USA: Over-capacity in cattle feeding sector?

The US beef industry is characterized as having a very intensive and efficient cattle feeding sector comprised of large commercial feedlots for finishing cattle prior to processing. There are approximately 450 commercial feedlots with 8,000+ head one-time capacity in the US and they account for over 75% of fed cattle marketings. These large feedlots capture economies of size associated with feed procurement, feed processing, labor, and facility and equipment investment. Thus, these feedlots are very efficient at spreading fixed costs over many head leading to lower costs per head than smaller feedlots. However, this also requires feedlots to keep their pens occupied/filled throughout the year as much as possible, which requires calves from cow/calf operations.

In response to a multi-year drought and high grain prices, which provides an incentive to convert pasture to crop production in some regions, the size of the US cowherd has been declining. Likewise, Mexico – a supplier of calves to the US feedlot industry – has also been downsizing its cowherd for similar reasons. What does this mean? In the short run, feedlots continue to bid for cattle so long as they can cover variable costs of production even if it means losing money over total costs. Data on feedlot profitability indicates that is likely what has been happening in recent years. In the longer run, if the supply of calves for feedlots does not increase, the US feedlot industry has excess capacity and will likely contract in size.

More information can be found from the AGManager on the Kansas State University website