B-1148
October 1974

 

LIBRARY
JAN 2 7 1975
Texas A&M University

   

custom Feeding Clients Using Texas Feedlots 
 Operational Characteristics, Management
Practices, and Feeding Strategies

The Texas A&M University System, The Texas Agricultural Experiment Station,

]. E. Miller, Director, College Station, Texas
in Cooperation with
U. S. Department of Agriculture, Economic Research Service

   
   
 
 
    
 
  
    
   
   
   
   
  
   
 
   
   
  
  
   
  
  
  
  
     
 

Highlights

The rapid development of the cattle feeding in- placement patterns during periods of unfavor  

5:
m.
1*

a s‘

 dustry in the Southern Plains is characterized by the feeding margins. . 
 growth and development of large commercial feed- Qustom eliehts purehased their feeder e’
 lots that specialize in feeding cattle for custom clients. rnost eornrnonly through dealers or order buyers

Past research has shown that these feedlots are heav-

_ _ _ specified the grade, weight, sex and type of f
ily dependent upon custom feeding as a malor source "‘

cattle desired. However, a iarge proportion of

 Qf reVePue-Feensecluentl)” imPertent ewnemlefmn" clients purchased their ownifeeeder cattle. Most cli
 siderations include the characteristics and activities of Consulted feedlot personnel throughout their tee 

 lIhQSQ CuStOIn CIIQHtS and thQIT HnPaCt upon the Stabll‘ prOgI-anl, but Qllents generally Specified Selling 

 ltY and Smwth 9f the (Tattle feedmg mdusfry- and marketing methods when fed cattle were f

 This study examines the operational characteris- . eueftem Clients aid net engage in a high aege 
 tics, management practices and feeding strategies of Vertleal mtegraeeej Lees than a Pereent of the 
i custom clients using Texas Panhandle-Plains feed~ Placed on feed Onglnated fTOm i119 Clients 0W“ 
 lots. The effect of these clients upon the stability and Calf eperaeen aunng 1972' However! almost, 
 growth of the Texas Panhandle-Plains cattle feeding the Cattle Plaeed en feed by ehente were eendme 
_ industry ls also analyzed or grown-out, on small grain or other type of

 _ _ _ proved pasture prior to placement in feedlots. 
_ Custom feeamg Clients uemg Texas Panhandle’ Feedlot selection criteria considered mostimt
Plains feedlots are relatively large operators, they are rant by Custom Clients were reputation and nerfe
l elftenl h1gh1y_ SP eielallfrea aea llhey éenerany are ance. Health services and care ranked a distant the
ereeey eeeeeleter. W1 egrleea lalraeaa ref 3X31“? e’ Commercial banks were the most impose
p eeemeete Per e lent average ’ ee uneg source of financing for feeder cattle purchases
i a 19.72‘ The pnmary °°°“P?“°“ of ih¥ee'f.°urths ef the lowed b Production Credit Associations Le 
F clients was closely associated with agriculture, and . . y . ' <i
agencies generally financed about 75 percent of,

 almost one-third of the custom cattle were fed by h . r r d r d 10o t 
‘ clients who were professional feeders. ” pure. eee Pr“? ee er eett e an . Pace“ e!  
ensuing feed bill. However, margin requiremen _ .

The typical custom client is not an ”in and out" lénding institutions may vary depending upon 
a speeulater whe is interested primarily in a terhperery _ factors as collateral basis, feeding experience off
market situation or tax loopholes. Approximately 9O bOITOWH and markfif OHtIOOk- 
percent of the clients maintained a continuous or The results suggest that, iri the absehee 
regular cattle placement program. Almost three- treme er prelenged unfavgrable feeding situa 
fourths of the custom cattle were fed by clients who feeding clients will continue generally normal page
maintained a monthly or more frequent cattle place- ment patterns and have a positive effect one?
ment program. In addition, more than 73 percent of growth and development of the cattle feeding in =j
the clients stated intentions of continuing normal try. 
Contents
Highlights ...................................................... .. 2 Feeding Programs and Operating Arrangement
Introduction ................................................... .. 3 Placement Strategy ................................. ..
Operational Characteristics of Custom Feeding Feeding Programs .................................... ..
Clients ........................................................... .. 3 Vertical Integration and Conditioning Progra
Location of Custom Clients ....  ...................... ..3 Feeding Charge Assessments .................... ..
Longevity ,of Custom Client Feeding Programs  4 Buying and Selling Arrangements ..........  ..... ..
Primary Occupation of Custom Clients ............ .. 4 Buying Arrangements .............................. ..
Legal Forms of Organization ............  .3 ......... .. 4 Selling Arrangements .............................. ..
Factors Affecting Lot Selection .......................... .. 5 Financial Arrangements ............................... .. .
Lot Selection ................................................ . . 5 Summary and Implications ........................... i;
Reasons for Changing Feedlots ....................... .. 6 Literature Cited ...........................................  t
Acknowlegment

This research was conducted by The Texas‘ -
ricultural Experiment Station in cooperation with!
Farm Production Economics Division, Economics
search Service, U.S. Department of Agriculturegfi

   

 
 
 
  
  
 
 
 
 
  
 
 
 
 
 
 
  
  
 
 
 
  
 
  
 
  
  
 
 
  
 
 
  
 
 
 
 
  
  

nd Feeding Strategies

 The Texas cattle feeding industry has undergone
rapid expansion and growth during the last decade.
January 1 numbers of cattle 0n feed and one-time
feedlot capacities increased more than 8-fold since
3,1960 (1). Texas accounted for more than 17 percent of
the U.S. fed cattle marketings in 1973 and ranks first
i; numbers of cattle fed annually (2).

 The rapid expansion and growth in the Texas
cattle feeding industry has been generated by an in-
r reasing demand for fed beef and a favorable com-
petitive location relative to available sugglies of
(feeder cattle, feed and market outlets for fe eef (3).
iThe development of a large scale commercial feeding
industry with highly developed management tech-
fniques, general availability of capital, and the estab-
l~lishment of large specialized fed cattle slaughtering
establishments near the concentrated cattle feeding
; areas have provided additional impetus to the growth
and development of cattle feeding in Texas, espe-
icially the Panhandle-Plains area. The Panhandle-
lPlains area currently accounts for about 85 percent of
the cattle fed in Texas.

 A major distinguishing characteristic of commer-
j ial feedlots in the Texas Panhandle-Plains area,
Zfwhere average one-time capactiy exceeds 25,000 head
per lot, is that 90 percent or more of the cattle fed
annually are non-feedlot owned (4). In addition, re-
cent research has revealed that 70 percent or more of
 he feedlot’s annual operating capital is derived from
feed sales-and services provided for custom clients
'§(4). Further, the annual operating capital required to
ipurchase feeder cattle, to feed and for necessary ser-
(vi h es generally exceeds initial investments in feedlot
[fixed assets by 10 to 12 times. Since feedlots in the
.;Texas Panhandle-Plains area have become heavily
dependent upon custom feeding activities as a major
. source of revenue, this study was designed to analyze
tcustom feeding clients relative to 1) operational

“JRespectively, associate professor, The Texas Agricultural Experi-
 ment Station and Department of Agricultural Economics and
 Rural Sociology; agricultural economist, U. S. Department of Ag-
i" riculture, Economic Research Service, Farm Production
 Economics Division; and associate professor, Department of Ac-
‘- counting, Texas A&M University.

