of the rations used, and it takes an average pounds of ration to a pound of gain, the added feeding costs of 2.0 to 2.5 cents per pound of gain. Cali- fornia feeders pay a slightly higher differential because of the added distance.

Estimates on shrinkage of feeder cattle shipped to California and Arizona feedlots from the auction centers in the Panhandle ranged between

6 to

9 per- cent per animal (Chapter VI). This shrinkage rate would exceed shrinkage estimated for Panhandle feeders by nearly

4 percent. The costs of shrinkage, however, are recorded in the total cost differentials to fatten slaughter cattle, since the standard accounting procedures among commercial operations is to record pay weights as the placement weights of feeder cattle.

Since feed would be required to make up the loss, the result would show up as lower levels of efficiency in conversion and thus, higher feeding costs.

Production Efficiency in the

Feedlots

Hay, the other major feed ingredient, is gen- erally supplied locally.

Based on 1971 and 1972, monthly hay prices for

Arizona and

California were not consistently higher or lower by area, but ranged within

$2 to $3 per ton of each other. Texas prices, in some months, were about the same as California or

Arizona, whichever was highest.

For a majority of months, however, Texas prices exceeded either Ari- zona or California, ranging up to

$7.50 per ton more.

This hay price differential neutralizes some of the advantage Texas feeders have in terms of grain prices. Prices of hay in the North Central and

Mountain states were

$10 to

$15 per ton lower than in Arizona.

While feeder cattle are raised in Arizona and

California, both states depend largely on other sources for their supplies (Chapter feeds relatively on Texas, the Southeastern states, and Mexico as major suppliers.

Thus, relative to the Panhandle in Texas and to

Colorado, costs of feeder calves tend to be higher to

Arizona feeders as a result of transportation costs and shrinkage associated with shipping.

Tariff rates

Worth, Texas, aged

Valley in few of its the

$1.89 per to own cattle and depends ship feeder

California and $1.65

VI). Arizona cattle from Fort major feeder cattle market, aver- hundredweight,

F.O.B. the to

Imperial

Casa Grande,

Some of the cost disadvantages in

Arizona asso- ciated with transportation of grains and feeders tend to be offset by climatic advantages. While there are negative effects from heat stress in the summer months, in general, Arizona's climate does not suffer the disadvantages associated with ex- tended periods of cold and wet experienced in the

Plains areas. As a result, performance levels, as observed in 1971 and 1972, were

8 to 10 percent higher in Arizona and Southern California than in competing states.

Differences were noted, especially in the fall and winter months.

Performance in

Texas in 1971 was reported to vary as much as 12 percent, exclusive of the severest quarter of the year. Personal interviews and evidence from quar- terly records suggest the decline in performance in the severest quarter was even greater. Similar performance estimates for calendar year 1971, in

Arizona and

Southern California, indicate a range of less than

7 percent.

Death losses are also efficiency. cattle

1.7 in a major factor in reducing

Average losses for feeding lightweight

Arizona and California during 1971 were and

3.4 percent, respectively.

Acceptable death rates in the Southern Plains areas for feeders pastured and fed in lots were quoted at

5 percent by local financial institutions. Yet this expected death loss did not reveal the variability in losses suffered in extreme winter seasons.

The 1972

61

winter registered a heavy death toll for cattle on feed and calves on pasture in the Northern and

Plains regions, with some calf losses rising above

20 percent in a number of locations. One source in

Kansas indicated, "The storm is estimated to have cost a twenty percent reduction in the rate of gay and a forty percent increase in the cost of gain.-

Relative to colder climates and areas with a predominance of small feedlots,

Arizona and Cali- fornia feeders have some advantages in terms of fixed costs. Larger lots can and do obtain economies of size and the warm climate generally permits a lower original investment cost.

A recent report by

Dietrich concludes, "Regions enjoying economies of size in cattle feedlot operations, other things equal, generally also enjoy competitive advantages in the

-beef economy over5Jregions where such economies are not so evident.

- transporting advantages, relatively small net cost advantages develop for any given area to compete in the California and

Arizona markets.

In competition for

California markets, the Southern Plains have a small net advantage, largely because of their prox- imity to both feeder calves and grain supplies

(Table 51). Colorado is next, followed by Arizona, with California producers being in the most vulner- able position in supplying their own markets.

How- ever, the net disadvantage for

California relative to the Southern Plains was estimated to be only $3.12 per animal and about

65 cents relative to

Arizona. has

The

For the a definite advantage over

Southern Plains and California producers have a net disadvantage relative to

Colorado of $1.50 and

$2.05 per carcass, respectively. Arizona's differ- ential is

Northern California market, Colorado estimated at competitive situation.

$6.44, other areas (Table 52). suggesting a much more

Summary of Cost

Differentials

Based on the estimated average costs computed in the previous sections on production and

The cattle feeding and beef packing industries of Arizona currently hold a competitive edge in sup- plying in

(Table

53).

Local feed- lots are the most economical sources of slaughter

TABLE

51.

ESTIMATED

COST

DIFFERENTIALS FOR FOUR MAJOR BEEF

PRODUCING REGIONS COMPETING FOR SOUTHERN

CALIFORNIA'S WHOLESALE BEEF MARKETS, 1971 -72.

Regions

Cost Categories

Southern

California

Arizona Colorado

Southern

Plains

Average Cost Differential Per Head-

- - -

Tariff

Fattening of beef cattle to

1,000

Tariff on placements on fat cattle movements

Tariff on suspendeddi9eef shipments to Los

Angeles by motor carrier

-

Shrinkage on beefs/ of feeder cattle to in feedlots'/ pounds' packing plants/

$

5.00

9.20

2.52

0

0

$

4.05

6.20

S/

5.10

.72

$

0

1.40f/

1/

11.30

2.05

$

0

0

$/

11.53

2.07

Total cost differential

Net cost disadvantage

16.72

3.12

16.07

2.47

14.75

1.15

13.60

0

=/Point of origin,

Ft.

Worth, Texas, with the exception of Colorado.

'-

Includes CPP, death loss, and vet and medical fees

- 600 lbs. of gain.

- d

/-

Tariff rates given by Armour

& Co. and Swift, 600 lb. carcass.

Shrinkage: quarters

.50 percent (1/2 percent

1st day, 1/4 percent 2nd day). f'Costs determined from performance and price data supplies by the Dept. of

Animal Science, Colo.

St. Univ.

'Comparisons were not made on basis of live animal shipments from these out on shipments of beef were estimated to be lower.

62

TABLE

52.

