:
Source: Packers and Stockyards Administration, "Packers and
Stockyards Resume, " Vol. X, No. 13, U.S.D.A., Dec. 1972.
11-15
-------
Retail food chains - These have occasionally engaged in cattle feeding and
slaughter, but they accounted for only a small part of all fed-cattle marketings.
In 1964, three major food chains accounted for most of the 719, 000 head
slaughtered by retail food chains and they fed only 64, 000 head, which was
less than half a percent of fed-cattle marketings for 39 states._'
Cooperative Feedlots - Cooperative feedlots represent an extremely small
sector of the cattle-feeding industry. On January 1, 1969, there were only
seven cooperative feedlots in operation. According to the Farmer Cooperative
Service, these feedlots were located in Arizona, California, Utah, Montana,
Oklahoma, Georgia., and South Carolina. At that time, the total capacity for
these feedlots was about 50,000 head.fL/
Level of Diversification
The alternate opportunities for a fed cattle producer's facilities and resources
are dependent on the size of the operation. The decision to diversify is much
easier to make for a farmer feeder who has a small feedlot than for a large
commercial feedlot operator.
The farmer feeder often will have a minimum investment in feedlot
facilities and usually it is possible for him to reorient himself toward
another enterprise without major difficulties. The farmer feeder
uses his feedlot to provide himself with work that can be done during
the winter months as well as provide extra income. Since the farmer
feeder has other enterprises such as hogs or cash crops, he can
concentrate on these enterprises if he decides to eliminate cattle from
his farming operation.
The commercial feedlot operator is limited with what he can do with
his facilities. High investments in feed mills, pens, and feed bunks
are common in commercial feedlots and alternate uses of these facilities
are few. Therefore the commercial feeder will attempt to stay in opera-
tion as long as he can.
' National Commission of Food Marketing, "Organization and Compe-
tition in the Livestock and Meat Industry," Tech. Study No. 1,
June, 1966.
"Cattle Feeding in the United States, " op. cit.
H-16
-------
B. Number of Plants and Employment by Segments
In the United States there are about 154, 000 cattle feedlot operators. Of
these, nearly ninety-nine percent are farmer feeders with feedlot capacity
of less than 1, 000 head.
Size Number of Operators
<1, 000 Head 152, 429
1, 000 - 1, 999. 912
2, 000 - 3, 999 484
4, 000 - 7,999 311
8, 000 - 15, 999 216
16, 000 - 31, 999 125
32, 000 or more 59
Total - 154,536
The labor requirement is dependent upon the size of the feedlot operation.
A majority of the farmer feeders use their feedlot for supplemental
income. These operations are usually sized according to the ability of the
operator and his family to supply the necessary labor. This way the farmer
can utilize his time when not working on his other enterprises such as
crops.
Commercial feedlots usually consist of a feedlot manager, hired labor,
and if the operation is large enough, a bookkeeper. It is assumed that
for feedlots up to 5,000 head capacity, the feedlot manager helps with
labor's duties. For operations greater than 5,000 head capacity, the
manager will concern himself predominately with management duties.
It is also assumed that feedlots with capacity of more than 8,000 head
will have a bookkeeper.
With these assumptions in mind, the fed cattle industry employes either
full-time or part-time the estimated following amounts of people:
Number of Av. per Estimated Number
Size of Feedlot Capacity Feedlots Feedlot of People Employed
1,000 Head 152,429 1.0 152,500
1,000 - 1,999 912 1.8 1,600
2,000- 3,999 484 3.5 1,700
4,000 - 7,999 311 7. 1 2,200
8,000 - 15,999 216 12.0 2,600
16,000-31,999 125 24.0 3,000
32,000 or more 5J9_ 45.8 2,700
Total 154,536 1.1 166,300
11-17
-------
C. Relationship of Segments to Total Industry
Number of Production Units
Iowa leads the United States in the number of feedlots followed by
Nebraska, Illinois and Minnesota. These four states account for forty-
eight percent of the total number of feedlots in the United States.
Percent of all
State Number of Feedlots U.S. Feedlots
Iowa ' 36,000 23.1
Nebraska 17, 172 11. 1
Illinois 16,500 10.7
Minnesota 14,000 9.1
Kansas 7,500 4.8
Texas 1.530 1.0
Colorado 812 0.5
Oklahoma 500 0.3
California 308 0.2
Arizona 53
94,375 61.1
The above ten states account for sixty-one percent of all the United
States' feedlots, and market eighty-four percent of all fed cattle. The
majority of these states' feedlots (98 percent) are farmer feeders with
feedlot capacity less than 1,000 head. Of the ten leading states, all but
California and Arizona have the majority of their feedlots with less than
1,000 head capacity (Table II-9). However, in the past ten years, there
has been a decreasing number of farmer feeders in all states.
Farmer feeders are predominately located in the Corn Belt States while
the Southwestern states have shown indications of moving toward more
commercial operations. Since 1962, Arizona, Oklahoma, and California
have had the most significant decreases in the number of farmer feeders;
Arizona decreased by 92.6 percent, Oklahoma by 78.7 percent, and
California by 69.2 percent (Table 11-10). All these exits have occurred
during a time when fed cattle marketings have increased. Thus, the trend
has been for several small farmer feeders to leave the industry being
replaced by a larger commercial feedlot whose capacity exceeds that of
the combined total of the farmer feeders leaving.
11-18
-------
Table II-9. Number of feedlots and cattle marketed by size, ten leading states, 1972
Texas
No. feedlots
Cattle mkt.
Number (1,000)
Percent
Nebraska
No. feedlots
Cattle mkt.
Number (1,000)
Percent
H
,!_ Iowa
No. feedlots
Cattle mkt.
Number (1,000)
Percent
Kansas
No. feedlots
Cattle mkt.
Number (1,000)
Percent
Colorado
No. feedlots
Cattle mkt.
Number (1,000)
Percent
1,000
1,300
98
2.3
16,629
1,615
40.5
35,830
3,556
89.2
7,369
489
20.3
621
183
8.0
1,000-
1,999
53
57
1.3
305
505
12.6
89
140
3.5
36
52
2.2
67
118
5.2
2,000-
3,999
38
112
2.6
140
510
12.8
56
135
3.4
17
55
2.3
49
163
7. 1
4,000-
7,999
39
308
7. 1
66
510
12.8
19
90
2.3
26
241
10.0
36
299
13. 1
8,000-
15,999
38
558
13.0
20
345
8.6
6
65
1.6
31
580
24. 1
23
439
19.2
16,000-
31,999
38
1,420
33.0
8
270
6.8
--
--
16
637
26.5
11
360
15.7
32,000
or more
24
1,755
40.7
4
235
5.9
--
--
5
351
14.6
5
729
31.8
Total
1,530
4,308
100
17, 172
3,990
100
36,000
3,986
100
7,500
2,405
100
812
2,291
100
-------
Table II-9. (continued)
California
No. feedlots
Cattle mkt.
Number (1,000)
Percent
Illinois
No. feedlots
Cattle mkt.
Number (1,000)
Percent
i i
V Minnesota
o No. feedlots
Cattle mkt.
Number (1,000)
Percent
Arizona
No. feedlots
Cattle mkt.
Number (1,000)
Percent
Oklahoma
No. feedlots
Cattle mkt.
Number (1,000)
Percent
1,000
94
8
0.4
16,440
886
88.3
13,965
883
94.4
7
2
0.2
459
47
7.5
1,000-
1,999
42
23
1. 1
49
65
6.5
29
37
4.0
5
5
0.6
8
12
1.9
2,000-
3,999
51
47
2.3
6
19
1.9
6
15
1.6
7
18
2.0
9
35
5.6
4,000- 8,000- 16,000- 32,000
7,999 15,999 31,999 or more
45 43 23 10
227 526 625 606
11.0 25.5 30.3 29.4
5
33*
3.3
--
__
8899
43 120 210 501
4.8 13.3 23.4 55.7
7 11 6
92 145 295*
14.7 23.2 47.1
Total
308
2,062
100
16,500
1,003
100
14,000
935
100
53
899
100
500
626
100
Source: Cattle on Feed, USDA, SRS
.I/ Lots and marketings from larger size groups are included to avoid disclosing individual operations.