I astmn Feeding Clients Using Texas Feeal0ts—

perational Characteristics, Management Practices,

R. A. Dietrich, ]. R. Martin, and P. W. Ljungdahl*

characteristics, 2) lot selection criteria, 3) manage-
ment practices and 4) feeding strategies employed.
Accordingly, a detailed mail questionnaire was de-
signed and forwarded to a random selection of 680
custom clients feeding cattle in varying sizes and
types of feedlots in the Panhandle-Plains during
1972. Custom feeding clients returned 212 question-
naires, of which 192 were considered complete or

usable for the study. Custom clients returning com- 

pleted questionnaires accounted for about 20 percent
of the cattle fed in the Panhandle-Plains during 1972.
The non-response bias of clients not returning ques-
tionnaires was not considered significant because the
general parameters of the client data relative to type
of cattle placed on feed, sex, weight groups, owner-
ship patterns, etc. did not differ substantially from
previous research of the industry (4,5). In addition,
certain locational characteristics of the respondents
compared favorably with that of the population sur-
veyed.

Operational Characteristics of
Custom Feeding Clients

Cattle feeding activities by custom clients in
Texas Panhandle-Plains feedlots are conducted on a
relatively large scale. Table 1 reveals that placements
in Texas Panhandle-Plains feedlots during 1972 aver-
aged almost 3,500 head per custom client. Custom

clients who fed 5,000 or more cattle during 1972, _

made up 20 percent of the custom feeders, but ac-
counted for about 62 percent of the total custom cat-
tle. The largest group of custom clients was rep-
resented by those feeding from 1,000 to 2,499 head
per year, Table 1. This group, however, accounted for
only 15 percent of the total custom cattle. In contrast,
custom feeders who fed 10,000 head or more per year
comprised less than 7 percent of the custom clients
but accounted for almost 40 percent of the cattle fed
on a custom basis.

Location of Custom Clients

More than 55 percent of the clients responding to
the survey were located within 100 miles of Amarillo,
Table 2. Further, 70 percent of the respondent clients,
as compared to 69 percent of the 680 clients surveyed,

3

TABLE 1. AVERAGENUMBER OF CATTLE PLACED ON FEED BY CUSTOM CLIENTS, PERCENTAGE DISTRIBUTION BY NU 
OF CUSTOM CLIENTS AND NUMBER OF CATTLE PLACED ON FEED, BY NUMBER OF CATTLE FED ANNUALLY, T ‘I

PANI-IANDLE-PLAINS FEEDLOTS, 1972

   

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Number of cattle fed

500 to 1 ,000 2,500 5,000 7,500 10,000
Less than 999 t0 2,499 to 4,999 to 7,499 to 9,999 or more
Item 500 head head head head head head ‘ head
Head/custom client

Average number

of cattle placed

on feed 331 641 1,579 5,508 8,196 19,807

Percent

Distribution by

number of _ _

custom clients 12.5 16.2 32.3 18.8 10.4 3.1 6.7
Distribution by

number of cat-

tle placed on feed 1.2 3.0 14.7

18.3 16.6 7.4 38.8

resided within 250 miles of Amarillo. These statistics
suggest that the clients responding to the survey
were highly representative of the industry.

Respondents residing in Texas accounted for
about 88 percent of the cattle fed by clients. In addi-
tion, Table 2 reveals that one-third of the custom
cattle were fed by clients residing within 100 miles of
Amarillo. However, clients residing more than 250
miles from Amarillo accounted for more than 50 per-
cent of the custom cattle in Panhandle-Plains feedlots
during 1972. Clients residing outside-of-Texas ac-
counted for 12 percent of the custom cattle.

Longevity of Custom Client Feeding Operations

Expansion and growth of large scale commercial
feedlot operations and initiation of custom client
feeding programs closely parallel each other in the
Texas cattle feeding industry. For example, January 1
numbers of cattle on feed increased from 488,000

TABLE 2. LOCATION OF RESPONDENTS AND PROPORTION
OF CATTLE FED BY RESPONDENT LOCATION, CUSTOM
FEEDING CLIENT SURVEY, TEXAS PANHANDLE-PLAINS
FEEDLOTS, 1972

. higher placement patterns as they obtained expe

Custom Total Proportion

Distance clients custom of cattle

from responding clients fed by
Amarmo to survey in survey respondents 2
Miles: Percent
100 or less 55.7 54.3 32.7
101 to 150 3.1 4.6 5.2
151 to 250 11.0 9.8 8.6
251 or more 30.2 31.3 53.5

Total 100.0 100.0 100.0

lRespondent location by state were Texas 90.1 percent and out-
side of Texas 9.9 percent.

ZCIients residing in Texas accounted for 87.9 percent of the cattle
fed by respondents.

4

  
  
  
   
 
  
  
  
 

head in 1965 to 2.2 million head in 1973. More than 7'
percent of the custom clients initiated feeding pr
grams during this period, Table 3. Custom clien
with average annual placements of 5,000 head
more during 1972 generally initiated custom feedin
programs earlier than those placing less than IN
head on feed annually. However, many of the clien

feeding more than 5,000 head during 1972 initiated
feeding programs at lower levels and moved into t

ence in custom feeding.
Primary Occupation of Custom Clients

Almost one-third of the custom cattle were fed
by clients who listed their primary occupation as cat-
tle feeders, Table 4. This table also reveals that clients
with average annual placements of 5,000 or more
head accounted for more than 60 percent of the cattle g
fed by custom clients. These data suggest that many
of the clients are professional feeders who specialize
in placing cattle on feed on a custom basis in large;
commercial feedlots. Ranchers were the second most
important occupational group with regard to cattle?
placed on feed, followed by livestock dealers and"
”other", which included doctors, lawyers and A
teachers. As a group, farmers, ranchers, feeders and
livestock dealers accounted for more than 72 percent
of the custom cattle placed on feed in the Texas
Panhandle-Plains feedlots. Although packers did not

return any questionnaires relating to their custom .

feeding practices, data reported by the U. S. Depart-
ment of Agriculture indicate that cattle and calves fed
by or for meat packers accounted for less than 4 per-
cent of the fed cattle marketed from Texas feedlots
during 1972 (6). Cattle fed on a custom basis by retail-
ers and bankers represented about two percent of the
total custom cattle.