ESTIMATED COST

DIFFERENTIALS FOR FOUR MAJOR BEEF PRODUCING

REGIONS COMPETING FOR THE NORTHERN

CALIFORNIA WHOLESALE BEEF MARKET, 1971 -72.

Regions

Cost Categories

Southern

California

Arizona Colorado

Southern

Plains

- - - -

Average Cost Differential Per Head - - - -

Tariff on placement of feeder cattle in feedlots-9j b/

Fattening of beef cattle to 1,000 pounds-

Tariff on fat cattle movements to packing plants

/

$

5.00

9.20

2.52

$

4.05

6.20

.a./

$

1.40f/ g/

0

$

0 g/

0

Tariff on suspendeddbeef to

San Francisco by motor carrier

-

0

10.26

11.22 14.10

Shrinkage on beefs/

Total cost differential

0

16.72

.72

21.23

2.05

14.67

2.07

16.17

Net cost disadvantage

2.05 6.44

0

1.50

á

/Point of origin,

Ft.

Worth, Texas, with the exception of Colorado. b

/Includes

CPP, death loss, and vet and medical fees

- 600 lbs. of gain. tariff rates. d

/Tariff rates given by Armour

&

Co. and Swift, 600 lb. carcass. e

/Shrinkage: quarters .50 percent hour haul (1/2 percent

1st day, 1/4 percent 2nd day). f

/Costs determined from performance and price data supplied by the Dept. of Animal Science,Colo. St.

Univ.

2/Comparisons were not made on basis of live animal shipments from these on shipments of beef were estimated to be lower. out

-state sources since costs

TABLE

53.

ESTIMATED COST DIFFERENTIALS FOR FOUR MAJOR BEEF PRODUCTION REGIONS COMPETING FOR

ARIZONA'S

WHOLESALE BEEF MARKETS,

1971 -72.

Cost Categories

Regions

Southern

California

Arizona Colorado

Southern

Plains

Average Cost Differential Per Head-

-

- -

$

5.04

$

4.05

Tariff on placements of feeder cattle in feedlotsá/

Fattening of beef cattle to

1,000 pounds-

Tariff on fat cattle movements to packing plants°

Tariff on suspendeddtref shipments to

Phoenix by motor carrier

-=

9.20

2.52

5.12

6.20

0

$

Ps/

0

1.40-

11.22

$

Pzl

0

0

10.38

.72

0 2.05

2.07

Shrinkage of beefs/

22.60 10.25 14.67 12.45

Total Cost Differential

12.35

0

4.42 2.20

Net cost disadvantage

á

/Point of origin, Ft.

Worth, Texas, with the exception of Colorado.

Includes CPP, death loss, and vet and medical fees -

600 lbs. of gain. d

/ICC d tariff rates. e

/Tariff rates given by Armour & Co. and Swift, 600 lb. carcass.

,

quarters .50 percent hour haul

(1/2 percent 1st day, 1/4 percent 2nd day).

/Costs determined from performance and price data supplied by the Dept. of

Animal Science, Colo.

St.

Univ.

-state sources since costs .&

Comparisons were not made on basis of live animal shipments from these out on shipments of beef were estimated to be lower.

63

cattle to the state's packers, and costs to process and deliver fresh meat from these packing plants to the population centers of

Tucson and Phoenix under- cut the costs to import out -state fresh beef.

Estimates placed an advantage of $2.20 per head on carcass beef supplied by local packers over the

High transportation costs on beef shipments placed the Rocky Mountain,

Northern and Southern Plains regions at a disadvan- tage in the Arizona markets.

ASSESSMENT OF THE FUTURE COMPETITIVE

POSITION OF ARIZONA'S CATTLE

FEEDING INDUSTRY

The Role of Changing Technology

Coincident with the demand for introduction of new feed additives has been the development of new feed preparation techniques. Steam and dry flaking, popping, roasting and systems of gelatinization have improved feeding efficiencies. The newest feed preparation system advertised on the commercial market is a process called micronizing. This process cooks the feed grain by emitting microwaves from infrared burners and then rolls the grain lightly.

Research conducted in Texas concluded that perfor- mance levels of cattle fed micronized grain was comparable to steam flaked preparation.6/ Although these performance records showed differences to be insignificant, the 1970 research indicated that costs of processing favored the micronizing tech- nique. Estimates on the reduction in operating costs vary, but a reduction even as high as 20 per- cent would produce operational savings of only

$2 per head.

The introduction of non ments and growth stimulants into the feeding pro- grams of beef cattle operations in the last 15 years have had a significant impact on the national beef feeding industry. Improvements in the nutri- tional value of rations have greatly assisted the industry in controlling rising costs of fattening beef animals. Arizona survey data indicate there have been improvements both in conversion efficiency and rates of gain in the past decade. These helped to keep costs of feeding from rising more than about 10 percent from 1962 to 1971.

Research in the field of animal nutrition should intensify in the next decade due to the recent decision by the

FDA to ban D.E.S. from the feeding rations keep costs from of commercial operations and the

Task Force recommendations for restrictions on antibiotics. Withdrawal rising. of these additives is expected to increase the costs to produce beef ani- mals. Consequently, the feeding industry, as well as the federal investigative committees, have stressed the need for more extensive research in animal nutrition to develop new additives to help

The micronizing technique caters mostly small feedlot operation since the to the preparation units are only available in two models. One series is capable of feeding 1200 head and the larger unit feeds 2500 head per

10 of operation.

Engineering complications in perfecting larger units have limited the capacities of these feed prepara- tion units.

Experimentation with confined feeding facilities with slotted floors has also shown improvements in the performance levels of animals on feed in a num- ber of pilot programs.

Results from private studies conducted in Arizona showed gain 4d conversion rate improvements of

8 to 10 percent._. Correspondingly, but more impressive than the results in Arizona, were the published findings of similar experiments performed by researchers at the

University of Illi- nois.

This study showed improvements in daily gain and feed conversion of 15 to 20 percent over per- formance levels registered by cattle fed in open facilities. Death losses improved, declining to approximately

1 percent in the experiment.8

There is also the possibility of gains by reducing odors, dust, flies, and problems of waste management.

Development of a new gain stimulant is under way in the research laboratories of the Animal

Science Department, University of Arizona.

A news release in May of 1973 by the Cooperative Extension

Service, University of

Arizona, Tucson, announced results of the testing of a new hormone substitute, estradiol

(E

Tests showed

-two equal to oral

D.E.S. as a gain stimulant for beef steers. How- ever, this new growth hormone is still in the experimental stage of development and must gain the approval of the FDA before it can be introduced into the commercial market.

Efficiencies from reduced feed costs associated with confinement feeding indicate possible savings from 2.4 to

4 cents per pound of gain.