-------
Table 11-10. Percentage change in number of feedlots, by size, 1962 to 1972, for the ten leading states
State
Texas
Nebraska
Iowa
Kansas
Colorado
California
Illinois
Minnesota
Arizona
Oklahoma
Less
than
1,000
-18.7
-30.6
-28.3
-50.7
-48.7
-69.2
-48.6
-41.7
-92.6
-78.7
Percentage Change
1,000-
1,999
-45.9
50.9
169.7
50.0
116. 1
-60.4
133.3
70.6
-83.3
-38.4
2,000-
3,999
-36.7
86.7
1,766.7
112.5
157.8
-49.0
(6)
50.0
-72.0
-0. 1
4,000-
7,999
25.8
75.0
(19)
116.7
125.0
9.7
66.7
--
-61.9
16.7
8,000-
15,999
71.4
81.8
(6)
244.4
64.3
16.2
-27.2
(11)
16,000-
31,999
(38)
(8)
(16)
(11)
76.9
28.6
(6)
32,000
and over
(24)
(4)
(5)
(5)
233.3
(9)
Total
-15. 1
-29.3
-28.0
-50.0
-36.6
-49. 1
-48.4
-41.6
-72.0
-77.0
Source: Cattle on Feed, USDA, SRS
Note: Parenthesis denote an increase from zero to the number in the parenthesis.
-------
The majority of these commercial feedlots tend to be concentrating in the
Great Plains and the Southwestern States. Arizona, California and Texas
have all had significant increases in the number of feedlots with capacity
of 32, 000 or more head with Kansas, Colorado, California, and Texas
showing major increases in feedlots with capacity between 16, 000 and
31, 999 head. Recent trends have indicated that this shift will continue
to move in the same direction.
Production
Marketings of fed cattle are highly concentrated, with the ten principal
states marketing nearly eighty-four percent of all fed cattle marketed.
The three leading states, Texas, Nebraska, and Iowa, contributed over
forty-five percent of all marketings. The following four states, Kansas,
Colorado, California, and Illinois added another thirty percent to make
the seven leading states supplying nearly seventy-five percent of all fed
cattle marketings. With the exception of California, Texas and Arizona,
the leading ten states are located in the western Corn Belt and Northern
Plains.
1972
Cattle Marketed Percent of
State JJ^00 Head) JJ. S. JMarjceUngs
Te:ias 4, 308 16. 1
Nebraska 3,990 14.9
Iowa 3,986 14.8
Kansas Z,405 9.0
Colorado 2,291 8.5
California 2,062 7.7
Illinois 1,003 3.7
Minnesota 935 3.5
Arizona 899 3.3
Oklahoma 626 2.3
22, 505 83.9
The recent increases in number of fed cattle marketings have been
concentrated in the southern Corn Belt, Northern Plains and the South-
western States. These states have all more than doubled the number
of marketings since 1962 (Table 11-11). Some of the traditional pro-
ducing states such as California and Iowa have had only slight increases
in marketings and Illinois actually had a decrease.
11-22
-------
Table 11-11. Changes in number of fed cattle marketed, ranked by
1972 marketings, 23 states.
Number of Head
State
Texas
Nebraska
Iowa
Kansas
Colorado
California
Illinois
Minnesota
Arizona
Oklahoma
Missouri
South Dakota
Indiana
Ohio
Idaho
New Mexico
Washington
Michigan
Montana
Wisconsin
Oregon
Pennsylvania
North Dakota
23 State Total
1962
756
1 , 822
2,687
774
815
1,844
1,265
609
568
186
542
451
355
376
221
129
258
208
100
168
148
142
136
14, 560
1972
--1,000 head--
4,308
3,990
3,936
2,405
2,291
2,062
1,003
935
899
626
604
561
478
438
428
376
275
251
247
214
143
130
85
26, 835
Percent
Change
470
119
48
211
181
12
-11
54
58
237
11
24
35
16
94
191
45
21
147
27
_ 3
- 8
-37
84
Source: Cattle on Feed, U. S. D. A. , S. R. S.
11-23
-------
Change in Production
State 1962 to 1972
(Percent)
Texas 470
Oklahoma 237
Kansas 211
New Mexico 191
Colorado 181
Montana 147
Nebraska 119
Idaho ' 94
Arizona 58
Minnesota 54
Iowa 48
California 12
Illinois -1 1
Cattle feeding tends to be moving vVest. Increases in feed grain pro-
duction in Kansas, Oklahoma and Colorado, coupled with increasing land
prices in the Eastern Corn Belt have helped drive these cattle west.
Also as larger feedlots are developed, the drier climate offered in the
Great Plains and the Southwest has made that area much more desirable
as a location for large-scale cattle feedlots.
Employment
Labor requirements for beef feedlot operators are dependent on two
principle factors: ( 1) the size of the operation; and (2) the degree to
which the operation is mechanized. In most cases, the degree of
mechanization is dependent on the size of the operation.
The large commercial feedlot usually is highly mechanized in order to
gain optimum efficiency for each hired man used. As feedlots increase
in size there appears to be a stair-step increase in both employment and
mechanization. That is, as a feedlot increases from 10,000 head capacity
to 12,000 head only additional labor is required, however, when the
feedlot increases from 10,000 to 20,000 head some labor may be added
but also new larger, labor saving machinery will be added.
The farmer feeder's feedlot is commonly a family operation. The
farmer feeds cattle to supplement his farm income. He usually does
not have a highly mechanized operation and the size of the operation is
often dependent on the amount of extra time the farmer has and to what
11-24
-------
extent he can use his family (for example his wife and/or sons). Approxi-
mately 152,500 people are employed either part or full time on farmer-
feeder operations. Commercial feedlots employ approximately another
14, 000 people who are predominately full time hired laborers.
11-25
-------
II. FED CATTLE INDUSTRY FINANCIAL PROFILE
The focal point of this financial analysis is the producer who feeds beef
cattle in a confinement or semi-confinement system. Cattle are fattened
on feed grains and concentrates with limited pasture. Feedlots generally
are based upon a lot system with animal density ranging from 50 square
feet per head to about 400 square feet. Cost data used was derived from
several sources; however, two sources were of particular usefulness. L'
A. Plants by Segments
Financial profiles were developed for six feedlot operations varying in
size and level of technology. The two smallest feedlots--those with
capacities of 100 and 500 headare generally owned by farmer feeders.
These involve relatively low capital investment and are labor intensive
operations. The other feedlots analyzedthose with capacities of 1,000,
5, 000, 10, 000 and 20, 000 headare considered to be commercial feedlot
operations. These larger lots usually have high capital investment require-
ments and utilize new technological practices.
The farmer feeder uses his feedlot as a source of supplemental income.
He often has other farm enterprises and typically feeds cattle out only once
a year. The commercial operator usually feeds cattle throughout the year.
The commercial operator purchases most of his inputs from outside sources
and may be dependent on the feedlot as a primary source of income.
Costs developed for the six model feedlots attempt to represent typical
cattle feeding operations in the United States. We realize, however, that
there may be some regional variations in costs.
Annual Profits before Taxes
Based on the model operations procedures and assumptions, the estimated
annual pre-tax incomes for the various sized feedlots ranged from $1,600
for the 100 head feedlot to $545, 100 for the feedlot with a capacity of
20,000 cattle (Table 11-12).
y
Various farm management Extension Bulletins from Iowa State University
and "The Arizona Cattle Feeding Industry," Russell Gum and Elmer
Menzie, Tech. Bull. 191, Uriv. of Arizona, Jan., 1972.