Legal Forms of Organization

Legal forms of organization varied in relation to
the number of cattle placed on feed. However, sole

 
 

BLE 3. YEAR IN WHICH CUSTOM CLIENTS BEGAN FEEDING CATTLE IN COMMERCIAL FEEDLOTS, BY NUMBER OF CATTLE
_ D ANNUALLY, TEXAS PANHANDLE-PLAINS FEEDLOTS, ‘I972

 

Number of cattle fed

 

  

  
 
  

  
   
 
 
 
 
 
  
 
 
 
  
  
 
 
 
  
  
  
 
  
 

 one reported by respondents surveyed.

roprietors accounted for almost 38 percent of the
f stom cattle, followed by partnerships with 31 per-
int and corporations with 21 percent of the total,
f able 5. Both cattle feeding clubs and limited partner-
I ips, which are often incorporated but are shown
“parately in this study, accounted for another 5 per-
 each.
I The single proprietor form of organization was
 ost common among custom clients feeding less
 an 5,000 head annually, Table 5. Partnerships were
y e most important form of organization for the 5,000
 7,499 size group. Corporate forms of organization,
is expected, were most predominant among custom

\/°

‘Partnership arrangements, although accounting for
 5 percent of the total custom cattle, were found
Ii ostly among custom clients feeding 5,000 head or
 ore per year. Cattle feeding clubs, of which 80 per-
gent were incorporated, generally fed from 1,000 to
,500 head annually.

PERATION, TEXAS PANHANDLE-PLAINS FEEDLOTS, 1972

lients feeding 7,500 head or more annually. Limited '

500 to 1 ,000 2,500 5,000 7,500 10,000
 Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more
 Year 500 head head head head head head head Average
_ Percent
Tor 15 1950 * * * 2,8 5.0 * * 1.0
4}! 50-59 4.2 3.2 1.6 * 5.0 33.3 7.7 3.6
60-64 12.5 3.2 21.0 16.7 40.0 16.7 38.5 19.3
1 55-59 50.0 57.5 59.7 51.1 45.0 50.0 45.1 57.3
70-72 33.3 25.8 17.7 19.4 5.0 * 7.7 18.8
taI 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Factors Affecting Lot Selection

Lot Selection

The ranking of feedlot selection criteria by cus-
tom clients is shown in Table 6. Feedlot reputation or
lower cost of gain were given the first or most impor-
tant ranking by almost 80 percent of the clients assign-
ing the number 1 ranking to the criteria shown in
Table 6. Health services and accessibility ranked a
distant third and fourth among the most important
criteria.

Health care and lower cost of gain each were
accorded the second most important criteria by 25
percent of the clients. Selling services and accessibil-
ity also received considerable support among the sec-
ond most important criteria.

Health services and selling services were the
leading criteria among those receiving the third most
important ranking by the custom clients. Lower cost
of gain and reputation were the next most important
criterion in this category.

iABLE 4. PROPORTION OF CATTLE FED BY CUSTOM FEEDING CLIENTS, BY PRIMARY OCCUPATION AND SIZE OF FEEDING

 
 

Number of cattle fed

  

 

    
 
  
 
   
 

 

 
 
 

  
 

 one reported by respondents surveyed.

 500 to 1,000 2,500 5,000 7,500 10,000

Primary Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more

j cupation 500 head head head head head head head Total

Percent

 armer .3 .5 2.4 3.5 2.5 t * 9.7
 anqfier .1 .5 2.7 3.1 .5 4.9 5.5 15.0
  eeder .2 .2 3.1 3.7 5.5 1.4 12.4 29.5
I ivestock dealer * .3 .1 .5 * 1.1 13,6 15,6
ed company * * * 1.0 * * * 1.0
I packer * * * * * * * *

etailer  .1 * * ,9 * * 1,1
nker ‘.1 * .3 * .7 * * 1.1
ther .2 .4 3.3 4.3 3.1 * 4.2 15.5
‘re than one

 occupation .2 .4 2.8 2.1 * * 3.0 8.5
ital 1.2 3.0 14.7 18.3 16.6 7.4 38.8 100.0

TABLE 5. PROPORTION OF CATTLE FED, BY LEGAL FORMS OF ORGANIZATION OF CUSTOM CLIENTS, BY NUMBER OF CATT.
FED ANNUALLY, TEXAS PANHANDLE-PLAINS FEEDLOTS, 1972 

\
NW -‘¢
\ 51w

~~.

Number of cattle fed 

 

Legal 10"" 500 to 1 ,000 2,500 5,000 7,500 10,000 
O1‘ Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more 
organization 500 head head head head head head ~ head 
Percent 

Sole proprietor 40.8 53.9 56.6 57.2 23.7 20.1 29.6 337.82?
Partnership 56.6 33.5 27.2 28.3 40.2 23.2 30.6 31.27%
Corporation * 10.7 4.0 7.0 13.9 33.9 35.7 20.81
Cattle feeding club 2.6 * 9.8 3.6 15.0 * 1.5  5.1}
Limited partnership * 1.9 2.4 3.9 7.2 22.8 2.6 5.1.1;
Total a 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.05;

*None reported by respondents surveyed.

Several general conclusions can be drawn from
the data presented in Table 6. Reputation and/or per-
formance (lower cost of gain) were considered the
most important criteria by four out of five clients.
Feedlot accessibility, size, and friendliness were rela-
tively insignificant as criteria for lot selection by cus-
tom clients. Almost all clients are feeding in relatively
large feedlots since the average one-time capacity in
Texas Panhandle-Plains area commercial feedlots is
in excess of 25,000 head per lot. While feedlot accessi-
bility was generally not considered an important
criteria, it was of importance to some of the clients
feeding less than 5,000 head per year.

Reasons for Changing Feedlots

Clients generally were satisfied with the services
or the performance of the feedlots in which they were
feeding cattle. However, one-third of the clients
changed feedlots at least once during 1971-72, Table
7. The major reason for changing lots was poor cattle
performance. The second most important reason was
dissatisfaction with feedlot management. Poor health
services or high death losses and lack of pen space
were additional reasons cited for changing to another
lot.

While clients generally were satisfied with the
services provided by the feedlots, some clients pro-
vided suggestions concerning improved or additional
feedlot services. These suggestions included 1) better
health care, 2) information concerning financing as
well as assistance in acquiring financing, 3) feeder
cattle conditioning or back rounding programs, and
4) studies to improve fee lot performance and de-
crease feeding costs.

Feeding Programs and Operating Arrangements

Although numerous factors influence specific
feeding programs, clients generally have well defined
programs concerning feeding strategy, placement
patterns, type of cattle placed on feed, and condition-
ing programs.

Placement Strategy
Almost all custom clients agreed that a continu-

ous or regular placement program was preferred to
an irregular program where feeders attempt to ”out-.~
guess” the market. Approximately 90 percent of the:
custom clients maintained a continuous or regular
placement pattern during 1972, Table 8. More than 55
percent of the clients placed cattle on feed on at least a
monthly basis. Survey data showed that these clients
accounted for 73 percent of the cattle fed on a custom
basis. It is also significant to note that one-third of the
custom cattle were fed by 8 percent of the clients who
maintained weekly placement patterns.

Custom clients generally agreed with the
thumb-rule or guideline offered by various feeders
that ‘individuals buying and selling cattle on the
same market (same time period) can normally antici-
pate profits from their feeding program." However,
numerous clients suggested that this adage was true
because feeders”buying and selling” on the same
market, generally follow a regular or predetermined
placement pattern.