Nonfeéd costs, however, were higher for confinement feeding.

Budgets developed at the University of

Illinois indicated nonfeed costs per pound of gain averaged two to 2.5 cents higher than for open lots. This would leave a possible net cost advantage of approx- imately

1.0 to 1.5 cents per pound of gain for confinement feeding systems.

While improvements in feeding technology gener- ally affect all areas in a similar manner, the effects of the ban on D.E.S. and possible restric- tion of antibiotics may give

Arizona some relative advantage. This results from the relatively limited usage of the drugs in this area.

(See

Chapter VII for further discussion on this aspect.)

Conflicting results on the cost efficiencies of the confinement system, however, have been published by a research team at the University of Minnesota.

This research report concluded that costs to feed in open to costs for con- fined feeding. Feed costs per pound of gain were lowest for cattle fed in confined facilities but the higher nonfeed costs offset these gains. During

64

the 1971 trial, costs to feed animals in confined facilities averaged $111.85 and $107.41 per head while open outs averaged $111.35 and

$107.75 per head.!'

There are a number of problem areas in the con- finement system of feeding which currently impede its acceptance.

One of the major barriers is the large capital requirements.

Estimates of investment per head of capacity averaged0$75 in warm areas and

$100 in cold, rainy These estimates were nearly three times the cost for open facilities. If capital to individual feeders is limited, the more costly system may reduce the size of feedlot he is able to build.

There are also new types of with confinement systems, in a for the feeding.

Additionally, there are management problems

Cattle fed in waste disposal which have not been confined number of experiments, have finished at lower carcass grades. Rapid gains by some ani- mals resulted in the conversion of feed to fat, reducing the meat yield.

These performance results have indicated the need to develop new feed formulas feeding of beef cattle in confined systems. problems associated with resolved.

Currently, there are numerous recycling tech- niques being analyzed for handling feedlot waste by land grant universities and commercial firms. Some of these processes transform steer manure into a high feed supplement, while others transform manure into building materials or fuel.

A Texas firm connected with aerospace industry, for example, has perfected a conversion method which produces methane gas and concentrated fertilizer. Meanwhile, a research firm in

California makes claim to a process which transforms manure into a wallboard building material. However, research conducted by

Iowa State University in conjunction with Iowa Beef

Packers and General Electric in cooperation with

Arizona Feeds, Inc. appears to have advanced furthest in manure recycling experimentation.

Both programs have reached the level of testing the practicability of recycling systems in conjunction with determining the commercial value of manure by- protein feed supplement.- Feeding trials began in

October of 1972 to study the effects of feeding the

-protein by- to cattle.

Results of these experiments are not yet available, but preliminary reports suggest a high probability of success in development of an economically viable process. Upon completion of the testing and the determination of the value of manure by- in animal feeds, installation of commercial type operations is planned if the project is determined to be economically feasible by company officials.

The effects of new feeding technologies and developments improving conversion ratios tend to be of equal importance in all areas.

This is not true of the advantages of such developments as confine- ment feeding and recycling of wastes.

While confine- ment feeding could give some efficiencies to

Arizona and Southern California feeders, it would be most advantageous to areas with more difficult climates.

In cold or wet climates it could reduce losses and probably eliminate much of the adverse effects now felt in those areas. Thus, if the problems asso- ciated with confinement feeding are resolved, it is likely that some of the current competitive advan- tage in

Arizona and

Southern California would be lost in relation to other feeding areas. For waste recycling, the reverse may be true. If wastes can be converted to feeds, this should be of greatest advantage to areas like Arizona where feed costs tend to be higher due to its deficit feed grain position.

Resource Adjustments

Feeding Regions of

Major Cattle

The competitive advantages of the

Panhandle in fattening cattle are expected to be adversely affected during the 1980's by the declining water table of the feed grain procjucing areas of the

Southern Plains regions.

1.

Grain sorghum produc- tion, although expected to remain at its current levels through the 1970's, may decline in the early

1980's due to the reduction in available irrigation water.

Results of feeding steers a bacterially altered high protein manure by- I.S.U. and I.B.P. researchers has shown promise. P.A.B.

(processed animal by- fed cattle consumed more feed and gained more efficiently than normal ration feeding in every experimental trial. Accord- ing to I.B.P. officials, the P.A.B. effluent has a feeding value of 3.6 cents per head per day. Equally promising were pathological reports that P.A.B. cattle showed no health problems, and taste panels were unab49 to detect any difference in the quality of

meat.-

A pilot recycling plant recently constructed in

Casa Grande, Arizona, under the supervision and spon- sorship of General Electric, is currently testing the feasibility of nutrient reclamation systems.

The

G.E. system basically recycles shredded manure by "thermophilic" bacteria fermentation into a high-

This reduction in available water paralleled by the continued expansion of the Texas cattle feeding industry could place the state in a feed grain deficit position. Based on the rate of growth in

Texas fat cattle marketings for the last few years, total marketings in

1982 would reach over eight million head. This number of fat cattle would con- sume over 100 percent of the stores of feed grain available for cattle feeding (Table

54).

Texas feedlots would then be forced to import feed from the

Nebraska belt.

Importing grain would reduce the competitive edge in feed costs which

Texas firms have held over Arizona and California feedlots.

Dietrich indicates the problem of a declining water table may be alleviated by plans of the Texas

Water Development

Board, in a massive

50

Plan proposal.-

Implementation of this 50

65

TABLE

54.

RESOURCE ADJUSTMENTS OF MAJOR CATTLE FEEDING REGIONS.

Item

0

Exports as a

Percent of

Texas Production

(1966

15 25

1,000 bushels

35

Average Texas Production

(1966

Production not available for cattle feeding:

Exportsa'/ sheep

Carryover

-

Total

Available for cattle feeding

327,590 327,590 327.590

327,590

0

5,962

55,513

16,380

77,855

249,735

49,138

5,962

55,513

81,898

5,962

55,513

16,380

16,380

126,993

200,597

159,753

167,837

1,000 head

114,656

5,962

55,513

16,380

192,511

135,079

Cattle feeding potential given grain sorghum consumption per head:

1800 pounds (120 days

@

15 lbs

2015 pounds (130 days

@

15.5 lbs

2240 pounds (140 days

@

16 lbs

/day)

2475 pounds

(150 days

@

16.5 lbs /day)

7,770

6,941

6,243

5,651

6,241

5,575

5,015

4,539

5,222

4,664

4,196

3,798

4,202

3,754

3,377

3,056

á

/U.S. exports were equal to

27.95 percent of the 1966 U.S. production.

U.S. domestic non to

1.82 percent of

-67 production.