11-26
-------
Table 11-12. Estimated pre-tax income and rate of return on average invested capital
and after-tax return on sales for various sized cattle feedlots
Financial Measure
Pre-tax net income ($000)
Pre-tax ROI* (%)
After-tax ROI* (%)
After-tax return on sales (%)
Capacity
100 500 1,000
1.6 5.2 35.3
28.9 15.5 39-2
22.5 12.1 27.6
4.0 2.6 3.7
- Number Head
5,000 . 10,000
82.7 232.6
17.3 28.0
10.4 15.4
1.5 2.5
20,000
545. 1
35.8
19-0
2.2
-'
'LI Average return on fixed investment calculated by financial statement method.
-------
Differences between the various feedlot's rates of return on investment
both before and after taxes is primarily due to different levels of invest-
ment required. The small farmer feeder has relatively little invested
in fixed facilities. Besides the fenced lot and home-made feed bunks,
the farmer feeder can utilize equipment already on the farm to feed his cattle.
The 1, 000 head capacity feedlot usually requires a small feed mill which,
with 1, 000 head on feed, simplifies the operation. As feedlots increase
in size beyond the 1, 000 head capacity, higher capital investments are
required but economics of scale occur as the facilities and equipment are
more fully utilized.
Book value of assets, on which the rates of return were calculated,
were derived by dividing replacement costs by two; plus net working
capital (current assets less current liabilities). The average fixed
investment value is intended to approximate invested capital.
Profitability of cattle feedlots is dependent upon price of feed grains, the
price of feeder cattle, and the price received for sale of slaughter- cattle.
Changes in these factors significantly change the profitablility of feeding
cattle.
Annual Cash Flow
Estimated annual cash flow is calculated by adding depreciation charges to
after-tax net income. The percentage cash flow on average fixed invest-
ment and the annual cash flow for various sized lots are shown in Table
11-13 and Table 11-14. Depreciation was computed using industry guide-
lines for both facilities and equipment.
The annual cash flow varied from $1, 500 for the smallest model feedlot
to $374,400 for the 20, 000 head capacity feedlot. Cash flow as a percent
of average investment varied especially for the three smaller feedlots.
For feedlots with capacities of 5, 000 head or more, the percentage in-
creased as size increased. This is explained by variations in investment
required for the various sized operations which was explained previously.
Market (Salvage) Value of Assets
The facilities involved with feeding cattle are somewhat limited as to
their usefulness in other farm enterprises. The small farmer feeder
may be able to use some of his facilities in connection with other enter-
prises, however, most of the facilities can only be adapted to a large
animal enterprise. The commercial feeder has relatively no alternative
use for his feedlot facilities. Because of this, the salvage value of assets
for cattle feedlots is assumed to be not more than ten percent of replace-
ment value.
11-28
-------
NO
Table 11-13. Estimated caih flow for various sized cattle feedlots
Financial Measure
100
500
Capacity - Number Head
1,000 5,000
10,000
20,000
Annual cash flow ($000)
1. 5
7. 1
30. 3
75, 1
163.9
347.4
Cash flow on average fixed
investment (%)
28.5 21.3
33.6
15.7
19. 8
22. 8
-------
Table 11-14. Estimated cash flow for various sized cattle feedlots.
UJ
o
Utilization (Turns per year)
Annual Output (No. head marketed)
Sale si/ 30
Less Variable Expense:
Steers 20
Feed 7
Othe r 1
Less Fixed Expense
Cash Earnings 1
Less Depreciation
Less Interest
Pre-Tax Income
Excluding Family Income
Cash Earnings 2
Less Depreciation
Less Interest
Pre-Tax Income 1
100
1.0
100
,745
, 100
,400
,479
65
,701
324
683
694
,565
324
683
,558
500
1. 0
500
153,725
100,500
37, 000
4,938
670
10,617
3,078
3,806
3,733
12,080
3,078
3,806
5, 196
Capacity -
1, 000
2. 16
2, 160
664,092
434, 160
159,840
18,804
1,296
49,992
5,400
13, 157
31,435
53,892
5,400
13, 157
35,335
Number Head
5,000
2. 16
10,800
3,320,460
2, 170,800
840,456
116,532
17,280
175,392
25,596
67,080
82,716
10,000
2. 16
21,600
6,640,920
4,341, 600
1,680,912
191, 160
31,320
395,928
36,504
126,840
232,584
20,000
2. 16
43,200
13,281,840
8,683,200
3,361,824
341,280
47,093
848,443
57,456
245,880
545, 107
- $307. 45 per head = 10 cwt. X . 96 shrink adjustment X . 99 death loss adjustment X $32. 35/cwt.
-------
Capital Structure
It is assumed that entry into the beef feeding industry is relatively easy
for small operations, in that only moderate amounts of capital are
necessary to build the required facilities (Table 11-15). As capacity of
feedlots increases, so does capital requirement. A small feedlot with
capacity of 100 cattle requires an estimated $6, 000 for facilities. In
comparison, a feedlot with capacity of 20, 000 cattle requires an estimated
$960, 000 for facilities and equipment.
Working capital requirements are also directly related to the size of the
operation.
Cost Structure
Model cattle feedlot data and budgets were prepared to estimate the cost
structure of representative operations. Costs were classified into two
categories--fixed and variable (Table 11-16). Since it was assumed that
feedlots would purchase feeder cattle from outside sources, the cost of
feeder cattle was the most significant cost incurred. Feed was the second
most significant cost.
Variable costs made up more than 90 percent of sales for all model feedlots
(Table 11-17). Total cost, as a percent of sales ranged between 95 and 98
percent for all the model feedlots.
B. Ability to Finance New Investments
Cattle feeders, in the past, have relied upon the Production Credit Asso-
ciation, Farmers Home Administration and particularly private financial
institutions as sources of financing for new investments. The relatively
high cash flow and good profitability of feeding cattle has provided the
financial help required by most cattle feedlots. Therefore, it is doubtful
if feedlot operators will encounter any difficulty in obtaining additional
financing for their feedlot operations. Cattle feeding is one of the more
glamorous farm enterprises.
11-31
-------
Table II- 15, Estimated replacement value and working capital requirements for various sized
cattle feedlots.
Capacity - Number Head
Capital Component
100 500 1,000 5,000 10,000 20,000
Replacement value o£ facilities
and equipment ($000) 6.0 43.1 76.8 427.0 610.0 960.0
Net working capital ($000) 12.2 60. 1 258.0 1,320.9 2,622.9 5,222.0
Replacement value of total
assets ($000) 18.2 103.2 334.8 1,747.9 3,232.9 6,182.0
-------
Table II-16. Total investment and annual cost for various sized cattle feedlots,
Iowa and Arizona, 1971
I
LO
Capacity - Numoer Head
Total Investment
Annual Fixed Costs
Insurance & Taxes
Interest on Investment
Management
Depreciation-
Total FixedCosts
Annual Variable Costs
Steers
Feed
Labor (hired)
Vet & Medical
Taxes (Cattle)
Interest (Cattle
Other
Family Labor
Total Variable Costs
Total Costs
Total Costs Excluding
Family Labor
100
$6,000
65
180
-
324
569
20, 100
7,400
-
255
100
50
260
864
29,482
30,051
29, 187
500
$43,092
670
1 , 293
-
3,078
5,041
100, 500
37,000
-
1,000
500
2,513
1,975
1,463
144,951
149,992
148,529
1,000
$76,780
1,296
2,303
-
5,400
8,999
434, 160
159,840
-
4,104
2, 160
10,854
8,640
3,900
623,658
632,657
628,757
5,000
$427,000
6,264
12,810
11,016
25,596
55,686
2, 170,800
840,456
58, 320
18,792
10, 800
54, 270
28,620
-
3, 182,058
3, 237,744
10,000
S610, 000
9,288
18,300
22,032
36,504
86, 124
4, 341,600
1, 680,912
87,480
37, 584
21 .. 600
108, 540
44,496
-
6,322,212
6,408, 336
20,000
$960,000
14,261
28,800
32, 832
57,456
133, 349
8,683, 200
3,361, 824
150, 336
75, 168
43,200
217,080
72, 576
-
12,603,384
12,736,733
I/ Depreciation rate for feedlots under 5,000 head capacity was 7 percent, for those with capacity of 5,000 or over ,
6 percent was used.
