Crisis has long been an engine of innovation and this has proven to be true in America's beef cattle sector. With drought decimating the quantity of forage grass available, beef cattle farms in pasture-based states such as Texas and Oklahoma were forced to sustain cattle production by confining their cow-calf pairs and raising them on feed.

 

 

 

Based partly on the feedlot model with varying amounts of forage thrown in, a new beef cattle raising paradigm was born. -Ironically, while confined and semi-confined cow-calf production was born in parched southern pasturelands, it was found to be most cost-effective in corn growing, pastureland deficient Midwest states. Aside from the low feed transport costs enjoyed by cattle farms close to the Midwestern corn fields, the emergence of DDGS as a viable feed input further minimized this emerging model's production costs. While it is technically possible to base such operations in the southern plains, the higher transport costs for feed, especially corn and DDGS, makes this method of beef cattle rearing more suitable for America's Midwest.

 

The new beef farming model's spread across the Midwest was also spurred on by changing economic circumstances. After ten fat years, profit margins for corn or soy cultivation have fallen by up to 90% in three years. With feed crops barely profitable and cattle prices staying high, many Midwestern corn and soy farmers have started adding small feedlots to their fields. By being able to taken older cows with aged teeth no longer fit for pasture grazing, these small-feed centered cattle raisers allow larger farms with capacity constraints to renew their herd efficiently: The new feedlots take these aged cows, while their sellers bring in new calves, thereby indirectly contributing to the ongoing inventory expansion.

 

This confined cow-calf production models comes at a critical time for America's beef cattle sector, which wants to take advantage of emerging export opportunities: The US lost 6% or 32 million acres of pastureland over the past decade. Even with normal precipitation returning to remaining heartland pastures areas, the industry could not boost grazing beef cattle numbers to their 1975 peak of 45.7 million head. Not only is the supply of pastureland constrained, but the cost of buying it or merely leasing it from the government are higher than ever.

 

Yet, that is exactly what is being demanded of the industry over the next fifteen years: Asia is fueling the first substantial increases in world beef demand in decades. Within the US itself, per capita beef consumption has bottomed out and America's population is growing faster than that of any mature, wealthy economy. With both domestic consumption and export demand poised for a decade of solid growth, a meat line accustomed to decades of declining stagnation is being asked to suddenly wake up and undertake the first serious capacity expansions in over fifty years.

 

But with many facilities built fifty years ago when its beef cattle population was 50% higher than today, integrators are reluctant to expand their operations before existing capacity can be utilized. At the same time, scarce pastureland and high farmland prices create high cost barriers that prevent new producers from entering the industry. 

 

Requiring very little land, minimal fixed cost investment and immune to minimal production scale issues, the cow-calf confinement model profoundly lowers the cost barriers required to expand cattle herds or enter the industry. Everyone from established integrators to feed crop farms with an unused corner in their crop fields can easily establish a cattle rearing operation. 

 

 

 

But what is most interesting is the model's ability to not just compete against pasture-based southern producers on cost-minimization but actually exceed them in overall profitability. As the attached graph shows, a southern pasture-based cow with calves enjoys lower combined feed and grazing cost than similar cow-calf combinations raised entirely on feed. Southern pastureland cow-calf pairings even cost less to raise when feedlot confined northern equivalents are allowed to forage pastureland grass part of the time.

 

However, thanks to the ability to better manage the growth and safeguard the health of confined cattle, both cows and their calves enjoy superior growth and performance under this system. Moreover, the confined cows are able to give birth to up to two extra calves over their lifetimes. This further boosts the northern plains confined and semi-confined model's productivity relative to that of traditional, pasture-raised southern plains cattle.

  

As a result, a Midwestern/Northern plains semi-confined cow and her 7 calves, raised entirely on feed will have total feed and pasture forage costs of US$571, only 2% more than US$560 their southern plains cows which only give birth to five calves. But that is not the model's most interesting feature.

 

It may not be surprising that with marginally higher feed costs but two extra calves, a semi-confined cow calf combination will bring in US$325 in revenue, 8.7% more than the US$299 brought in by a traditional southern plains cow with five calves. Moreover, feed does have its limitations: a fully confined cow and her two extra calves brings in 15.3% less revenue, at US$253.

 

But what is most surprising is the economic performance of a fully confined older cow that cannot forage anymore but only gives birth to two cows: While at US$640, it has the highest feeding cost of any combination show, at US$353, their total revenue exceeds that of southern plains conventional, pasture raised cattle by 21.5%, and that of a younger semi-confined cow with seven calves by US$28 or 8.6%.

 

The implications are clear: So long as feed costs go no higher than 30% of their current price levels, raising cow-calf pairs in the Midwest and America's northern plains is just as economically viable as in southern grazing lands. -Except that feed supplies (and the beef cattle quantity produced with them) are far more elastic and adjustable to the number of cattle to be raised.

 

Furthermore, the new calf-cow confinement method of producing beef cattle turns aging cows that were once an expensive deadweight loss into an even more profitable niche than young pasture-based cows raising calves.

 

Finally, it solves one huge disadvantage that US beef cattle had relative to its southern hemisphere competitors in Brazil, Argentina and New Zealand: a limited, dwindling quantity of pastureland. Hence, this new American beef cattle raising model does more than widen the country's productivity advantage over foreign export competitors: It means that the US beef cattle farming's production and prosperity will no longer be constrained by limited pastureland grazing area or the occasional drought. If this model is fully developed, it could revolutionize beef cattle farming in the same way feed changed how the EU produces dairy milk.