-/Estimated by Extension Specialist in the Poultry Sciences and Animal Science Departments, Texas A

Univ. d

/Assumes a carryover equal to

5 percent of annual production.

Source:

Dietrich, Raymond A.,

Costs and Economies of

Size in Texas

-1083, Texas Agricultural Experiment Station, College Station, Texas, May

1969. plan would supply Texas grain farmers with enough water to greatly expand their grain and forage pro- duction for the future. However, the funding of this project must undergo the usual scrutiny of federal and state legislatures as well as the general public. It is by no means certain that such a massive proposal will obtain support and even if it did, it would not affect the competitive position over the next

10 years. suspended carcasses, while the same load numbers approximately 80 boxed carcasses.

This improvement in carcass capacity per load totals savings in tariff costs for

Midwestern shippers of $3 to $5 per carcass for movements to the West Coast and $5 to $7 for shipments to the East Coast (Tables 55 and 56).

While some reductions can be made by shippers from

Arizona to the

West Coast, the distances are less as is the amount of savings. Of course, these cost reductions will also make the Plains area beef more competitive in

Arizona markets.

Changes in

Marketing and

Transportation will

New developments also affect the in meat packing and handling competitive position wrapped carcasses and primals, and all are among new methods being used of the various producing areas.

Centralized cutting and wrapping, frozen packaged meat, cryovac and film- boxed shipping or tested.

Reductions in transportation costs associated with shipment of boxed beef have been a major factor causing the switch in beef packing systems.

A typical 37,000 pound load of beef totals about 55

In conjunction with the reductions in weight levels per carcass are the operational efficiencies in handling boxed containers over suspended carcass sections.

This improvement in fresh beef handling has resulted in the lowering of some tariff rates.

Both rail and motor carrier rates from Omaha and

Denver to the East Coast, for boxed shipments, averaged

2 to

3 percent below those for suspended carcasses. Tariff rates to the West Coast, however, were generally the same for both suspended and boxed shipments. Only movements by motor carrier from the

66

Omaha area showed reductions into Los Angeles, Phoenix, and San Francisco.

TABLE

55.

MOTOR CARRIER FRESH

BEEF TRANSPORT COSTS

PER HUNDREDWEIGHT BY ALTERNATIVE HANDLING

SYSTEMS AND DESTINATIONS.

Origin

Destination

Suspended

673 lbs.

Boxed

463 lbs.

Savings

Amarillo

New York

Baltimore

21.74

20.93

Atlanta

Los Angeles

Phoenix

14.28

11.51

11.21

San

Francisco 14.13

Dollars

14.49

13.84

9.82

7.92

7.78

9.72

7.25

7.09

4.46

3.59

3.53

4.41

Omaha

Denver

New York

Baltimore

Atlanta

Los

Angeles

Phoenix

18.04

18.04

San

Francisco 18.04

New York

Baltimore

Atlanta

Los Angeles

Phoenix

17.90

17.57

12.38

20.73

20.73

13.93

12.25

12.25

San Francisco

12.25

11.53

11.25

8.52

11.90

11.90

11.90

14.26

14.26

9.58

8.43

8.43

8.43

6.37

6.32

3.86

6.14

6.14

6.14

6.47

6.47

4.35

3.82

3.82

3.82

Source: in rates for boxed beef

Armour Food Company, Department of

Trans- portation Pricing and Research.

In addition to savings in transportation, new systems of wrapping and control promise substantial savings in shrinkage.

This also will provide a greater advantage to those more distant from mar- kets since shrinkage under traditional systems tends to increase with time in transit. an

Improvements reducing costs, will benefit Arizona feeders in com- petition with California feeders. However, these same improvements will provide an additional compet- itive advantage to producers in the

Plains region.

Increased tariffs for feed grain and feeder cattle will also help reduce the competitive position of both Arizona and California.

In the last decade, tariff rates on feed grain shipments from the Mid- west increased at an average annual rate of 1.8 per- cent.

Motor tariffs on dressed beef5shipments climbed, but at a much lower rate.

Assuming a continuation of past trends in tariff rates through

1982,

Arizona and

California feeders will experience additional $2.50 per carcass net disadvantage relative to competing sources of

Changes in the in transportation

Location of

Slaughtering Facilities of fresh beef, dressed beef imports.

Significant shifts have occurred in recent years in the location of slaughter facilities and output

(Table 57).

There have been declines in production in all eastern regions, with an average drop for the area of over

3 percent per year since

1965.

The Mid- west region has grown by 3.13 percent per year, but this was solely due to growth in the Northern and

Southern Plains area.

The Cornbelt and Great Lakes states areas declined.

The Western region showed an increase of

2.86 percent per year, but this was due entirely to

Arizona and the northern Montana states with the

Coastal regions declining.

TABLE

56.

RAILROAD FRESH BEEF TRANSPORT COSTS

PER

HUNDREDWEIGHT BY ALTERNATIVE HANDLING

SYSTEMS AND DESTINATIONS (T.O.F.C.).

Origin Destination

Suspended

673 lbs.

Boxed

463 lbs.

Savings

Dollars

13.24

12.18

6.95

6.46

Amarillo New York

Baltimore

Atlanta

20.19

18.64

Los

Angeles 11.84

Phoenix 11.84

San

Francisco 14.40

Omaha

New York

Baltimore

15.55

14.27

Atlanta

Los Angeles

Phoenix

12.11

15.95

15.95

San

Francisco

15.95

Denver New York

Baltimore

Atlanta

Los

Angeles

Phoenix

18.64

18.64

15.95

11.91

11.91

San

Francisco 11.91

8.15

8.15

9.91

10.09

9.21

8.33

10.98

10.97

10.97

12.83

12.83

10.97

8.20

8.20

8.20

3.69

3.69

4.49

5.46

5.06

3.78

4.97

4.98

4.98

5.61

5.61

4.98

3.71

3.71

3.71

There are reasons to believe similar trends location of slaughter facilities will continue.

There are advantages to location of plants near in areas of cattle feeding and innovations in handling and transportation of beef should increase them.

Older plants in traditional market areas can be ex- pected to discontinue operations as their cost disadvantages grow with time.

Source: Armour Food Company, Department of Trans- portation Pricing and Research.

67

TABLE

57.

COMMERCIAL CATTLE SLAUGHTER BY

REGION, 1965 AND 1972.