Assumptions:
-Cost were calculated for the 100, 500 and 1 , 000 head feedlots from various Farm Management Extension Bulletins
from Iowa State University.
-Cost were calculated for the 5,000, 10,000 and 20,000 head feedlots from: "The Arizona Cattle Feeding Industry,"
Russell Gum and Elmer L. Menzie, Tech. Bull. 191, Univ. of Arizona, Jan. 1972.
-All Cost were inflated to present 1971 cost
-Cost were calculated based on a 2. 16 capacity turnover rate for all feedlots except tnose with 100 and 500
head capacity which were assumed to feed only once a year.
-------
Table 11-17. Estimated costs for various sized cattle feedlots
Capacity - Number Head
Item
Sales
Raw materials:
Steers
Raw materials:
Feed
Other variable
costs
Fixed costs
Depreciation
Interest
Total before-
100
$000
30.7
20. 1
7.4
1. 5
. 1
. 3
.7
30. 1
%
100.
65.
24.
4.
1.
2.
98.
0
5
1
9
3
0
3
0
500
$000
153. 7
100. 5
37. 0
4.9
. 7
3. 1
3. 8
150.0
1
,000
% $000 %
100.
65.
24.
3.
2.
2.
97.
0
4
1
2
5
0
5
6
664.
434.
159-
18.
1.
5.
13.
632.
1
2
8
8
3
4
2
7
100. 0
65.4
24. 1
2. 8
. 2
. 8
2. 0
95.3
5,
$000
3,320.
2,170.
840.
116.
17.
25.
67.
3,237.
000
%
5 100.0
8 65.4
5 25. 3
5 3. 5
3 . 5
6 .8
1 2. 0
8 97. 5
1
$000
6,640.
4,341.
1,680.
191.
31.
36.
126.
6,408.
0,
9
6
9
2
3
5
8
3
000
%
100.0
65.4
25. 3
2.9
. 5
. 5
1.9
96.5
20,000
$000
13, 281.
8,683.
3,361.
341.
47.
57.
245.
12,736.
8
2
8
3
1
5
9
8
%
100. 0
65.4
25. 3
2.6
.4
.4
1-9
95.9
tax cost
-------
PART III: THE HOG INDUSTRY
I. HOG INDUSTRY SEGMENTS
A. Types of Firms
An examination of the different livestock enterprises shows that the hog
enterprise is one that is adaptable to many situations. It can be operated
with a wide range of systems and equipment, according to the capital and
labor provided by the owner. In general, it shows a good return of the
feed fed, has a high rate of capital turnover, and is very responsive to
good management practices. '
The United States hog industry consisted of 810,400 producers in 1972.
These operations may range from less than ten head to several thousand
head. In 1969, sixty-eight percent of all the producers had less than 100
head. These operations accounted for only 22 percent of the hogs on hand.
The remaining 78 percent of the hogs on hand were on farms of 100 head
or more. This emphasizes a recent trend toward fewer hog producers
with those remaining expanding their operations.
Number and Size of Producing Units
The United States hog industry in 1972 included 810,400 producers com-
pared with nearly two million in I960 and slightly more than three million
in 1950. This decline continued in the sixties, declining from 1,057,570
producers in 1965 to 810,400 in 1972, a decline of 23 percent.
Number of farms Index
Year with hogs -' 1965 = 100
1965 1,057,570 100.0
1966 1,055,950 99.8
1967 1,042,140 98.5
1968 967,580 91.5
1969 873,840 82.6
1970 875,480 82.8
1971 879,980 83.2
1972 810,400 76.6
"Pork Production on a Business Basis," Department of Economics,
Cooperative Extension Service, Kansas State University, October, 1970.
Number of farms with hogs as reported by SRS, USDA, includes all farms
with hogs. Number of farms reported exceeds that total reported by 1969
Census of Agriculture. Differences are a result of the Census including
only farms with gross incomes of $2, 500 or more.
III-l
-------
During the period from 1969 to 1971 there was a slight increase in the
number of hog producers. This, in part, can be explained by the ease
of entry into the hog business. Entry into the feeder pig or slaughter
hog business has few restrictions except for extremely large commercial
operations that have large capital requirements. Producer entry and exit
from the hog business is still closely related to current hog prices.
When market hog prices reach a relatively high profit level for a sus-
tained period, new producers enter the hog business. Others delay their
decision to quit the business and many increase production. The opposite
occurs when hog prices decline for a sustained period of time.
This reaction to prices causes the hog business to be cyclic in nature.
However, fewer producers are entering the hog business with each upturn
in cycle. This is due to the general emphasis by farmers on specialization.
Farmers are now becoming more specialized and on many farms the hog
business has been eliminated. Thus, the farmers remaining in the hog in-
dustry are generally producing more hogs with hog production becoming a
primary enterprise.
Since 1964, the number of farms with ZOO head or more of hogs on hand
has increased (Table III-l). Farms with ZOO to 499 head increased 16
percent, those with 500-999 head increased 73 percent, and those farms
with 1,000 or more head increased by 116 percent. The exit from the
industry of the smaller producers is somewhat misleading due to the fact
that in 1964 the Agricultural Census included all farms while in 1969, only
farms with gross sales of $2,500 or more were counted. Many of the farms
eliminated in 1969 would be the typical part-time farmer that might have
a few head of hogs.
Volume of Marketings
Total hog marketings in 1971 included nearly 99 million head. This ac-
counted for over 23 billion pounds of pork and provided cash receipts of
over four billion dollars. The year 1971 represented an increase of
23 percent during the past ten years, in the number of head marketed
(Table III-2).
Basically the majority of hogs are concentrated on farms with inventories
ranging from 100 - 499 head. Twenty-nine percent of all farms with hogs
were in this classification in 1969 and controlled 57 percent of all hogs.
IH-2
-------
Table IH-1. Number of farms with hogs, by size and percent of hogs
on hand, 1964 and 1969, 48 states, U.S.
1 / ?/
1964- 1969^
Size Number
Farms
< 10 448,942
10 - 24 186,778
25 - 99 276,099
100 - 199 106,449
200 - 499 54,550
500 - 999 6,421
1,000 or more 1 , 132
Total 1,080,371
Percent Percent
of Hogs on Number
Farms Hand Farms
41.5 3.0 89,789
17.3 5.4 85,306
25.6 26.6 187,682
9-9 26.4 92,939
5.0 28.0 63,014
0.6 7.4 11,119
0.1 3.2 2,443
100.0 100.0 532,292
Percent Percent
of Hogs on
Farms Hand
16-9 0.8
16.0 2.6
35.2 19-0
17.5 23.7
11.8 33.7
2.1 13.2
0. 5 7. 0
100.0 100.0
Source: \J Census of Agriculture, 1964. Includes all Farms
Census of Agriculture, 1969. Farms with gross sales of $2,500
or more.
_' Percent of all hogs.