With regard to placements during periods of un-
favorable feeding margins, 73 percent of the clients
said they would continue normal placement patterns,
during such periods, while 14 percent indicated they?
would stop placing cattle on feed. Another 11 percent‘;
said they normally decrease numbers of cattle placed}
on feed during such periods, and 2 percent stated that;
they varied their placement patterns. However, it
should be recognized that this study did not attempt
to measure the custom client's placement patterns
relative to the magnitude of either favorable or un-
favorable feeding margins. i

About 55 percent of the custom clients averaged
placing from 100 to 200 head on feed in each batch, or
group, of cattle during 1972. Another 32 percent
normally placed from 201 to 300 head on feed in each
batch. Previous research revealed that feedlot man-
agement generally encouraged placement numbers
to accommodate individual pen capacities within the
various feedlots (5). Approximately 9 percent of the
clients indicated average one-time placement num-q
bers ranging from 300 to more than 1,000 head. Such?
feeders normally filled more than one pen per place-E.

 
  

BLE 6. CRITERIA AND RANKING OF MOST IMPORTANT CRITERIA USED BY CUSTOM CLIENTS IN SELECTING FEEDLOTS, BY
 MBER OF CATTLE FED ANNUALLY, TEXAS PANHANDLE-PLAINS FEEDLOTS,1972

Number of cattle fed

 

500 to 1 ,000 2,500 5,000 7,500 10,000

 
  

 

 
 
 
 
 

 

 ‘None reported by respondents surveyed.

a ment period. .
I Forty percent of the clients inspected the cattle

l on their account on at least a weekly basis. Another 41

 percent inspected their cattle at least once every 14 to

 3O clays. Proximity to feedlots affects the frequency

_ with which clients inspect cattle being fed on their

 account.

I Feeding Programs

Almost 97 percent» of the clients stated that they

i specified the gradefweight, sex and type of feeder
l, cattle to be purchased for their account. Table 9 re-
 veals that crossbreds made up 80 percent of the cattle
f fed by custom clients during 1972 with okies repre-
 senting the single largest group. Feeder cattle clas-
 sified as okies by the feeding industry and cattle
 buyers contain mixed breeding and consist mostly of

Jeedlot selection Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more

iteria and rank 500 head head head head head head head Average
 Percent

i. ost Important:

§ Reputation 41.5 35.7 54.1 34.3 3 31.5 33.3 33.3 41.7

 Cost of gain 25.0 40.0 26.2 43.5 57.9 15.7 58.4 37.4
Health services 12.5 6.6 8.2 8.6 10.5 50.0 * 9.6
Accessibility 8.3 10.0 3.3 8.6 * * * 5.4
Selling services 4.2 * 6.6 * * *  2.7
Size * 6.7 1.6 * * * * 1.6
Quality of rations 4.2 * * * * * 8.3 1.1
Friendliness 4.2 * * * * * * .5

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
cond l\/lost Important:

“ c531 of gain 30.4 32.2 27.9 23.5 21.1 15.7 7.7 25.5
Health services 26.1 25.0 22.9 20.6 31.6 33.3 38.4 _ 25.5
Selling services 17.4 7.1 14.8 14.7 31.5 16.6 7.7 15.2
Accessibility 4.3 17.9 16.3 5.9 10.5 16.7 7.7 12.0
Reputation J13.1 7.1 6.6 14.7 5.3 * 23.1 9.8
Quality of rations 4.4 7.1 6.6 8.8 * 16.7 7.7 6.5
Friendlinegg 4.3 3.6 3.3 5.9 * * * 3.3
Size * * 1.6 5.9 * * 7.7 2.2

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

TThird l\/lost Important:

i‘ Health Services 30.4 27.6 24.6 32.3 26.3 a * 16.7 26.1
Selling services 47.8 27.6 18.0 20.6 31.5 50.0 16.7 26.1
Cost of gain 4.4 6.9 22.9 5.9 10.5 16.7 33.3 14.1
Reputation 8.7 3.5 13.1 8.8 15.8 16.7 8.3 10.3
Friendliness * 13.8 8.2 8.8 5.3 * 8.3 7.6
Quality of rations * 13.8 3.3 5.9 5.3 16.6 I 16.7 6.5
Accessibility 8.7 3.4 6.6 1 1.8 * * * 6.0
Size * 3.4 3.3 5.9 5.3 * * 3.3

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

beef, dairy and Brahman bloodlines. Crossbreds rep-
resented more than 90 percent of the cattle fed by
clients feeding 10,000 head or more compared to 65
percent for the clients feeding less than 2,500 head
during 1972.

Steers accounted for about 70 percent of the cat-
tle placed on feed by custom clients in the
Panhandle-Plains, Table 10. This is approximately
the same proportion reported by feedlot operators in
the Texas Panhandle for 1966-67 (5). Table 10 reveals
that the highest proportion of steers were fed by
custom clients feeding 7,500 head or more per year.
The highest proportion of heifers were fed by clients
feeding from 1,000 to 2,499 and from 5,000 to 7,499
head per year.

Placement weights of steers averaged 550
pounds during 1972 compared to almost 400 pounds

7

TABLE 7. PROPORTION OF CUSTOM CLIENTS CHANGING
FEEDLOTS DURING 1971-72 AND REASON FOR CHANGING
FEEDLOTS, TEXAS PANHANDLE-PLAINS FEEDLOTS

Item Percent

Changed feedlots during 1971-72:

Yes 33.2
No i 66-2
Total 100.0
Reasons for changing feedlots: b
Performance 44.6
Management 16.1
Health services or death loss 8.9
Lack of pen space 15.4
Other 1 . 26.0
Total 100.0

lPrimary reasons given were (a) acquired interest in feedlot, (b) lo-
cation and (c) size.

for heifers, Table 11. However, individual responses
indicated that placement weights for steers ranged
from 250 to 800 pounds while heifer placement
weights varied from 230 to more than 700 pounds
during 1972.

Market weights for steers, which averaged about
1,050 pounds, were fairly consistent over all size
groups, Table 12. However, market weights for heif-
ers, which averaged almost 750 pounds, ranged from
698 to almost 850 pounds during 1972.

Table 13 reveals that number of days on feed for
both steers and heifers have increased approximately
30 days since 1966-67 (5). Several factors contribute to
the increased feeding period. Large, specialized fed
beef slaughtering plants which have established
facilities in the Panhandle-Plains area ship fed beef to

TABLE 8. CATTLE PLACEMENT PATTERNS OF CUSTOM CLIENTS, BY NUMBER OF CATTLE FED ANNUALLY, TEXAS PAN-f

HANDLE-PLAINS FEEDLOTS, 1972

_ placement in feedlots during 1972, Table 15. Back-if

   
 

markets throughout the United States. These mar“.
kets generally demand a heavier fed beef carcass 
was produced by most feedlots during the 1966-67‘?
period. In addition, feedlots have developed exper-a-gg‘;
tise in handling relatively lightweight feeder cattlegi:
which normally require longer feeding periods toi
reach desired market weights and quality grades.
Other considerations affecting length of feedingé;
period include the price ofifiéeder cattle relative to?
placement weight, cost of gain and the breakeveni
price. 