Region 1965 Cattle

1972 Cattle

1,000

East 5,157

255

4,055

163

New England

Middle

Atlantic

South

Atlantic

Southeast

1,932

1,401

1,569

1,409

1,131

1,352

Midwest

Northern Plains

High Plains

20,438

5,219

2,525

12,694

24,924

8,423

4,200

12,301

Average Annual Growth

-

- - -

Percent

- - -

-3.05+

-5.15+

-3.87+

-2.75+

-1.97+

3.13+

8.77+

9.48+

- .44+

West

Mountain

Pacific

6,717_

2,757

3,960

8,062

4,227

3,835

2.86+

7.61+

- .32+

Source:

USDA, Agricultural Statistics, Z966, and

USDA,

Statistical Reporting Service, Cattle on Feed,

Cattle

Sold for Slaughter.

CHAPTER

XI

SUMMARY AND PROSPECTUS 1982

DEMAND EXPANSION

The expectations are that demand for beef and veal in the United States will increase by nearly

-third by 1982.

Thus, total beef and veal con- sumption should rise to about

31.5 billion pounds.

Assuming approximately current relationships of domestic production to imports and synthetics, there will be about 29.3 billion pounds required for domestic production. This would be about 6.8 billion pounds above levels of 1972. pounds.

If

Arizona beef producers continue to share these markets on the current basis, there will be a demand for over 210 million pounds more than 1972 production levels. At an average weight of 600 pounds, a total of 350,000 additional head of fat cattle would be required.

Of course, some of the gain can be expected to come from cattle other than those fattened in the feedlot.

GROWTH

IN

ARIZONA'S CATTLE

FEEDING INDUSTRY

Arizona's consumption rate will grow faster than the national average since population is ex- pected to grow faster.

Estimates are that consump- tion in

Arizona will rise between

40 and

50 percent.

Additional requirements of beef and veal should approximate 100 million pounds.

California, the major market for

Arizona, in addition to the home state, is expected to grow at a slower rate.

Population growth rates are lower in

California and probably will continue at about

1 percent for the next 10 years.

Since consumption levels are relatively high, increases are not ex- pected to exceed

1 percent per year.

The total growth in demand in

California is expected to be about 20 percent, or 600 million pounds.

The total increase in demand in the

Arizona

California markets should be about 700 million slaughter, and increases in demand in other areas of the U.S. suggest that the

Northern and

Southern

Plains regions will be strained of

Changes in the traditional markets. The Southern Plains is competitive in Western markets, but has an advantage in shipping most of its supplies to

Eastern and

Southeastern markets. Resource limitations suggest the area will continue to grow but over the next decade will not likely interfere severely with West

Coast markets because of continued growth in demand in traditional markets.

California

Local producers is do location of cattle feeding and a to meet the growing deficit market not seem to be in as demand position to compete in their own markets and expec- tations are that an increasing share of the beef will be imported in future years. area. strong a

68

Arizona producers are well organized, highly efficient producers, with advantages in climate, proximity of markets and in size of operations.

They are at a disadvantage in that costs of both feed and feeders are higher than for

Texas and other

Plains states feeders. Cost differences between the competing regions appear to be relatively small.

Furthermore, much of the new developments in tech- nology such as confinement feeding, and improved methods reducing shipping costs for beef appear to give more advantage to competing areas than to

Arizona. If Arizona producers are to continue to grow as expected, they will have to continue to adopt and use the most efficient technologies and systems of organization available.

Conservative estimates on the growth of Ari- zona's cattle feeding industry range between

3 and

4 percent per year for the next decade. A rate of growth of

3.0 percent would result in fed cattle marketings of 1,266,000 head in 1982. This number would be about equal to projected increases in demand for the state.

In addition to the capital necessary to make net increases in capacity, more capital will be needed as a result of some of the current operations phasing out. This could easily be equivalent to

100,000 units of capacity and would require between

$7 and

$8 million in financing.

Capital reserves needed for the short term financing of feeder cattle, feed and operating expenses will also increase substantially with the growth of fat cattle production to

1.2 million head per year. Guideline estimates on capital demands, however, can be derived on the basis of recent in- vestment costs. Assuming feeder cattle prices at

$50 per hundredweight and variable costs of feeding at 25 cents per pound of gain, approximately1,183 in capital per animal fed will be required. -

Based on

1.2 million head marketed per year, the average annual operating capital requirements will amount to approximately $220 million.

The feeding of 1.2 million head, or more, in

1982 will require substantial growth in Arizona's feedlot capacity.

Compounding this need for addi- tional feeding space to place increased numbers on feed is the expectation that cattle will also be placed on feed at lighter weights.

Consequently, feeding cattle at lighter weights will extend their feeding periods, reducing the industry's average turnover rate of fed cattle.

Standard feeding periods for the next decade are expected to average

240 to

270 days before feeders will be ready for market. Thus, to feed 1.2 to

1.3 million head per year for market, a statewide feedlot capacity between 900,000 and 950,000 units will be needed by

1982. the

Traditionally, commercial banks have supplied capital needed to finance cattle feeding opera- tions.

Assuming the continuation of 30 percent margin requirements for operating capital, reserves of $154 million at current levels will be required of

Arizona's commercial banking community to support a 3.0 percent growth in the state's cattle feeding industry, under the cost assumptions used in the above illustration. However, alternative sources of capital have been interested in financing the cattle feeding sector of the state during the last two years (Chapter VIII).

There is no real basis for estimation of the rate of growth in financing by private capital sources, public investment corpora- tions, or agricultural conglomerates, but any financing of this type will reduce the demand for commercial bank reserves.

Since reductions in numbers of feedlots is ex- pected to continue through the next decade, expan- sion in the feeding capacity of the state is expected to be undertaken by a limited number of feeding operations.

Currently,

25 feedlots represent approx- imately

85 percent of the total feeding capacity of the state and these major feeding operations appear, at this time, to be the base from which expansion could take place to meet the expected growth in cattle marketings to 1982.

DEVELOPMENTS

IN THE MEAT

PACKING INDUSTRY

Indications are that trends of the past 10 years will continue. As facilities that have already been in operation for several years become older and more costly to operate, they will be abandoned for loca- tions nearer to the feeding industry. Therefore, considerable growth is expected in the

Northern and

Southern Plains with reductions continuing in

Eastern, Southeastern, and Lakes regions. Packing plants on the West Coast will continue to decline in importance.

Expansion of these cattle feeding firms in the next decade will require additional capital. The amount of capital required for fixed investments to meet the additional capacity expected to be required by

1982 is approximately

$20 million at current prices.

If inflation continues, of course, the level will be considerably higher by

1982.

The total investment estimate assumes feedlot capacity including the feedmill will have to be expanded relative to the increase in animal units.

Many feedlot owners currently maintain some excess mill capacity as an insurance against breakdowns or heavy feeding demands.