III-3
-------
Table III-2. Hog marketings and cash receipts, 1961-1972
Year
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
Marketings.1./
1,000 Head 1, 000 Pounds
80,326
81,743
86, 163
86,086
76,079
76,504
84,995
87,907
88, 335
87, 143
98,636
18, 917,418
19,310,335
20, 273, 936
20,487,965
17, 921,484
17,965,389
19,886,322
?C. 423, 394
20,717,424
20, 412,457
23, 154, 109
Cash Receipts^'
1, 000 Dollars
3, 152, 383
3, 161, 521
3,033,284
3, 033, 518
3,693, 341
4,093, 016
3,754,775
3,784,781
4,589, 070
4,634, 488
4, 047,277
J:' Excludes inter-farm sales.
2/ Receipts from Marketings and from sales of farm slaughter meats.
Source: Livestock and Meat Situation, USDA, SRS.
III-4
-------
Percent of Hogs on Hand
Nnmtx
1.
<
10
25
100
200
500
000
sr of Head per Farm
' 10
- 24
- 99
- 199
- 499
- 999
or more
1964
3.0
5.4
26.6
26.4
28.0
7.4
3.2
1969
0.8
2.6
19.0
23.7
33.7
13.2
7.0
Age of Production Facilities
Information available pertaining to the age of hog production facilities is
somewhat limited. Because of this, it is assumed that the age of facilities
is related to the growth of production. This is a reasonable assumption
for a larger modern production operation. However, for the smaller
producer, it will be difficult to determine the age of his facilities since
often, he uses equipment and facilities that have been adapted for hogs
from other enterprises.
Using the assumption stated, states such as Kansas, Nebraska, Missouri,
South Dakota and Iowa, which have had significant increases in hog mar-
ketings, will tend to have newer facilities.
Also it should be assumed that the larger hog operations require more
capital investment than a small operation, so it would seem likely that
the large operator would tend to keep his investment updated. Therefore
there would be a tendency for the larger operations to have newer equipment
and facilities.
Location of Major Producing Segments
Hog production is concentrated in the Corn Belt area of the United States.
Current trends suggest that this area will remain the principal production
center. The ten major Corn Belt states (Ohio, Indiana, Illinois, Wisconsin,
Minnesota, Iowa, Missouri, South Dakota, Nebraska, and Kansas) have
produced about 75 percent of the total pig crop for the past twenty years.
Hog production also has some sign'ficant emphasis in the South Central
and South Atlantic regions -- each of which accounts for about ten percent
of the total United States pig crop.
Ill-5
-------
Level of Technology
The technological level of pork producers depends, to a degree, upon
the size of the operation. In many cases, the small operation uses
low levels of available technology while the large operation uses the
latest methods available.
Hog producers have a variety of management systems that can be util-
ized (Table III-3). These may range from breeding sows and feeding
pigs up to market weight to buying small pigs and feeding these to
ma rket weight. The type of management system has some relationship
with the number of hogs handled, especially for the large operator.
The small operator may have any combination of systems, some small
operators will have a sow or two and raise its pigs while other small
operators may buy a few feeder pigs and fatten these out. The larger
operator may lean more toward the farrow-to-finish operation in an
effort to assure himself a good supply of feeder pigs.
The farrow-to-finish operation is the most common system among hog
producers. It accounts for over 45 percent of the hog operators and
supplies nearly sixty percent of the market hogs sold. The farrow-to-
finish operation also accounts for nearly 58 percent of the sows on hand.
Eleven_percent of the hog farmers raise feeder pigs only. They supply
54 percent of the feeder pigs sold and have 12 percent of all sows on
hand. Farmers who buy feeder pigs and feed these until market weight
account for about 16 percent of all hog farmers. These operators supply
18 percent of the market hogs sold. The remainder of the hog producers
is made up of various combinations of these three management systems,
with exception of the purebred breeder who accounts for only four percent
of all hog producers (Table III-3).
Unlike the large producer who has all the necessary equipment, the small
operators may be dependent on others for some phase of their operation.
Some small pork producers take their home-grown feed grains to the
local mill or feed dealer to be ground and have feed additives blended
in to provide a more balanced hog ration. This operator is concerned with
obtaining more efficient gains so he uses the local feed company to help
him obtain his desired' gains.
III-6
-------
Table III-3. Inventories and marketings of hogs by management system
Type of Management System
Farmers
Sows
on
hand
Percent
Market
Hogs
Sold
Feeder
Pigs
Sold
Feeder
Pigs
Marketed
Far row-to-finish
(Finish all pigs farrowed, buy no
feeder pigs)
Feeder pig producer
(Finish no pigs, sell feeders only)
Market hogs only
(Farrow no pigs, buy all feeders)
Far row-finish-pur chase
(Finish some pigs farrowed,
and buys feeder pigs too)
Farrow-finish-feeder pig producer
(Finish some pigs farrowed, sells feeder
pigs too)
Purebred breeder
(Primarily sells breeding stock-
either sells or finishes those left)
45.6
11. 1
15. 5
9.3
14.6
3.9
57.5 59.7 2.8
12.0 0.0 53.7
0.0 18.0 0.1
9.7 13.3 0.9
16.8 6.6 41.3
4.1 2.4 1.2
0. 0
0.0
77.8
21.6
0. 4
0.2
Source: Unpublished data. Private sources.
-------
This small operator will then take his feed back to his farm to be fed
to his hogs. Usually he will have less than 50 hogs which may be in
an open dirt lot or out in the pasture. The operator may have a few
sows, or may buy feeder pigs from a neighbor. This operator's hogs
represent a small portion of his income so he is willing to put out very
little additional capital to improve the sophistication of his hog operation.
In recent years, this type of operation has generally given way to a more
sophisticated hog business in which the operator grows and selects breeding
stock from his own herds to provide improved or cross-bred stockfor
feeding. This type of operator may use one to three or more breeds of
hogs to develop his desired stock.
Type of Breeding Program Used Percent of Farmers
Single Breed 14
Two Breeds 43
Three Breeds 39
Other 4
The producers usually perform most of the disease, parasite, and sanitary
control services for his operation. He also may produce, harvest, mix,
and grind his own feed grains. He has achieved a level of knowledge such
that he can make the majority of the decisions concerning his operation
himself, thereby eliminating the need to rely on others for information.
Many of the larger operators have operated effectively shifting to more
intensive capital use. They have constructed permanent buildings and
facilities with more labor-saving equipment. They arrange confinement
breeding, farrowing, and feeding operations into one coordinated operation.
The operators achieve internal economies through better management to
control breeding, disease, feed intake, environmental factors, and the
rate of reproduction with multiple farrowing systems._!/
Level of Efficiency
The efficiency of hog producers has generally increased in recent years.
The effectiveness of a hog operation is usually dependent upon the capa-
bilities of the operations manager. Cost per hog produced is about the
same for managers using high capital technologies as those equally good
managers not using these technologies. The main reason for operators to
use slatted floor housing and low-labor feed and waste-handling systems is
that good managers can use their scarce know-how to produce more hogs.
L' "Coordination in the Corn Belt Pork Industry," E.E. Broadbent,
Symposium: Vertical Coordination in the Pork Industry, AVI Publishing
Company, Inc.
Ill-8
-------
New labor saving technologies are enabling swine producers to double
numbers of hogs produced with a given labor force.\_' Thus, the use of
capital has allowed individual producers to handle more hogs and give
this increased number of hogs the attention necessary for a good pro-
duction rate.
Level of Integration
Basically, the open market directs most of the vertical coordination
between the production of finished hogs and the slaughter phase. The
hog production process can be divided into five separate stages: (1)
grain production, (Z) feed milling, (3) breeding, (4) feeder pig production,
and (5) hog finishing. Some hog operations may involve four of the
production stages, while others may involve only one, such as a feeder
pig operation.
A recent article by Farris and Masch illustrates the direction and possible
ramifications that characterize vertical coordination within the hog industry.
