Grow Yards Grow Up

By: Don Close, Rabo AgriFinance

Over the last few years, grow yards have become an increasingly important step in beef production. They have gone from being mainly used as residual housing to having a permanent, “always-on” role in the development of feeding cattle. The emergence of grow yards may seem to mark a subtle change in the cattle supply chain, but it will ultimately impact operations in all sectors of the industry.

As a whole, the cattle industry will benefit from the change as:

•Production of beef will be more efficient.

•More cattle will be delivered on spec and on time.

•Capacity can be built to buffer supply shocks along the cattle production chain.

A Transformation Is Operating in the Background

Historically, the role of grow yards was limited. They were mainly used as reserve cattle housing when an imbalance occurred somewhere along the cattle production chain. They were often used when stocker or feed yard numbers were out of balance – creating the need to house cattle – or when calves became extremely undervalued. So the periods in which grow yards grew in popularity were mainly driven by short- to medium-term economic incentives.

Some locations specialized in handling high-risk cattle. A broader number of grow yards were used only during certain seasons or circumstances, leading to poor capacity utilization, which in turn provided a poor return on investment. That is no longer the case.

Grow yards now have ongoing economic benefit. Commercial feeders increasingly have marketing agreements in place that require cattle to meet specific feeding and management regimens with targeted out dates and finished weights. As a result, commercial cattle-feeding entities have embraced the use of grow yards as a central collection point for cattle that are pre-conditioned and ready to perform from day one.

This means that, these days, grow yard facilities are full, or nearly full, of cattle all the time. While the majority of cattle ownership is still with grow yard owners, more cattle are now owned by the end feeder. Taking earlier ownership of the animals assists in the implementation of risk management and allows the feeder better control of knowing when, and at what weight, cattle will be available for feed yard placement. This enhances their projections for performance and finished dates, which in turn improves their ability to meet requirements for formula and contract marketing commitments.

Commercial Feed Yards Are Facing Challenges

In addition to the challenge of meeting the requirements in marketing agreements, commercial feed yards are also facing increased challenges handling cattle that require additional care. A shortage of skilled labor at commercial feed yards is a huge driver forcing the change in industry structure.

Another factor is today’s market environment of increased volatility, which is requiring feeders to have risk management programs that cover selling fed cattle and pro- curing feeder cattle.

The demand for efficiency has most commercial feeders targeting placement weights currently in a range of 750- to 900-pound feeders. Partnering with grow yards enables cattle procurement teams to be in the market for substantially broader purchase weights of cattle, which has a number of benefits:

•Expanding the weight class of purchases eases the competition that typically exists for targeted placement weights.

•It enables feeders to take advantage of seasonal movement of cattle and to capitalize on price weakness when supplies of a given weight class overrun the market.

•Having cattle of various weights in the pipeline eases the pressure on buyers to buy a determined number of cattle every week.

•Earlier ownership of cattle enables feeders to better determine cost and projected out dates on finished cattle, to better identify hedge opportunities, and to commit to future hook space when slaughter capacity is limited.

Grow Yards and Feed Yards Will Become Close Partners

In my opinion, the relationships between grow yards and feed yards will become more aligned in the not-too-distant future. This will provide two main operational benefits:

1. The strengthened relationships will provide improved economies of scale with shared resources. The aligned relationships will give feed yards the ability to use the same nutritionists and veterinarians, enhancing cattle performance.

2. Close alignment will also avoid duplication of processing and create a seamless transition of cattle from the grow yard to the feed yard. Again, this alignment can improve cattle performance and health because it can reduce the stress on the animal of transitioning to a feed yard environment. This in turn improves cattle performance, lowers the cost of gain, and actually improves cattle propensity to meet, or exceed, grading expectations because the cattle will have been on consistent, uninterrupted feed and pharmaceutical programs.

Challenges Will Come Forward

The alignment between grow yards and feed yards will undoubtedly require work. Fair compensation is required, and the transfer of cattle ownership must be negotiated in order to sustain ongoing relationships. For grow yards owning the cattle on their operation, it will be critical to establish clear expectations of both buyers and sellers.

A challenge for grow yard operators, regardless of who owns the cattle, is limiting excessive death loss, which has to be incorporated back into total costs. Specializing in transition cattle and high-risk animals makes death loss inherent to the business and an ongoing issue for the backgrounding sector. Both parties need to be clear as to how they will handle compensation for death loss, and the terms for accepting stressed or at-risk animals.

Grow yards managing customer-owned calves will need to find ways to get calves performing quickly. Most feeders using grow yards are limiting cattle to 150 days or a total gain of 250 pounds in order to avoid cattle getting too fleshy or too big. This also helps with their scheduling. Setting time or total-pounds-gained parameters has left grow yards with a limited time window to get enough performance to roll back costs per cwt.

Leaders Will Need to Be Proactive to Benefit from Changes

Grow yards are often viewed as a low-cost/high-labor way for individuals to get started in the cattle business. They could also be an avenue for existing farms or cow/calf producers to grow, giving family members a chance to join the operation. Existing, small yard facilities are available in many regions near large commercial feed yards. New grow yard operators will need the skill sets to handle lightweight calves and high-risk cattle.

The evolution of grow yards into permanent, year-round backgrounding operations will have an impact on all sectors of the U.S. cattle industry. For example, cow-calf operators can explore selling calves at different times of the year with more viable buyers on a consistent basis. Operators should be proactive in order to capitalize on the positive opportunities this long-term change can allow.