Vertical Integration and Conditioning Progralfis

One-fourth of the custom clients maintained
cow-calf operations during 1972. The average 
number of feeder calves produced by these clients
was approximately 150 head, Table 14. The number 
varied from 72 head for custom clients feeding from .1
500 to 999 head to almost 450 head for those feeding‘
10,000 or more head annually. ' g

Custom clients indicated that they retained own- 
ership on about one-third of the feeder calves pro-
duced from their own cow-calf operation during‘;
1972, Table 14. However, less than 3 percent of the
cattle placed on feed by custom clients originated‘?

from the client's own cow-calf operations.

Almost half of the cattle placed on feed by cus-htj
tom clients were conditioned, or grown-out, on small
grain or other types of improved pasture prior toi

‘ii
l
i
'1
l

J- mA-mm. mzJmaltii-Lan .4\l.brnok"-‘LK' .. flu.» n:

L. m.

  
  
 
 
  

grounding feeder and stocker cattle on small grain’:
and improved pasture often results in lower totality»
costs per pound of gain (8). Table 15 shows that{%§
backgrounding, or conditioning, of feeder cattle wasé»
relatively more important for steers than for heifersiffi
Several factors apparently contribute to this patternijgi

Number of cattle fed

Frequency 500 to 1,000 2,500 5,000 7,500 10,000 p,
of Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more 
cattle placements 500 head head head head head head head Total 
Percent i
Regularly 1.1 * * 1 1 6 6 .6 s 7 g
At least » I 
once a week 41- ' .6 .6 * 3.2 .6 3.2 8.2 
Less than weekly, _ 
but at least 
once a month 1.1 3.9 20.9 13.6 4.3 2.3 1.7 47.8 
Less than once a _
month, but at least 
every 2 months 1.6 2.7 5.0 .6 1.1 * * 11.0 
Less than every 2 4
months, but at least
every 4 months 2.8 4.4 2.2 1 6 * * * 11 0
Less than every 4
months (3 times
a year) 3.8 1.6 1.6 6 6 * * 8 2
Varies 2.2 . 2.8 1.7 1 7 1 0 * 5 99

;None reported by respondents.

8

 ABLE 9. KIND OF FEEDER CATTLE PLACED ON FEED BY CUSTOM CLIENTS, BY NUMBER OF CATTLE FED ANNUALLY, TEXAS
AANHANDLE-PLAINS FEEDLOTS, 1972

Number of cattle fed

reed 500 15 1 ,000 2,500 5,000 7,500 10,000

 0r Less than 999 t0 2,499 to 4,999 to 7,499 to 9,999 or more

 ross 500 head head head head head head head Average
_  Percent

A ereford 24.3 19.4 17.1 25.2 15.4 12.9 3.5 13.2
‘Angus 9.9 13.8 13.2 7.4 9.1 7.0 4.3 7.7
g-‘harolais 1.5 1.3 1.1 1.2 .7 1.5 .2 .8
 ereford x Angus 14.2 15.0 7.8 10.7 10.1 14.8 4.0 8.2
Li’ ereford X Charolais 1.5 2.1 1.8 1.3 1.6 .7 .6 1.1
a ngus x Charolais .5 2.0 1.8 .8 1.1 — s 1.1 1.1
.11 kies 44.9 29.8 50.3 45.3 44.8 47.7 58.4 54.3
rahman and Brahman crosses 1.5 13.5 5.1 5.8 15.2 14.7 12.9 11.0
1 nta Gertrudis and Santa

1 Gertrudis crosses 1.4 .8 1 3 .3 * 2.9 1.2
airy breeds and dairy crosses .2 1.1 1 4 1 0 .7 .6 4 .7
1118f * .1 3 * * * 1 7 .7
 5151 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

nfNone reported by respondents surveyed. i s.

TTABLE 10. PLACEMENTS, BY SEX AND NUMBER OF CATTLE FED ANNUALLY BY CUSTOM FEEDING CLIENTS, TEXAS PAN-

‘HANDLE-PLAINS FEEDLOTS, 1972

Number of cattle fed

ZANNUALLY, TEXAS PANHANDLE-PLAINS FEEDLOTS,1972

g 500 to 1 ,000 2,500 5,000 7,500 10,000

s" Less than 999 to 2,499 t0 4,999 to 7,499 to 9,999 or more

 500 head head head head head head head Average
_ _ Percent

fSteers 73.2 64.7 59.9 69.2 59.5 73.5 75.9 69.0
jHeifers 26.8 35.3 40.1 30.8 40.5 26.5 24.1 31.0
iiTotal 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

ZLLATABQTE 11. AVERAGE WEIGHT OF STEERS AND HEIFERS PLACED ON FEED BY CUSTOM CLIENTS, BY NUMBER OF CATTLE FED

Number of cattle fed

Average 544

__ 500 to 1,000 2,500 5,000 7,500 10,000

- Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more

u-item 500 head head head head head head head Average

 Pounds/ head

 Steers 602 621 583 598 533 567 51 5 550

 Heifers 386 445 41 8 445 382 463 327 393
559 517 551 472 539 472 501

7g
“w a‘

S.
i!
a

TABLE 12. AVERAGE MARKET WEIGHT OF STEERS AND HEIFERS SOLD BY CUSTOM FEEDING CLIENTS, BY NUMBER 
CATTLE FED ANNUALLY, TEXAS PANHANDLE-PLAINS FEEDLOTS, 1972 -

*4;

Number of cattle fed

500 to 1 ,000 2,500 5,000 7,500 10,000
Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 0r more
Item » 500 head head head head head head head Average
Pounds/head
Steers 1 ,061 1 ,077 1 ,051 1 ,065 1 ,044 1 ,064 1 ,048 1,053
Heifers 698 812 758 808 735 847 691 749
Average 964 983 934 986 919 1 ,006 962 959

Steers normally remain on feed for longer feeding
periods than do heifers, and in addition, acquisition
costs have generally been higher per hundredweight
for comparable weights and grades of steers than
heifers. Backgrounding, or growing out, feeder cattle
on improved pastures, when available, has provided
feeders an opportunity to "cheapen-up" cattle prior
to movement into feedlots since costs per pound of
gain on improved pastures ranged from 14 to 20 cents
during 1972 compared to 24 to 30 cents per pound of
gain in the feedlot.

Feeding Charge Assessments

Custom feeding charge assessments in Texas
have been based predominantly on cost of feed, plus
a mark-up above feed costs to cover handling, milling
and labor costs (7). Charges for such items as vaccina-
tion, medication, branding, dehorning and dipping
are dependent upon the specific type of service per-
formed and are normally assessed in addition to feed-
ing charges on a per head basis. Table 16 reveals that
87 percent of the cattle fed by custom clients during
1972 were assessed feeding charges on the basis of
feed costs plus a mark-up above feed costs. Most of
the remaining cattle were fed on the basis of a feed
cost, a mark-up above feed costs plus a daily yardage
charge. Less than 3 percent of the cattle were fed on a
cost per pound of gain plus a daily yardage charge
basis. Feedlots generally prefer not to feed on a cost
per pound of gain basis since much variation exists in
the ability of feeder cattle to convert feed into pounds
of gain. In addition, during periods of widely fluc-
tuating prices for feedstuffs, feedlots have found it
difficult to project costs per pound of gain.

a»

m‘;

A few feedlots have also fed cattle on a guaran-
teed cost of gain basis. However, custom clients re-
ported that less than .05 percent of their cattle were
fed on a guaranteed cost of gain basis during 1972.
Some feedlots also provide customers with a death
loss provision. Such provisions may provide for a
guaranteed maximum death loss or a provision
whereby the feedlot shares in the death losses which
exceed a specified limit. Less than 3 percent of the
custom clients’ cattle were fed under a death loss
provision during 1972.