They said:
"Many different combinations and variations of control of stages
are possible for pork production and marketing. Much of the
concern is with linking feed mills and packers with stages of
animal production by contract or ownership. Interest is also
related to the ownership separation of the feeder pig and hog-
finishing stages and coordinating by contract or public market.
Breeding can also be separated as an independently controlled
stage. Because more of these stages are becoming specialized,
it is also becoming practical to separate and recombine stages
in different ways. Furthermore, it is possible to eliminate a
stage -- the public market for live hogs. This has important
implications not only for market operators, but for the entire
industry. It does not mean that an open market will necessarily
be eliminated, as has essentially been the case for live broilers;
but it probably means that all but small producers will be selling
direct. "2/
±J "Management Techniques and Requirements," John E. Kadlec,
Symposium: Vertical Coordination in the Pork Industry, AVI
Publishing Company, Inc.
_' "Vertical Coordination in the Pork Industry in the Southwest," Donald
E. Farris and William R. Masch, Symposium: Vertical Coordination
in the Pork Industry, AVI Publishing Company, Inc.
Ill-9
-------
Level of Dive rsif-icatiqn
The opportunities facing the majority of the producers in the hog industry
usually allow producers to quit the hog business without any major con se-
quences to themselves. Hogs are used to a large extent by farmers to
'walk their grain to market'.' Swine producers were primarily cash-crop
farmers prior to entering the hog business. Usually the hog enterprises
are used in combination with other livestock enterprises such as beef
cattle or dairy.
If pork producers decide to leave the hog industry they can usually redirect
their resources to other livestock enterprises or they may return to cash-
crop farming. The latter is especially inviting at the present time with
the upward trend in grain prices. Thus, with the possible exception of capital
intensive hog operations, the majority of swine producers have alternative
opportunities to which they could direct their efforts.
B. Number of Plants and Employment by Segments
Of the 810, 400 hog producers reported in 1972, it is estimated that 99. 5
percent of these have operations of less than 1, 000 head. Predominantly
these operations are family-owned and the labor used is that labor provided
by the family.
The hog operations' labor requirements often depend on the type of
management system employed. A farrow-to-finish producer will have
much different labor requirement than the operators who just buys feeder
pigs and feeds them. Under the assumption that modern technologies are
being used, it is estimated that a farmer can take care of his own farrow-
to-finish hog operation up to 50 sows. With more sows than this, the
operator will need to hire and extra hand at the rate of one per additional
75s ow s.
It is assumed that producers with 500 hogs on hand or less handle the
labor requirements themselves or with some help from their family.
For those hog operations with 500 to 1,000 hogs on hand, it is assumed
that the operator will need to hire an extra man. For those hog operations
of more than 1,000 head, two extra men will be hired. The estimated
total employment by the hog producing industry involves employment of
548,480 people.
Ill-10
-------
Number of hogs on hand Employment
Less than 500 518,730
500 - 1,000 22,250
More than 1,000 7 . 500
Total 548,480
C. Relationship of Segments to the Total Industry
Number of Plants
Iowa leads the United States in the number of farms selling market hogs
or feeder pigs, followed by Illinois, Missouri, and Minnesota. Combined,
these four states accounted for nearly 40 percent of the total number of
hog producers in the United States in 1969.
Percent of all U.S.
gtate Number of Farms Hog Farms
Iowa 84,937 16.0
Illinois 46,548 8.7
Missouri 41,828 7.8
Minnesota 36,700 6.8
Indiana 32,003 6.0
Nebraska 29,740 5.6
Ohio 24,789 4.6
Wisconsin 23,495 4.4
North Carolina 19,521 3.7
Kentucky 19,333 3.6
358,894 67.2
These ten leading states account for 67 percent of the total number of
hogs produced in 1969. With the exception of North Carolina and Kentucky,
hogs are concentrated on farms averaging 50 to 500 head each (Table III-4).
Fifty percent of the hogs in Kentucky and North Carolina are concentrated
on farms with less than 50 head.
Looking at the top 20 states in hog production, there appears to be a
trend for those farms in the Corn Belt states to have medium to large
hog operations while those farms in the Southern states have small hog
operations (Appendix III-1).
Ill- 11
-------
Table III-4, Number of farms selling market hogs or feeders, ten leading states, by size, 1969
1-9 lcT-49 50-99 100^9 200:-499~" 500-999 1,000+ Total
State No. % No % No, % No. % No. % No. % No. % No.
lo^a 1..060 1.2. 8.892 10 5 13..545 15,9 22.. 114 26,0 29,913 35.2 7,960 9.4 1,453 1.8 84,937 100.0
Ilhriois I..230 "..<- 8,135 17.5 8,755 18.8 I0r822 23,2 12,129 26.1 4,178 9.0 1,299 2.8 46,548 100.0
Missouri I..430 3,4 9,732 23.3 9,423 22.5 10; 177 24.3 8,639 20.7 1,939 4.6 491 1.2 41,828 100.0
Minnesota L751 4,8 8,831 24,1 8;602 23.4 8,959 24.4 6,918 18,9 1,370 3,7 269 0.7 36,700 100.0
Indiana 832 2.6 6,007 18,7 6,442 20,1 7,514 23,5 7,891 2407 2,573 8.0 804 2.4 32,003 100.0
Nebraska 933 3,1 6,440 21,7 6,752 22,7 7,824 26,3 6,423 21.6 1,124 3.8 244 0.8 29,740 100.0
Ohio 1.210 4,9 6,517 26,3 5,575 22,5 5,398 21.8 4,582 18.5 1,174 4.7 333 1.3 24,789 100.0
Wisconsin 1,817 7.7 7,073 30,1 5,166 22,0 5,009 21,3 3,642 15.5 672 2.9 116 0.5 23,495 100.0
N, Carolina2,692 13,8 8,555 43,8 3,553 18,2 2,476 12,7 1,562 8.0 413 2.1 270 1.4 19,521 100.0
Kentucky 1,997 10,3 7,635 39.6 4,261 22.0 3,071 15.9 1,822 9.4 391 2.0 156 0.8 19,333 100.0
Source: 1969 U.S. Census of Agriculture.
-------
Production
Hog production is concentrated in the Corn Belt states, with the ten
major states accounting for 76 percent of hogs marketed within the
United States. Iowa is the leading state with 23 percent of all marketings.
The next three, Illinois, Missouri and Indiana, added to Iowa, bring the
percentage of all hog marketings to nearly 50 percent for the first four
states.
Percent of all
State Hogs Marketed, 1971 Marketings
(1, 000 head)
Iowa 22,624 22.9
Illinois 11,569 11.7
Missouri 7,609 7 7
Indiana 7) 124 7 ?
Nebraska 5,952 6.1
Minnesota 5,870 6.0
Ohio 4, 118 4.2
Wisconsin 3_ 422 3 5
Kansas 3,375 3.4
South Dakota 3; 296 3 3
74,959 ~Tb7o~
The Corn Belt states production has grown at a steady rate, as has
national hog production. In the past ten years, total marketings of hogs
in the U.S. have inc reased by 23.3 pe rcent. The a ve ra ge numbe r of hogs
marketed for the ten leading states increased during the same time period
by 24.6 percent. All of the top ten states had increases with the greatest
increases occurring in Kansas and Nebraska (Tablo II1-5).
The majority of hogs marketed are from farms producing 100 to 499
hogs annually. In 1969 these farms marketed 53 percent of all hogs
(Table III-6). Farms marketing more than 500 head sold 31 percent
of all hogs and comprised only 6.4 percent of all pro due lion units.
Ill-13
-------
Table III-5. Trends in hog marketings for the principal ten hog marketing states.
