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DAVID KRUSE

By Staff | Dec 27, 2013

BEEF magazine contributor Troy Marshall is seeing the readership of his publication contract with every sale bill of another feedlot that is closing – that he claims to get each week.

He alludes to the declining cattle feeding prospects in the Southern Plains in an article titled “Moving North?” acknowledging, “Experts have speculated for quite some time now that our industry would see a shift in cattle feeding away from the Southern Plains and back toward the corn belt, where the sector began.

As they say, “Cattle follow the feed and feed follows the water.” In this case, ethanol byproducts are the feed, which make for a more favorable basis in feed costs, and the Ogallala Aquifer is the water.”

Any place in the Southern Plains or Southwest where they don’t have a packing plant anymore, feedlots are closing because that is the only thing that was sustaining them as the feed and the water are too scarce and expensive for a competitive cost of gain.

Marshall has been fixated on the idea that federal subsidies have damaged the Southern Plains feedlot industry. He has focused on ethanol subsidies, but now that they are gone he has shifted his focus to EQIP subsidies saying, “The regulatory environment in the corn belt was supposed to be unfavorable to CAFOs (concentrated animal feeding operations.)

“Ironically, we’re seeing government actually subsidize new cattle feeding barns in the corn belt, and these subsides are as much as 25 percent or more of the cost of the facilities.

“Is it the subsidies, or is there that much difference in variable costs that is responsible for the move north? Will packing capacity begin to shift too? Those are some of the questions revolving around the cattle feeding business today.”

No Troy, it is not the subsidies. Very few cattle operations have banked any significant EQIP dollars and those that have, have not expanded using them. There is a $250,000 limit to the program which is used, for example, to re-locate a feedlot away from an environmentally vulnerable stream.

In terms of the industry, this deserves barely a footnote.

A large number of new bedded barns have been built in the corn belt, representing new technology and investment that has anchored cattle feeding there while feedlots close in the Southern Plains.

Marshall is now focused on government subsidies that he claims covers 25 percent of the cost of new barn construction. The vast numbers do not meet conditions to be eligible.

Cattle feeders that I talk to who built barns never received them.

The epicenter of the lowest cost of gain has moved north in part due to the availability of feed supply augmented by wet distiller’s grain produced by the ethanol industry.

The sector of the industry represented by Marshall is in atrophy and they fear the eventual loss of their regional packing capacity which is the last advantage that they have holding feeding in the Southern Plains.

Someone will eventually own and operate the new Aberdeen S.D. packing plant now in bankruptcy and IBP has made huge investment into the Dakota City plant.

Another plant will have to close yet as fed numbers decline in this cycle and it will be a southern plant when it happens.

The new epicenter of the cattle feeding industry will be centered in Nebraska located on the deep end of the Ogallala aquifer which will be the last to exhaust that water resource.

Marshall would like to blame their loss in competitive cost of gain on ethanol or EQIP subsidies, but the true distortion resulting from subsidies was in the location of the feeding industry in the Southern Plains to begin with.

Cheap energy prices allowed them to move the corn produced in the corn belt to the Southern Plains. Corn belt farmers were kept in business with crop subsidies such as loan deficiency payments, which resulted in perpetuating burdensome stocks of corn that sold for below the cost of production offering feedlots cheap feed.

Surging oil prices and ethanol changed that, upsetting the Southern Plains feeding advantages that were created by subsides.

It was corn subsidies allowing feeders to buy corn below the cost of production and cheap oil that made transportation of that feed south affordable that built the cattle feeding sector in the Southern Plains to begin with.

I don’t believe that Marshall or the Southern Plains feeding interests complained about corn subsidies sustaining over-production of cheap feed and, in fact, view them as the good old days that they hope to return to.

Ethanol subsidies are now gone and that industry is here to stay. Troy now fixates on the renewable fuels standard, but the margin between current corn ethanol production and the 15 billion-gallon corn RFS is not cattle industry altering. Most the remaining unmet RFS was targeting growing cellulosic ethanol production.

I didn’t imagine that the cattle industry would fear competition from the cellulosic ethanol industry for corn stover.

Marshall is right that subsidies did distort the location of the cattle feedlot sector. He is just wrong about when and which ones.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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