While some of the present excess capacity may be absorbed in expansion, it is assumed most operators will maintain nearly the same ratio of mill capacity to animal numbers.

Arizona should experience some further expansion in facilities to handle the growth in feeding ex- pected over the next

10 years. Newer methods of packing and handling probably will make it advantag- eous to do all of the slaughtering in the state rather than ship live fat cattle for slaughter in

California.

If such proved to be the case, slaughter capacity would more than double by

1982.

Indications are that the industry currently has plans for

50,000 increasing capacity by about 100,000 head.

Surplus capacity head. in

This the industry could handle another will still leave an excess of fat

69

cattle in 1982 of 500,000 slaughter before 1982. to 600,000 head, assuming expansion of marketings at 3.0 percent per year and no further increases in slaughter facilities. This increasing supply should attract further capacity for

CONCLUDING COMMENTS

Extended periods of relatively high prices can be expected to have three major effects, none of which are in the industry's long run interest. The first effect will be to cause consumers to look for and begin accepting alternative products including meat substitutes. The second will be to raise the incen- tives for producers or potential producers of synthe- tics to develop and market substitute products. The third will be to cause a buildup of resources in all phases of the livestock sector, which could result in supplies large enough to force prices below costs, with a return of the old production cycles.

Major adjustments in the cattle feeding, packing and meat distribution industries can be expected in the coming years. More feeding will be done in larger lots and the operations will become increasingly competitive.

New developments handling the of in either feeding cattle or beef could cause further major shifts in the location of feeding. These are not expected to seriously affect the trends being developed and the projections for growth in the near future. Con- sumer demand is expected to continue strong, which will tax the capacity of competitive elements industry in all areas. of

Consumers want more beef but it can be expected there will be resistance, if prices continue to rise.

The long run picture for the industry, however, looks very good, assuming reasonably constant rates of growth and relatively stable price levels are maintained. In addition to the strong domestic mar- ket, there is considerable evidence that world demand will grow at a faster rate than supply for the next several years.

Imports to the

United States should not be expected to grow significantly since prices and demand in other parts of the world are favorable. U.S. producers should find themselves in a favorable position to export increasing sup- plies of quality beef to selected markets throughout the world.

70

APPENDIX

AV

I,

Basis for estimation of depreciation costs.

Depreciation Costs

Item

Expected Life

(Years)

Pens and Equipment

Water System

Milling Equipment

Feed Storage

Feed Distribution Equipment and Vehicles

Buildings and Office Equipment

Scales and Scale Houses and Miscellaneous

Equipment

15

15

10

20

6

15

18

Depreciation cost was estimated as

Current Depreciation Cost

_

Present Value - Salvage Value

Expected Life

Salvage Value

(Percent of

Value)

15

12

15

20

15

15

15

II.

Classification of feedlot labor

1.

30,000 head and over capacity

Fixed: Operator, head yard foreman, feed mill foreman, company accountant or office manager.

Salary: $25,000 per year per position

2.

20,000

-

29,999 head capacity

Fixed: Operator, head yard foreman, feed mill foreman

Salary:

$25,000 per year per position

3.

10,000

-

19,999 head capacity

Fixed: Operator, head yard foreman, feed mill foreman

Salary: $15,000 per year per position

4.

Under 10,000 head capacity

Fixed:

Operator

Salary:

$15,000 per year i/

Dietrich, Raymond A., Cost and Economies of Size in Texas

Feedlot Operations, Texas A

&

M University, Texas Agricultural Experiment Station,

B

-1083, May, 1969.

71

APPENDIX

B

BASIC PARAMETERS

USED

IN

DEVELOPMENT

OF

COST CURVES FOR

ARIZONA'S COMMERCIAL FEEDLOT

INDUSTRY, 1971

Average performance record of slaughter cattle fed in commercial feedlots with capacities exceeding 10,000 head.

Percent of cattle fed

Average placement weight

Average volume of feed consumed

Average number of days on feed

Maximum turnover rate

Under 500 lbs.

70%

449 lbs.

2.01 tons

225 days

1.62

Over 500 lbs.

30%

637 lbs.

1.49 tons

145 days

2.52

Average for Industry

504 lbs.

1.85 tons

201 days

1.81

Operational data for the commercial feedlot industry

(lots with capacities exceeding 10,000 head):

Average utilization rate

-

88 percent

1971 average turnover rate -

1.60

72

APPENDIX

C

DERIVATION

OF

CAPITAL REQUIREMENTS

TO

FINANCE COMMERCIAL CUSTOM

FEEDING OPERATIONS AND FULL OWNERSHIP FEEDING FIRMS

CAPITAL

FOR

FIXED INVESTMENTS

REPLACEMENT COST

$75 /unit of capacity

Long term loan

15 percent margin

OPERATING CAPITAL

$11.00 of feed fed

1.85 tons /animal - 1971 average consumption level

15 percent safety margin on overhead capital requirements

TOTAL

Operating capital per month (basis

7

-month feeding period)

CAPITAL

FOR

FEED

PURCHASES

$52

/ton of feed sold - 1971 average ration prices

1.85 tons -

1971 average consumption level

15 percent safety margin for ration purchases

TOTAL CAPITAL FOR FEED

Capital per month (basis

7

CAPITAL

PER

ANIMAL

FOR FEEDER CATTLE PURCHASE

$42.00 450 lb. feeder

Miscellaneous

1.

Interest

2.

Chute Fees

3.

Transportation

4.

Death

TOTAL

$11.25 leverage money

Dollars /Head

$20.35

3.05

$23.40

$

3.34

Dollars /Head

$

96.20

14.43

$110.63

$

15.00

Dollars /Head

$187.00

$

9.20

2.00

7.00

9.80

$

28.00

73

APPENDIX

D

AVERAGE ARIZONA INDUSTRY

NON

OF

CAPACITY UTILIZATION, 1971

1/

Utilization Rate

100

95

90

6Q

55

50

45

40

35

30

25

85

80

75

70

65

20

15

10

5

Industry Feedlot Capacity of Firms Over 10,000 Head

-

- -

-1,000 Head

- - - -

520

520

520

520

520

520

520

520

520

520

520

520

520

520

520

520

520

520

520

520

Numbers on Feed

1,000 Head

520

494

468

442

416

390

364

338

312

286

260

234

208

182

156

130

104

78

52

26

1/Formula for determination of breakeven points for placement of company owned cattle.

Breakeven point

-

(ATC/headuo)(Cuo)

-

[

ATC/head(uo

+

Auo)] (Cuo)

(Cuo

+

Auo)

-

Cuo

ATC

= average total cost per ton of feed fed x 1.85.