Percentage increase in marketings, 1961 Base Year r 100
1961- 197 1
State
Iowa
Illinois
Missouri
Indiana
Nebraska
Minnesota
Ohio
Wisconsin
Kansas
S. Dakota
Total
Numb e r
1961
(1000 hd)
18,308
10,864
5,771
7,442
3,838
5,726
4,021
3,224
1,766
2,515
1962
100.2
105.6
99.9
103.4
105.8
99.5
102.0
98.9
112.8
106.6
1963
107.8
112.4
107.9
109.6
111.3
106.8
104.3
104.2
124. 1
114.8
1964
106.5
113.6
108.2
104.4
114.8
99,9
103.9
103.3
121. 1
117.0
1965
99.6
99.9
95. 1
89.6
102.8
83.9
89.6
89.5
112.3
106. 1
1966
-p
103,2
95.4
97.3
86,8
105. 1
85.0
88.8
92.0
111.2
109.2
1967
113.6
108,7
111.4
94.5
118.8
91.4
95.0
97. 3
132,6
114,2
1968
117.2
104.0
118.0
91. 1
129.4
92, 1
95.3
101,7
138,7
122,2
1969
117. 3
98- 9
116. 4
91, 3
132,4
90,7
95.6
100.9
155, 8
118.9
1970
109. 4
98 -".
I 18 4
90. 9
129. 5
90. 9
97.4
101.4
154. 1
118,9
197 1
1 2 3 . t.
106 ^
131. H
95 7
155. 1
102 5
102,4
106. 1
191= 1
131. 0
Total
N'urnbr i
1971
! 1000 hfir
1 1 =>< u
7 b09
7 124
5. 952
5. 870
4. 1 18
3,422
3, 375
3,296
-------
Table III-6. Percent of hog producers and percent of hog marketings by size, ten leading states, 1969
1-9
t i
HH
I i
1
I <
Ul
State
Iowa
Illinois
Missouri
Minnesota
Indiana
Nebraska
Ohio
Wisconsin
N. Carolina
Kentucky
Average
farms
1
2
3
4
2
3
4
7
13
10
5.
.2
.6
.4
.8
.6
. 1
.9
.7
.8
.3
44
hogs
.1
.1
.1
.2
.1
. 1
.2
.3
.7
.5
.24
10-49
farms
10
17
23
24
18
21
26
30
43
39
25.
.5
.5
.3
. 1
.7
.7
.3
. 1
.8
.6
56
hogs
1. 3
2.2
4. 0
4.8
2.5
4.2
4.7
6.6
10. 1
10.0
5.04
50-99
farms
15.
18.
22.
23.
20.
22.
22.
22.
18.
22.
20.
9
8
5
4
1
7
5
0
2
0
81
hogs
4.8
5.7
9.4
11.8
6.5
10.6
10. 1
12. 5
11.6
14.6
9.76
100-
farm s
26
23
24
24
23
26
21
21
12
15
21.
.0
.2
.3
.4
.5
. 3
.8
. 3
.7
.9
94
199
200-499
hogs farms
15.5
13.7
19.5
23.8
14.4
23.9
18.7
23.3
15.0
20.5
18.83
35.2
Z6.1
20.7
18.9
24.7
21.6
18.5
15.5
8.0
9.4
19.86
500-
hogs farms
44.9
34.7
37. 1
37. 3
34. 0
40.2
34.9
36.5
20.4
26.7
34.67
9.4
9.0
4.6
3.7
8.0
3.8
4.7
2.9
2. 1
2. 0
5. 02
999
1, 000 +
hogs farms
24.
25.
18.
15.
24.
14.
19.
14.
12.
13.
18.
61.8
8 2.8
31.2
7 0.7
2 2.4
7 .8
51.3
7 .5
71.4
8 0.8
4 1. 37
hog
8.
17.
11.
6.
18.
6.
11.
6.
29.
13.
13.
Total
s farms
8
8
6
4
3
3
9
1
5
9
06
100
100
100
100
100
100
100
100
100
100
100
hogs
100
100
100
100
100
100
100
100
100
100
100
-------
Employment
Employment in hog production is a function of the number and size of
production units. Employment by segment is assumed to be highly cor-
related with the number of farms with hogs.
Total employment on hog production units approximates 549,000 people.
Three fourths or about 412,000 of the people employed on hog production
units are located in the Midwest.
111-16
-------
II. HOG INDUSTRY FINANCIAL PROFILE
Financial data depicting "typical hog operations" were limited as there
is a wide range of systems and alternative practices in producing hogs.
Because of this, costs for five model hog operations were used. These
models represent different sized operations of which three were open-
lot systems and the two largest were confinement systems. Cost data
used were derived by a private consultant.
A. Plant by Segments
Financial profiles were developed for five different hog operations,
varying in size and type of system used. It was assumed that the pro-
ducers would have farrow-to-finish operations. Operations marketing
100, 300 and 900 hogs annually were assumed to use open lot manage-
ment systems. Once the pigs were weaned, they would be placed on an
open dirt lot with concrete flooring only under the feeders and waterers.
There would also be a shed for shade and protection from extreme weather.
For the larger operations involving 2,250 and 7,500 hogs marketed annually
it was assumed that these would be totally confined systems in which the
sows farrow inside and the hogs are fed-out in confinement. Producers
were assumed to farrow their sows twice a year and incur cost for all
inputs used in the operation.
Annual Profits Before Taxes
Based on the model operations procedures and assumptions, the estimated
annual pre-tax incomes for the various sized models range from $1,304
for an operator marketing 100 hogs annually to $18,034 for an operation
marketing 7,500 hogs annually (Table III-7). Pre-tax incomes for the open-
lot operations increased from $1,304 for the small operation to $3,714 for
the operator marketing 900 head annually. The differences in the per head
pre-tax income are explained by the fact that the smaller producer has
little, if any, fixed cost for his operation and also utilizes pasture as a
source of feed. The larger open lot operation may tend to have a more
permanent fixed facility and some equipment designed specifically for
the hog operation. For confinement systems pre-tax income ranged from
$2, 573 for the 2,250 ma rketing operation to $18, 034 for the ope ration
marketing 7, 500 head annually. The difference in per head pre-tax
income is explained by the relatively high per head investment for the
smaller confinement system. This is attributed to the economies of scale
that occur as a confinement system increases in size.
Ill-17
-------
Table III-7. Estimated pre-tax income and rate of return on average invested
capital and after-tax return on sales for the hog industry
Financial measure 100 300 900
Pre-tax net income $1,304 $2,290 $3,714
Pre-tax ROI* (%) 155-2 56- 9 25< 1
After-tax ROI* (%) 12K1 44> 4 19lfe
After-tax return on sales (%) 28.1 14C3 7.8
2,250 7,500
$2,573 $18,034
5.4 15.5
4, 2 ' 12.1
2.1 4,5
h-1 jy /
^ Average return on fixed investment calculated by financial statement method.
00
-------
After-tax ROI decreases as the size of operation increases for open
lots systems. This is due to the extremely low investment involved with
the smaller hog operation. As the size of confinement systems increases,
the after-tax ROI also increases. This is explained by the economies of
scale that prevail in confinement systems.
Book value of assets, on which the above rates of return were calcu-
lated, was derived by dividing replacement cost by two, plus net working
capital (current assets minus current liabilities). This average fixed
investment value is intended to approximate invested capital.
Profitability of the hog industry is dependent on two basic factors. One
is the price that the producer receives for the finished hog. Another is
the price of feed grains. Increases or decreases in these prices will
directly effect what profits the hog producer will incur.
Annual Cash Flow
Estimated annual cash flow (after tax income plus depreciation) and the
ratio of cash flow to average fixed investment are shown in Table III-8
and Table III-9 for the different model operations. Depreciation was
computed using industry guidelines for facilities and equipment.
