Price Squeeze on the Feed-Lots

A chorus of mournful noise is issuing from the cattle-feeding pens of Colorado, Texas and the Middle West--and not just from the steers awaiting slaughter. The feed-lot operators are moaning too, because a consumer rebellion against beef and soaring costs of fattening cattle threaten to trim their profits to the bone. Says an official of the Colorado Cattlemen's Association: "A lot of boys are going to belly up."

The trouble traces to the same rise in beef prices that brought prosperity to the feed lots in previous years. During 1973, budget-conscious housewives switched to more economical sources of protein, such as chicken, beans and cottage cheese. Per capita beef consumption dropped for the first time since the mid-1960s, from 85 lbs. in 1972 to only 80 lbs. last year. The slackening demand led retailers to lower prices about 7% from last September's highs, and also to cut back orders from meat-packing houses. Although retail prices are rebounding, orders to packers are still down, and the packers are paying less to feed-lot operators for ready-to-butcher cattle.

In good times, feed-lot operators buy 500-lb. to 700-lb. calves from ranchers, gorge them on a special, high-protein diet until the cattle reach the optimum slaughter weight of 1,100 lbs., then resell them to packers for about the same price per pound that they paid. They corral a profit if the expense of putting the added weight on the animals is less than the price that the added poundage brings.

Fattened Costs. It has not worked that way recently. The feed-lot operators bought the steers that are now going to slaughter last September when retail beef prices were at record levels and ranchers were asking--and getting--as much as 60-c- per lb. for steers. The cost of fattening the animals has about doubled in the past year, so that for calves that go on feed this month it will be about 50-c- per lb. This surge results mainly from zooming prices for corn, the main ingredient in a feeder steer's diet. But packers last week were paying only 41-c- a lb. for the fattened steers. In Greeley, Colo., one of the nation's feed-lot centers (see box), some operators were taking losses of $100 or more on each steer sold.

The operators see no quick way out of their bind. "We need 50-c- a lb. to break even," says Bill Webster, president of the Colorado Cattle Feeders Association, "but at just that level the consumer seems to stiffen. We can't sell there." In similar circumstances executives in other businesses might elect to keep then" products off the market until prices rose. But the feeders cannot readily do that: the critters go on gobbling expensive corn, put on still more pounds--and packers pay less per pound for overweight steers than they do for pleasingly plump ones, because the additional weight is mostly unwanted fat. About all the operators can do is go on selling the steers when they reach optimum slaughter weight and hope for a price rebound later. That could happen in about six months, to the housewife's chagrin: there are an estimated 20% fewer steers coming into feed lots than a year ago. The result is that demand could exceed supply by late fall.

Helpful Profit. Some operators may not be able to hold out until then. During the past five years, attracted by the vision of profits on the hoof, investors from Wall Street and other homes off the range stampeded into the feed-lot business, starting many new lots in the Texas Panhandle. Many were thinly financed because their owners thought that beef prices would always go up, ensuring that additional capital would be easy to raise. Now they are having trouble raising new money, and the betting in the trade is that a number will have to liquidate.

Meanwhile, some feed-lot operators have discovered that they can turn a helpful profit from a product that is literally under their noses. Among other feed-lot operators, Ohio Feed Lot Inc. of South Charleston, Ohio, has been selling 50-lb. sacks of fertilizer made from "purified animal byproduct"--a euphemism for manure. At about $2 per sack, says O.F.L. President John Sawyer, selling the manure is "sometimes more profitable than selling beef."

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