Billing intervals for custom clients were as fol-
lows: monthly basis, 59 percent; semi-monthly, 22
percent; and a combination of monthly and semi-
monthly billing intervals, 19 percent. Custom clients
in the latter category fed cattle in several feedlots
where some of the lots billed on a monthly basis and
others on a semi-monthly basis.

Buying and Selling Arrangements

7 Buying Arrangements

Feeder cattle purchase arrangements varied by
size of custom client feeding operation, and revealed
no consistent trends, Table 17. Approximately 48 per-
cent of the custom client's feeder cattle ‘were pur-
chased by dealers and order buyers. Direct purchases
by custom clients accounted for 39 percent, and feed-
lot buyers providing another 10 percent of the total.
Even though farmers and ranchers accounted for 28
percent of the cattle fed by custom clients, less than 3
percent of the cattle fed during 1972 originated from
the custom clients own cow-calf program. This result
was not unexpected. The cow-calf operations of most

TABLE 13. LENGTH OF FEEDING PERIOD, BY SEX AND NUMBER OF CATTLE FED ANNUALLY BY CUSTOM CLIENTS, TEXAS

PANHANDLE-PLAINS FEEDLOTS, 1972

Number of cattle fed

500 to 1,000 2,500 5,000 7,500 10,000
Less than 999 to 2,499 to"4,999 to 7,499 to 9,999 or more
Sex .. 500 head head head head head head head Average
Days on feed

Steers 165 160 166 163 183 172 178 174
Heifers 122 137 139 148 148 138 162 149
Average 153 152 155 158 169 163 174 166

10

  
 
 

. AINS FEEDLOTS, 1972

IBLE 14. AVERAGE NUMBER OF FEEDER CALVES PRODUCED BY CUSTOM CLIENTS WITH COW-CALF OPERATION AND
COPORTION OF THEIR OWN PRODUCTION PLACED ON FEED, BY NUMBER OF CATTLE FED ANNUALLY, TEXAS PANHANDLE-

Number of cattle ted

   
  
 
 
 

 feed

P

500 to 1 ,000 2,500 5,000 7,500 10,000
, Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more
‘Item 500 head head head head head head head Average
y Head
2- der calves
" oduced 103 72 203 76 96 125 447 151
g Percent
 oportiori of own
:-.-¢ calves placed
28.9 32.5 22.8 33.9 14.0 46.7 55.6 32.2

‘A ABLE 15. PROPORTION OF CUSTOM CLIENT PLACEMENT CATTLE CONDITIONED, OR GROWN-OUT, ON IMPROVED PASTURES,
xY SEX AND NUMBER OF CATTLE FED ANNUALLY, TEXAS PANHANDLE-PLAINS FEEDLOTS, 1972

Number of cattle fed

   

gll cattle

500 to 1 ,000 2,500 5,000 7,500 10,000
Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more
Sex 500 head head head head head head head Average
Percent
teers 79.0 64.3 59.2 55.7 38.3 54.2 68.0 59.3
_ eifers 64.2 36.5 30.2 41.8 26.0 30.7 13.4 26.9
verage of
75.0 54.5 47.5 51.4 33.3 48.0 54.9 49.3

  
  
   
 
 
  
 
 
   
  
  
 
  
   

producers are relatively small. Consequently, the
irocess 0f assembling 100 t0 200 head of feeder cattle
into uniform lots relative to grade, weight and sex at a
specific date is accomplished predominantly through
 he marketing system.

Selling Arrangements

.9 Two-thirds of the custom clients specified selling
Ydates for their finished cattle. However, most of the
‘clients indicated that they consulted with the feedlot
manager, or other feedlot personnel, prior to making
decisions regarding selling dates.

1 ‘f’ More than two-thirds of the clients also specified
the marketing method under which their fat cattle
_were to be sold, Table 18. Almost all the finished
ffcattle were sold on a liveweight cash basis. The re-
y-mainder, less than tjwo percent, were sold under the
 grade and yield method.

Financial Arrangements

 The major source of financing for feeder cattle
purchases by custom clients was commercial banks,
sTable 19. Thesecond most important source was Pro-
Qduction Credit Associations, followed by custom
client's own money.

clConditioned, or grown-out, refers to stocker and growing operations where weaned calves or stocker cattle are placed on improved pasture,
T‘ small grain or corn or milo stalk fields prior to placement in teedlots.

Margin requirements by lending institutions for
feeder cattle purchases by custom clients averaged
almost 25 percent during 1972, Table 20. Margin re-
quirements vary in accordance with such factors as
available collateral, feeding experience and potential
market conditions. Margin requirements for feeder
cattle purchases by custom clients were generally
lower at commercial banks than at other types of loan
sources. The number of cattle fed annually appeared
to have little or no effect on margin requirements by
commercial banks. However, margin requirements
by Production Credit Associations tended to increase
as numbers of cattle fed annually increased. Margin
requirements by Production Credit Associations
were normally 30 percent during 1972. However,
margin requirements may vary up or down depend-
ing upon such factors as the cash position, collateral,
or credit experience of the borrower. When a custom
client is feeding relatively large numbers of cattle and
his cash on hand or other liquid collateral is not suffi-
cient to meet the margin requirements, additional
collateral including first or second liens on land or
other property may be required. The net result of
such financial arrangements is that total margin re-
quirement may exceed the nonnal or standard mar-

11

@

TABLE 16. TYPE OF FEEDING CHARGES ASSESSED CUSTOM CLIENTS, BY NUMBER OF CATTLE FED ANNUALLY, TEX.
PANHANDLE-PLAINS FEEDLOTS, 1972 

Number of cattle fed

500 to 1 ,000 2,500 5,000 7,500 10,000
Type of Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more 
feeding charge 500 head head head head head head head Average E
Percent "1 i

Cost of feed, plus

a mark-up above _

feed costs 75.9 91.6 81.8 77.3 81.5 97.0 94.9 87.4
Cost of feed, plus ,,

a mark-up above 5

feed costs and a

daily yardage charge 18.3 7.7 11.8 19.4 12.1 3.0 5.1 9.9
Cost per pound of '

gain, plus a daily

yardage charge 5.8 .7 6.4 3.3 6.4 * * 2.7
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

*None reported by respondents surveyed.