Cuo

= numbers on feed at utilization rate in base period. u o

= utilization rate.

1971 consumption level =

1.85 tons /animal.

2/

See also Table

16,

Chapter IV.

2/

Costs Per Ton of

Feed Fed-

$

/Ton

9.60

9.75

9.91

10.10

10.31

10.53

10.80

11.12

11.47

11.90

12.39

13.02

13.82

14.77

16.13

18.04

20.73

25.46

35.07

61.68

74

APPENDIX

E*

COLORADO

Regulations are developed pursuant to the authority granted in the Colorado Water Pollution

Control Law Sections

66

Revised Statutes 1963

(1967

Supplement).

Rules and guidelines for water pollution control at livestock confinement areas have been published.

These cite the authority; define terms that are pertinent to the livestock industry; describe measures that are necessary to prevent water pollution; provide gen- eral design criteria; specify the design criteria for retention systems, land application, and biolog- ical treatment; and include guidelines for construc- tion of the evaporation and retention ponds.

Each location is recognized as a unique problem and design and operation are treated in this manner.

Penalties may be assessed where the operator violates a final cease and desist order. where potential pollution exists.

They are then required to register and provide the required infor- mation.

Anyone initiating operations after

July

1,

1969, shall be registered if they fall within the conditions specified in the regulations.

KANSAS

Kansas State Regulations are developed under the authority of the

"Water Pollution Control

Statutes applicable to the Federal Water Quality

Act of 1965."

Regulations adopted under this authority are Chapter 28 of the

State Board of

Health Regulations, Article 18

Agricultural and

Related Wastes.

The confined feeding operation for

Kansas includes:

(1)

Any lot that handles

300 or more large livestock.

IOWA

(2)

Any operation that uses a lagoon as a disposal area.

(3)

Any other operation having a water pollu- tion potential.

Regulations for the State of Iowa are developed under the authority of Chapter 262,

Session Laws of the 63d

General Assembly, First

Session.

Water

Pollution Control Commission rules relating to feed- lot construction and pollution control have been developed. They define the terms used on confined feeding operations, conditions requiring registra- tion, the required information for registration, requirements for the facilities, and operation of the facilities. Three conditions require registra- tion:

(4)

Those operators that elect to come under these regulations.

Effective July

1,

1967, the operator of any newly proposed confined feeding operation must register before construction. Operators of existing lots must register by January 1, 1968.

Requirements for the construction of facilities are listed and also the operation of the facilities is covered.

Penalty for unauthorized discharge into the waters of the State shall be $1,000 per day that the offense is maintained.

Penalties for failure to comply with the registration range from $50 to $500.

July

(1)

The number of head confined in the feed- lot exceeds 1,000 head.

(2)

The feedlot contributes to a watercourse draining more than 3,200 acres of land above the lot and the distance to the nearest point on the affected watercourse is less than

2 feet per head of cattle in the feedlot.

(3)

The runoff water from a feedlot or over- flow from a lagoon or liquid manure storage tank flows into a tile line or buried conduit, drainage well, pumped well, abandoned well, or sinkhole.

Persons engaged

1,

1969, shall in feeding operations before be notified by the Commission

*Source:

William

F.

Schwiesow, "State Regula- tions Pertaining to

Livestock Feeding Design and

Management; Animal Waste Management

-

Proceedings of

National Symposium on Animal Waste Management,

September

27 pp. 19

NEBRASKA

Nebraska regulations are under the

Water Pollu- tion Control Act, State of Nebraska, Chapter 71,

Article

30.

Water quality standards applicable to

Nebraska waters were adopted by the

Nebraska Water

Pollution Council in

January 1969.

Rules and regu- lations for the registration of feedlots were developed. All feedlots must be registered if the maximum number of animals in confinement at any one time exceeds 300 or more feeder or fat cattle, 100 or more beef cows, 100 or more dairy cattle,500 or more swin,

2,000 or more sheep, 3,000 or more tur- keys, or 10,000 or more chickens, ducks, or geese, any feedlot that is located within 500 feet of any watercourse, any feedlot that may be a potential polluter or any feedlot whose operator elects to register.

The

U.S. Soil

Conservation Service has developed a

Nebraska Engineering Standard and

Specifications for feedlot runoff control.

Violators

75

of the

Water Pollution Control Act may be fined from $100 to

$500 plus a further fine of $10 a day, together with costs for each day of violation.

Imprisonment is provided under some sections of these regulations. In addition, if the death of fish or other wildlife results, the operator may be required to pay the State such additional sum as is necessary to restock the waters or replenish the wildlife.

OKLAHOMA

The Oklahoma Feeds and Yards Act of the 1969

Oklahoma Legislature governs the operation of feed- lots in the State of

Oklahoma.

Any operator that has a feedlot capacity of more than

250 head of live- stock at any time during a licensed year is required to obtain a license.

Anyone that elects to come under the provisions of the Act may do so.

The license fee ranges from

$10 for lots under 250 head to

$150 for lots having a capacity in excess of

10,000 head. Licenses may be revoked for failure to comply with the provisions of the Act or any regulations adopted thereunder. The Act stipulates that a fine up to $100 a day be assessed for viola- tion of these regulations.

Rules and regulations to supplement the Feeds and

Yards Act were published

February

19,

1970.

These include definitions, res- ervoir capacities for retention reservoirs, the provisions for the excrement disposal, pest control, drainage and veterinary services.

TEXAS

Animal wastes fall under the Texas Water

Quality

Act as amended in 1969 and the Solid Wastes Disposal

Act. oped.

The Texas Water Quality Board, Waste Water

Con- trol policy for commercial cattle feedlots was devel-

This policy statement applies only to commer- cial feeding operations, not dairies, holding pens, nor commission houses.

A commercial feedlot is de- fined as,

"Any confined area or enclosure for the feeding of cattle for marketing purposes, such en- closure not normally used for raising crops and in which no vegetation intended for livestock feeding is grown." There is no indication as to the number of head per feedlot to be used as a guideline. The policy statement contains broad design criteria within which installations should be developed.

It is recognized that the feedlots are individual in character and must be designed to meet these individ- ual characteristics.

Permits issued under the

Water

Quality

Act may be revoked or cancelled for failure to comply with the conditions of the permit or the

Water Quality Standards. A civil penalty of not less than $50 and no more than $1,000 for each act of violation and for each day of violation may be assessed. Injunctive relief is also obtainable under the Water Quality

Act.

76

TABLE

E

-1.

STATUS OF 46 STATES' REGULATIONS GOVERNING FEEDLOT CONSTRUCTION OR OPERATION

OR BOTH.

