California Feeders Try to Rebound

BRAWLEY, Calif. (DTN) -- Cattle feeders in California's Imperial Valley had a good thing going for a while. They fed cheap Holstein steers that feeders elsewhere viewed as lesser animals. They had a corner on source-verified beef from cattle 20 months old or younger to export to Japan. They also had a packing plant on the edge of Brawley perfectly suited for their needs.

But the under-20-month market to Japan ebbed in early 2013 when Japan started buying beef from U.S. cattle 30 months of age or younger, so the age premium went away. Meanwhile, tight feeder cattle supplies nationally mean there's no such thing as cheap Holstein steers any longer. Any feeder animal sells for a prize these days.

Still, the big blow for these southern California feed yards came last May when National Beef decided to mothball the 13-year-old packing plant in Brawley. The closure, which was announced a year ago, has translated into a precipitous decline in cattle feeding for an area that has long been the center of the cattle-feeding industry in California.

Once other jobs tied to the plant were factored in, National's closure affected roughly 2,000 jobs, or roughly 10% of the workforce around Brawley. Those job losses just added to the county's unemployment rate of nearly 24%, which is twice as high as any other county in California.

Local feeders question just how much decline in cattle on feed they have seen in Imperial County as well. The area just north of the Mexican border has been the dominant feeding county in California because of a year-round climate well suited for both cattle and feedstuffs. USDA doesn't have a county-by-county breakdown for cattle on feed in California. State numbers show the number of cattle on feed is down 15% from a year ago, the sharpest decline of any of the major cattle-feeding states. Local feeders think the feeding-herd decline is actually worse.

In the late 1960s, Imperial County fed about 660,000 cattle that were dispersed among a high number of smaller feedlots. The county had more than 770,000 total cattle sold in 1974, according to USDA Ag Census figures. In the 2012 Ag Census, Imperial County had roughly 435,000 cattle, mainly as cattle on feed.

"This is actually the birthplace of long-fed cattle in the U.S.," said Rod Foster, who has been in the feeding business all his life in the county. "We had a niche for the lighter cattle and keeping calves longer. Because of our weather, we brought our cattle in light and fed them year-round."

"Now, we're down to about six operations," Foster said.

National Beef's struggles began as far back as 2010 when JBS Swift announced it had bought the 130,000-head-capacity McElhaney Feedyard in Wellton, Ariz., to incorporate into JBS Five Rivers Cattle Feeding LLC. Those McElhaney cattle stopped coming west to Brawley for slaughter. Instead, they helped fill capacity at JBS' packing plant east in Tolleson, Ariz. Suddenly, National Beef didn't have the volume to process cattle for a full work week.

"That's when the death bells started ringing for the plant," Foster said.

National officials last year cited the declining supply of cattle for the facility as the key reason for the closure.

JBS had attempted to buy National Beef as well in 2008, but the U.S. Justice Department sued at the time to block the acquisition, citing concerns about market concentration.

A phone call and email to National Beef seeking comment were not returned.

Holsteins fill the feed yards around Brawley. In the 1980s, California's cow herd turned from a majority of beef cows to a majority of dairy cows, and the gap between dairy and beef cattle has widened ever since. Imperial County feeders began to experiment more with ways to convert those male Holsteins to a viable feeder steer.

"We, like everybody else, considered the Holstein a junk steer," Foster said.

An industry developed in California for calf ranchers who would bottle-feed those Holstein steers and get those animals up to 275-300 pounds to go into a feed yard. With some work on feed rations to fit those Holsteins, Foster said the industry got to the point where in some cases more than 70% of the Holsteins would grade out as Choice by USDA.

Yet, the Holstein feeders actually gave National an advantage in providing source-verified beef from under-20-month-old cattle for export to Japan before the country agreed to broaden its imports of beef from older U.S. cattle.

"We were exporting a big percentage of them," said Paul Cameron, a Brawley cattle feeder and an original investor in the Brawley plant before they sold it to National in 2006. "When they lost the 20-month restriction, that took a lot of the premium away from them, and they came back and took it away from us."

Cameron's operation, Mesquite Cattle Feeders, now has about 28,000 head on feed, down from a capacity level of 37,000 head he had operated before National closed. He had to let go of eight workers as well because of the lower production. Like most area feeders, Cameron is sending his fed cattle to the JBS plant in Tolleson, which is about 225 miles east of Brawley. That translated into about $900 per load in transportation costs for producers who had virtually no transportation costs before spring.

Once the corner on the Japanese market was lost, Cameron said he thinks National Beef's sales team struggled to market beef cuts from Holstein animals. Cameron credits JBS in Tolleson for more aggressively marketing Holstein beef.

Holsteins were largely a niche purely for the California feeders. But the tight cattle herd nationally has driven up prices for all feeder cattle. Now, cattle feeders from other states are overlooking their earlier disdain for the black-and-white Holstein and bidding up prices for the young feeders. Those junk Holsteins were selling for $500 for day-old calves at one point last year. They are still selling for about $400 now.

"There are just no feeder cattle out there right now, so they are coming in and buying up all of our cattle," Foster said.

Imperial County feeders also have tried to haul some cattle into Mexico for slaughter, and bring the meat back into the U.S. That doesn't work very well because USDA won't grade Mexican-slaughtered beef. It returns "no-roll" and thus is sold at a discount. so they are trying to work with USDA to overcome that grading problem.

After JBS took over McElhaney, local producers invested in mills and feedlot expansion to keep the volume up in Brawley, but those efforts weren't nearly enough to make up for the loss of such weekly volume.

"People spent a lot of money and it didn't turn out to be a good investment," said Bill Brandenberg of Meloland Cattle Company at El Centro, Calif.,

Besides the marketing challenges facing the packing plant, the National Beef plant had been in an ongoing battle with the regional water-quality board over its wastewater that ended up in the local treatment plant. Despite various negotiations, National Beef was facing a potential $3.7 million fine when it closed. There is some irony now because Brawley still faces similar water-quality scrutiny over its effluent because there is less water volume to dilute excessive pollutants now that the plant's not operating.

"It made business sense for them to close it," Brandenberg said. "You can't argue with that."

Brandenberg, another original investor in Brawley Beef, has a pair of smaller, empty feed yards because he combined his operation with another operator. His partnership has dropped cattle on feed from 42,000 head to 24,000. Brandenberg also is feeding more cattle in Texas and Kansas as well.

"It's just a completely different way of operating than we had before," Brandenberg said. "We're all trying to experiment on how to go forward."

Cameron said he thinks one opportunity to reopen the Brawley plant would be if the U.S. were able to get the export market open to China. The proximity to those California ports still makes the Brawley facility an attractive possibility. That would be a prime sales opportunity, but for now USDA officials don't appear too optimistic about the China market opening immediately.

"It's one of the newest plants in the country," Cameron said. "Our local officials still have an incentive package on the table."

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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