TABLE 17. FEEDER CATTLE PURCHASING ARRANGEMENT USED BY CUSTOM CLIENTS, BY NUMBER OF CATTLE FED ANNE
ALLY, TEXAS PANHANDLE-PLAINS FEEDLOTS, 1972

 

Number of cattle fed

500 to 1 ,000 2,500 5,000 7,500 10,000
Purchasing Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more
arrangement 500 head head head head head head head Avera

Percent

Own production 2.9 4.2 5.4 ~ 3.8 .6 12.6 .4 2.
Purchased by 5
custom client 45.1 30.1 27.3 33.0 41.0’ 52.5 43.3 39.1‘;
Purchased by _ 1
feedlot 13.2 10.4 13.9 22.5 12.8 14.6 1.6 10.4
Purchased by dealer 
or order buyer 38.8 55.3 53.4 40.7 45.6 20.3 54.7 47.711

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

TABLE 18. PROPORTION OF CUSTOM CLIENTS SPECIFYING FED CATTLE MARKETING METHOD AND TYPE OF MARKETI 
METHOD SPECIFIED, BY NUMBER OF CATTLE FED ANNUALLY, TEXAS PANHANDLE-PLAINS, 1972

Number of cattle fed

500 to 1 ,000 2,500 5,000 7,500 10,000
Less than 999 to 2,499 to 4,999 to 7,499 *4 to 9,999 or more
Item , 500 head head head head head head head Avera
P Percent
Marketing method
specified: _ I
Yes 68.2 56.7 70.7 71.4 60.0 83.3 83.3 68.3
No _ 31.8 43.3 29.3 28.6 40.0 16.7 16.7 31.7
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Type of marketing
method specified: ’ 
Liveweight cash 100.0 88.2 100.0 100.0 100.0 100.0 100.0 98.4 
Grade and yield * 11.8 * * * * * 1.6 
Carcass weight * * * * * * * *
Other * * * * * * * A
Total 100.0 100.0 100.0 100.0 100.0 100.0 - 100.0 100.0 

*None reported by respondents surveyed.

,BLE 19. SOURCES OF FINANCING FOR FEEDER CATTLE PURCHASES BY CUSTOM CLIENTS, BY NUMBER OF CATTLE FED
NUALLY, TEXAS PANHANDLE-PLAINS FEEDLOTS, 1972

Number of cattle fed

;_ 500 to 1 ,000 2,500 - 5,000 7,500 10,000
urces of Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more
inancing 500 head head head head head head head Average
; Percent
sommercial bank 50.6 43.9 58.7 44.7 52.8 71.0 49.6 52.0
 oduction Credit
g_ Association 27.8 30.5 17.7 29.6 23.7 17.7 6.9 17.2
ational Finance _
l‘ Credit Corp. * 2.5 .4 * * * 7.8 3 1
 all Business
 Administration * \_@ * * * 1.9 * * 3
‘rsonal (own)
if‘ money 21.6 23.1 19.9 25.0 17.1 11.3 10.9 16.4
ther 1 * * 3.3 .7 4.5 * 24.8 1 1.0
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

 rimarily other individual.

None reported by respondents surveyed.

'n even though the borrower often is not fully aware
f the use of other collateral as margin.

if The general practice of loan agencies in Texas has

een to finance 100 percent of the feed costs when
eeder cattle are put up as collateral along with a
; tipulated margin requirement on the purchase of
‘such cattle. Custom clients reported that 100 percent
‘of their feed cost was financed by the lending agency
during 1972 for about 82 percent of their cattle, Table
:21. Specific loan arrangements vary depending upon I
 the borrower's financial situation, his preference and
requirements imposed by the lending agency. Some
‘clients financed 100 percent of their feeder cattle
“purchases with no margin requirement. However,
the client generally paid all the feed costs in such
farrangements. Other clients reported receiving a
standard (25-30 percent margin) feeder cattle loan,
but only a portion of their feed cost was financed by

the lending agency. Some clients financed their entire
feeding operation from their own funds, while others
borrowed only a limited amount for feeder cattle
purchases with no loan commitments for feed costs.

Financial institutions generally have not re-
quired custom clients to hedge their feeder cattle.
During 1972, approximately one-fifth of the custom
clients participated in feeder cattle hedging opera-
tions, Table 22. However, less than 7 percent of the
cattle fed by custom clients were hedged on the fu-
tures market during 1972. Experiences of cattle feed-
ers, as well as past studies (9), have revealed that an
automatic hed e is often an unwise decision. Futures
markets are he pful in avoiding losses during periods
of declining markets. However, a hedge during
periods of rising prices will decrease the profit poten-
tial of a feeder and may result in a loss for the feeding
operation.

BTABLE 20. MARGIN REQUIREMENTS BY LENDING INSTITUTIONS FOR FEEDER CATTLE PURCHASED BY CUSTOM CLIENTS,
ilBY NUMBER OF CATTLE FED ANNUALLY, TEXAS PANHANDLE-PLAINS FEEDLOTS, 1972

Number of cattle fed

-» 500 to 1 ,000 2,500 5,000 7 ,500 10,000

if Lending Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more

1 institution 500 head . head head head head head head Average
. ~  Percent

 Commercial bank 25.1 19.6 23.2 21.8 23.3 20.5 25.0 23.3
a Production Credit a

_ Association 24.0 26.9 23.6 29.8 30.9 30.0 31 .8 29.2
 National Finance

 Credit Corp.  .* * 19.9 * * * 27.0 26.2
 Other 1 i o 0 3.4 0 6.8 0 0 1.4
I Averagez 24.7 22.6 23.2 25.0 25.6 22.4 26.0 24.8

, llncludes Small Business Administration, personal or own money, other individual and other sources.
1 zAverage includesicommercial banks, Production Credit Associations, and National Finance Credit Corporation.
I ‘Source not utilized by respondents surveyed.

13

TABLE 21. PROPORTION OF CUSTOM CLIENTS RECEIVING 100 PERCENT FEED BILL FINANCING, BY NUMBER OF CATT‘; _

ANNUALLY, TEXAS PANHANDLE-PLAINS, 1972

 
 

Number of cattle fed I I 

500 to 1,000 2,500 5,000 7,500 10,000
Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more 
Item 500 head head head head head head head Aver‘
Percent
Custom clients receiv-
ing 100 percent feed ‘if:
financing 80.0 75.9 80.7 85.3 89.5 83.3 83.3 

Summary and Implications

A major characteristic of the cattle feeding indus-
try in the Texas Panhandle-Plains area, which cur-
rently accounts for one-sixth of the United States fed
cattle and four-fifths of the Texas fed cattle, is that
more than 90 percent of the cattle fed in that area are
non-feedlot owned. This has important economic
implications for the Texas cattle feeding industry be-
cause recent research revealed that 70 percent of the
operating capital required by Texas Panhandle-Plains
feedlots was derived from the sale of feed and ser-
vices to custom cattle feeding clients. This raises
questions concerning the future stability and growth
of the cattle feading industry in Texas, including the
operational characteristics, management practices
and feeding strategies of the custom clients.

Custom feeding clients are large operators.
Placements of cattle into Texas Panhandle-Plains
feedlots during 1972 averaged about 3,500 head per
custom client. Clients feeding 5,000 or more head in
1972 represented about 20 percent of the custom
feeders and accounted for 62 percent of the total cus-
tom cattle fed. Approximately one-third of the clients
fed between 1,000 and 2,500 head in 1972.