State Regulated

No Specific

Regulations

Regulations Being

Developed

Other Regulations

Applicable

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa x x x x x x x x x x x

Kansas

Louisiana

Maine

Maryland

Massachusetts

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New

York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania x x x x

X x

X x x x x x

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin x x x x x x x x x x x

Source:

William

F.

Schwiesow, "State Regulations Pertaining to Livestock Feeding Design and Management,

Animal Waste Management

-

Proceedings of National Symposium on

Animal Waste Management,

September 27 p. 23.

77

FOOTNOTES

CHAPTER III

1

A.,

Costs and Economies of

Size in

Texas -Oklahoma Cattle Feedlot

Operations,

B

May

1969.

3/ in addition to that associated with such management labor included in the fixed costs. This is considered to be subject to variation if plant utilization changes.

CHAPTER IV

1

G. and Hoy

F.

Carmen, "Tax Induced Cattle Feeding," California Agriculture,

University of California, Berkeley, June 1972, pp. 13

CHAPTER

V

I

M.

M.,

W. E.

Martin, and

L.

E.

Mack, Water Supplies and Economic Growth in an

Arid Environment: An Arizona Case Study, University of

Arizona Press, 1973.

Table

B p.

296.

CHAPTER

VI

1

L. and Russell Gum, Cattle and Calf Shipments for the State of Arizona,

Tech. Bull. 190, Univ. of

Arizona Agricultural Experiment Station, March

1971.

'Based

on survey data.

'Based

on numbers of cows and heifers two years old and older that have calved.

4/Arsdall, Roy

N. and Melvin

D.

Skold,

Cattle Raising in the

United States, USERS,

Report No. 235, Washington, January

1973.

CHAPTER

VII

1

D.,

"Animal Waste Management and the Environment," Proceedings of

National Symposium on Animal Waste Management, September 28 p. 13.

2

/Private communication with officials from the Arizona Water Quality Board.

Frank

G., Jr.,

"Cattle Feedlot Pollution," Proceedings of National Symposium on Animal Waste Management, September 28 pp. 97 and 104.

4/

"Task Force Reports on Feeding Antiobiotics," CALF

News, Vol.

10, No.

3,

March

1972, pp. 18 and

50.

5 p. 18.

6

/Ibid., p. 18.

7l

In

The Supreme Court of the State of

Arizona, In Banc No. 10410. Spur

Industries,

Inc.,

Appellant and Cross v.

Del

E.

Webb Development Co.,

Appellee and Cross

Appellant

--

Appeal from the Superior Court of Maricopa County, Cause No. C-

The Honorable Kenneth

C.

Chatwin, Judge, pp. 13 -14.

78

8/

Appendix

C.

September 21, 1972, p. 9A.

'Stink' in

Iowa," The Drovers Journal, Thursday,

CHAPTER IX

'

M.,

Hilliard Jackson, and and Producers

Practices Used by Cattle Feeders

Harold Abel, Evaluation of Marketing in the Western States,

Tech. Bull. 181,

University of

Arizona, December

1968.

1The estimates of beef expenditures tend to be biased upward since a large part of the beef sold is not U.S. Choice.

-'USERS, Food Consumption of Households in the United States, Spring,

1965,

Household Food

Consumption Survey, 1965

No. 1,

Washington, 1968.

An

Econometric Analysis, unpublished

Ph.D. dissertation, University of

California, Berkeley.

S Food Products, No. 741,

Washington,

Jan. 1972.

/

8'California

Beef Council, press release, November

2,

1972.

9'USDA, Livestock and Meat Situation, Economic Research Service, Washington, May

1970.

Foreign Agricultural Trade of the

United States, Economic Research Service,

Washington, August

1972.

Lloyds and Bolsa International Bank United, World Meat Study, London,

1972.

1

'Food and Agricultural Organization, Monthly Bulletin of Agricultural Economics and

Statistics, Vol. 21,

August

1972, p. 12.

13

/-

USDA, Synthetics and Substitutes for Agricultural Products: Projections for

1980,

ERS Marketing Research

Report

No. 947,

Washington, D.C., March

1972, p. 19.

CHAPTER X was assumed to be

6 to

7 percent. Since the standard shrinkage allowance is

4 percent, the excess shrinkage totaled 2 to

3 percent per animal.

?

A.,

Interregional Competition in the

Cattle Feeding Economy With of

Size,

B Special Emphasis on Economies

Texas, September 1971, pp. 39

3'St. Clair, James

A.,

Transportation Alternatives for Wyoming Stockmen, Bulletin

501,

University of Wyoming, Laramie, August

1969, p.

7.

'CALF

News,

"Severe Winter Continues," CALF News, Inc., Tarzana, California,

Feb. 1973, p. 9.

5Dietrich,

op. cit., p. 32.

6Schake,

L.M., E.J.

Garnett, J.K. Riggs, and

O.D. Butler,

Micronized and Steam Flaked

Grain

Sorghum Rations Evaluated in a Commercial Feedlot, Texas Agricultural Experiment

Station, Tech.

Report

23,

1970.

79

i/Private communication, Dick Bunger, President, Corral Industries, Phoenix, Arizona,

1972.

Report B of Minnesota, 1971; and,

Erickson, Duane E.,

Economic Comparison of

-lot Beef Feeding Systems, AE Dept. of

Agric.

Economics, Univ. of Illinois, Urbana, 1970.

9/Smith, R.E., et al., A Comparison of Five Housing Systems for Feedlot Cattle, Research

Report B

University of

Minnesota, 1971.

10

/Private communication, Dick Bunger, President, Corral Industries, Phoenix, Arizona,

1972.

The Drovers Journal, "Manure-

But Raises 'Stink' in Iowa," Thursday,

September 21, 1972, p.

9A.

CALF News,

"Breeding and Training Hot Bacteria to

Convert Steer Manure into Valuable

Protein,"

Vol. 10, No. 5,

May 1972, pp. 4 and

50.

13

/Dietrich, R.A., Cost and Economies

of

Size in Texas

1969, p. 26.

/-

Ibid.

Discussion, Economic Impact of Changes in Transportation Pricing, Harry

R.

Schuetter,

Manager, Transportation Pricing Research, Armour &

Co.,

Phoenix, Arizona.

CHAPTER

XI

1'Assumes a turnover rate of 1.43.

Based on

8 for feeder,

$200 x 2/3 = $133; capital for feed (600 pounds of gain at 25 cents per pound) =

$150 x 2/3 x 1/2

= $50. (Assumes feed costs accumulate monthly for the -month feeding period.)

80

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1965.

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-

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-

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A

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McDowell, Costs and Efficiency in Commercial Dry

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82

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