Data developed in the study shows that the
growth of custom feeding within the Texas
Panhandle-Plains area closely parallels the expansion
of large scale commercial feedlot operations. Al-
though the Texas Panhandle-Plains area enjoys loca-
tional advantages, generally available capital and
economies of size in cattle feeding, these results sug-
gest that custom feeding has been an important
growth variable for the rapidly expanding Texas cat-
tle feeding industry.

TABLE 22. PROPORTION OF CUSTOM CLIENTS HEDGING CATTLE ON TI-IE FUTURES MARKET AND THE PROPORTION OF 
TLE HEDGED, BY NUMBER OF CATTLE FED ANNUALLY, TEXAS PANHANDLE-PLAINS, 1972 

   
   
   
 
   
  
    
  
   
  
     
    
  
     
   
   
 

Many of the custom clients are professional f
ers who specialize in placing cattle on feed in theli,
feedlots on a custom basis. Clients classified as c’,
feeders represented about 22 percent of all cus
clients and accounted for almost 30 percent of?
cattle fed by clients. Occupational groups closelyi_
sociated with agriculture as farmers, ranchers, f  '
ers, and livestock dealers made up about 75 perce I p
the custom clients and accounted for almost 73 s,
cent of the custom cattle placed on feed. 

Although a high proportion of the custom cli 
are associated with agriculture in one way or anot 
only one out of every four custom clients A raid
feeder calves in 1972. The clients with cow-calf ‘op 
tions indicated that they retained owners 
through the feedlot, on about one-third of the 
calves that they produced. Less than three percen“
all feeder calves placed on feed by custom clie
originated from the custom client's own cow-calf 
erations. 1

From the standpoint of legal forms or organ‘
tions, sole proprietors accounted for almost 38 p
cent of the custom cattle fed in 1972, partnerships _,
percent, and corporations accounted for 21 percf
Cattle feeding clubs and limited partnership each ,1
counted for 5 percent of the custom cattle fed in 197

About 48 percent of the custom client's ca
were purchased through dealers and order buy
with custom clients purchasing most of the remain‘ f
feeder cattle. Custom clients, almost universallf’
specified the grade, weight, sex and type of feed”
cattle which were purchased. Although two-thirds”,
the clients specified selling dates for their fed cattl”
most clients consulted feedlot personnel prior to ma

Number of cattle fed

. ‘a;

10,000 I 

500 to 1 ,000 2,500 5,000 7,500
Less than 999 to 2,499 to 4,999 to 7,499 to 9,999 or more

Item 500 head head head head head head head g Average i
Percent 

Custom clients 
hedging cattle 12.5 13.3 19.4 25.0 25.0 66.7 46.2 22.5 
Total cattle 
hedged 8.1 4.2 3.5 5.7 6.7 24.6 5.6 6.9 i;
14 
l

  
  
       
 
 
  
  
 
   

_ g a decision regarding selling dates.

 More than 87 percent of the clients were assessed
eding charges 0n the basis of feed costs plus a
ecified markup above feed costs. Some feedlots
 cluded a daily yardage charge in addition to the
'~ ed cost plus a markup. Charges on the basis of cost

er pound of gain were generally not utilized.

_ The major source of financing for feeder cattle
Surchases by custom clients was commercial banks.
i1 ~ ending institutions generally financed about 75 per-
p-ent of the cost of feeder cattle and 100 percent of the
jed bill during 1972. However, other financial ar-
jgngements were also used depending upon such
 actors as collateral and financial stability of the client,
feeding experience of the client, and the short-term
market outlook.

 Almost 9O percent of the clients, who accounted
 for 91 percent of the custom cattle, maintained a con-
 tinuous or regular placement program during 1972.
gin addition, more than 73 percent of the clients
planned to continue normal placement patterns dur-

, ing periods of unfavorable feeding margins. Another A

 14 percent indicated they would stop placing cattle on
"feed, while 11 percent of the clients normally de-
creased numbers on feed during such periods.

Custom feeding clients considered reputation

§and performance as the most important criteria in ,

selecting a feedlot. Clients were generally satisfied
with the services or the performance ofthe feedlot in
which they were feeding cattle. However, one-third
of the clients indicated that they changed feedlots at

least once during 1971-72 and indicated that poor

performance or excessive cost of gain were the major
reasons.

In summary, the study reveals that custom
clients in the Panhandle-Plains feedlots are not ”in
and out” speculators, as commonly envisioned.
Many of the clients are professional feeders, and a
high proportion of the clients are closely associated
with agriculture. In addition, the predominant major-
ity of the clients in the Panhandle-Plains feedlots
followed a regular or continuous placement pattern.

Although cattle feeding is a risky venture, clients
in these commercial feedlots are not faced with high
investment costs as are many other agricultural pro-
ducers. In addition, the clients are able to enjoy the
advantages of feedlot economies of size and as-
sociated production costs. The ease of entry and pos-
sibility of relatively high returns per working dollar
has stimulated much interest in custom feeding.
While cattle feeding is subject to price fluctuations, as
are other industries, the results of the study suggest
that custom feeding clients have had and will very
likely continue to have a positive effect on the stability
and growth of large commercial feedlots.

Literature Cited

 Texas Cattle on Feed . Texas Crop and Livestock
1 Reporting Service, and Statistical Reporting Ser-
vice, USDA, selected issues.

. Cattle on Feed. 1974. MTAN 2-1 (1-74), USDA,
Statist. Rept. Ser., Crop Rep. Bd., Washington,
D. C.

  
 
  
  
 
 
  
   
  
 
 

- a

. Dietrich, R.A. 1971. Interregional Competition in the
* Cattle Feeding Economy - With Special Emphasis on
 Economies of Size. B-1115, Texas Agr. Exp. Sta.,
i Texas A&M Univ.

i; Dietrich, R. A., I. R‘. Martin and P. W. Ljungdahl.
 1972. The Capital Structure and Financial Manage-
 ment Practices of the Texas Cattle Feeding Industry.
93-1128, Texas Agr. Exp. Sta., Texas A&M Univ.

“ll-Dietrich, R. A. 1968. The Texas-Oklahoma Cattle
eeding Industry — Structure and Operational

Characteristics. B-1079, Texas Agr. Exp. Sta.,
Texas A&M Univ.

6. Packers and Stockyards Resume. 1973. Vol. XI, No.
13, Packers and Stockyards Administration,
USDA, Washington, D. C.

7. Dietrich, R. A. 1969. Cost and Economies of Size in
Texas-Oklahoma Cattle Feedlot Operations. B-1083,
Texas Agr. Exp. Sta., Texas A&M Univ.

8. Williams, Ed and D. E. Farris. 1972. Budgeted
Costs and Returns of Fifteen Cattle Feeding Systems in
Four Areas of Texas. MP 1022, Texas Agr. Exp.
Sta., Texas A&M Univ.

9. Farris, D. E. 1972. Livestock Futures and Price
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