The annual cash flow varied from $1, 167 for the smallest open lot model
operation to $32,717 for the largest confinement model operation. Cash
flow as a percent of average investment decreased as the size of the
open lot operations increased and increased as the size of the confinement
operation increased. This is explained by the differences in investment levels
as explained earlier.
Market (Salvage) Value of Assets
The salvage value of assets used in hog operations are relatively limited.
Facilities and equipment are designed specifically for hogs with few alter-
native uses for existing hog facilities.
The open lot hog operation consists of a pen with sheds or hous'ng for
shelter. If the shed is large enough it would be possible to convert the
pen and shed to a cattle enterprise. However the feeders and waterers would
have little value to alternative enterprises. It is assumed that for an open
lot hog operation a salvage value of ten percent of replacement cost is realistic.
Ill-19
-------
T;ibk' lil-H, Estimated cash flow for the hog industry
Financial measure ] 00 300 900 2,250 7,500
Annual cash flow $1,167 £2,536 $5,397 $10,407 $32,717
Cash flow on average
fixed investment (%) 138.9 63 0 36.5 21.7 28.2
-------
Table III-9. Estimated cash flow for various sized hog operations
ts)
Annual output (cwt produced)
Sales-
Less variable expenses
Feed
Other-
Less fixed expenses
Cash earnings
Less depreciation
Less interest
Pre-tax income
Excluding family labor
Cash earnings
Less depreciation
Les s interest
Pre-tax income
100
225.0
$4, 152
2, 300
1,247
55
550
150
68
332
1,522
150
68
1, 304
Number
300
675.0
$12, 454
8, 115
3, 756
165
418
750
294
-626
3, 334
750
294
2, 290
of hogs
900
2, 025.0
$37, 361
24,245
10,796
495
1,825
2,500
957
-1,632
7, 171
2, 500
957
3,714
2, 250
5, 062.5
$93,393
63,450
18,757
1, 800
9,386
8,400
3, 045
-2,059
14, 018
8,400
3, 045
2, 573
7,500
16,875.0
$311,344
210,375
66,440
5,970
28,559
18,650
7,315
2,594
43,999
18,650
7, 315
18, 034
-- Price uf $18. 45/cwt. was used.
-- Assume hogs are sold weighing 225 pounds.
Includes a charge for family labor.
-------
F'o r ri t on! mom t'nt s y s t em to i om e rt to a ltc> ma 11 v e enterprises
would require sorno mod il ications in the building. In most cases the
pens inside the structure would ha\ e to be removed and possibly a new
t loci r \\oiilcl be neiessary. Cattle is a possible enterprise that could
>:t:!ize some oi the existing tac'hties Salvage value is estimated to be
i'-> percent ol replacement cost tor buildings.
Capital Structure
Investment required to produce market hogs is a function of the number
ot hogs an operator desires to produce (Table III-10). To produce 100
market hogs annually requires an investment ol an estimated $2,740 or
SZ7.40 per head marketed. This would be an open lot operation with
relatively little specialized equipment. As the marketings of hogs
produced on an open lot increase., so does the per head investment.
For an open lot marketing 900 hogs a year the per head investment is
$43. 80. This i s explained in that as an ope rat or expands his hog ope r-
ation. he purchases more- specialized equipment.
For a confinement hog producing system, the cost per head decreases
as the number of marketings increase. These economies of scale occur
clue to the more intensified use of specialized equipment.
Cost Structu re
Cost for producing hogs were developed to determine the relative im-
portance of various inputs. Costs were classified into two categories-
fixed and variable (Table III-11).
The most significant cost was for feed which accounted for at least 70
percent of all cost for all the various sized hog operations.
Cost as a pe rcent of sales ranged from 68.6 pe rcent for the smallest
producer to 94. Z pe rcent for the la rgest produce r (Table 111-12). This
wide range can be attributed to the differences in the type of operation
analyzed. As the size of the operation became more specialized, the cost
as a percent of sales tended to stabilize at the 95 percent level.
111-22
-------
Table 111-10. Estimated replacement value and working capital requirements for the hog industry
Capital Component
Replacemant value of facilities
and equipment
Net working capital
100
1, 500
1, 240
300
7, 500
4, 335
900
25, 000
14,420
2, 250
84, 000
37, 600
7, 500
186, 500
128, 048
Replacement value of
total assets 2,740 11,835 39,420 121,600 314,548
-------
Table III-11. Total investment and annual cost in producing nogs (farrow to finish operation)
Number ot Hogs Marketed Annually
Investment Costs
Annual Fixed Cost
Insurance Zi Taxes
Interest on Investment
Depreciation
Total Fixed Cost
Annual Variable Cost
Feed
Veterinary
Utilities
Marketing
Interest on Breeding Stock
Labor (hired)
Labor Family (Includes Mgt.)
Total Variable Cost
Total Costs
Total Cost Excluding Family Labor
100
1 . 500
55
45
150
250
2,300
100
25
150
23
-
972
3,570
3,820
2,848
300
7, 500
165
225
750
1, 140
8,115
300
90
450
69
-
2,916
11,940
13.080
10, 164
900
25,000
495
750
2,500
3,745
24,245
900
900
1,350
207
2,300
5,346
35,248
38,993
33,647
2,250
84,000
1,800
2,520
8,400
12,720
63,450
2,250
3,800
3,375
525
4,700
4,632
82,732
94,452
89,820
7,500
186,500
5,970
5,590
18,650
30,210
210,375
11,250
14,500
11,250
1,725
14,000
15,440
278,540
308,750
293,310
Assumptions:
- Assume a sow farrows twice a year with an average of 1 5 pigs per year.
- Small operations (5-8 sows) have little investment for swine production, existing facilities are used by
many of tnese enterprises.
- Assume 450 pounds of feed will produce 100 pounds of market hogs. Small operations r-duce fe^d cost
by using more pasture. Hogs will be marketed at 225 pounds.
- Marketing cost includes trucking or transportation and commissions.
-------
Table III-12. Estimated costs for the hog industry
100
Item
Sales
Raw materials (Feed)
Direct operating costs-
Indirect operating costs
Depreciation
Interest
H-t
E Total before tax cost
i
N)
$
4, 152
2, 300
275
55
150
68
2,848
%
100.0
55.4
6.6
1.3
3.6
1.6
68.6
300
$
12,454
8, 115
840
165
750
294
10, 164
%
100.
65.
6.
1.
6.
2.
81.
0
2
7
3
0
4
6
900
$
37,361
24,245
5,450
495
2, 500
957
33,647
%
100.0
64.9
14.6
1.3
6.7
2.6
90. 1
2,250
$ '
93, 393
63,450
13, 325
1,800
8, 400
3, 045
90, 020
%
100.0
67.9
14.3
1.9
9.0
3.3
96.4
7,500
$
311, 344
210, 375
51, 000
5,970
18,650
7, 315
293, 310
%
100.0
67.6
16.4
1.9
6.0
2.3
94.2
-------
B. Ability to Finance New Investments
Hog producers, in the past, have relied upon the Production Credit Assoc-
iation, Farmers Home Administratic -, and particularly private financial
institutions. Cash flow in a hog enterprise has always been relatively high.
This, plus the fact that hogs have tended to be a profitable enterprise have
caused private financial institutions to be particularly helpful in financing
new investments in hog facilities. Because of this, there seems to be
little difficulty in obtaining .additional financing for hog operations.
111-26
-------
PART IV: THE DAIRY INDUSTRY
I. DAIRY INDUSTRY SEGMENTS
A. Types of Firms
Milk production is one of the oldest farm enterprises in agriculture.
In the early history of U.S. agriculture, nearly all farmers kept milk
cows to satisfy their own milk requirements. With the advent of
refrigeration, improved transportation and new technology in pro-
duction, milk production has been undergoing a revolution.
At present a decreasing percent of all farmers maintain dairy herds.
Fewer dairymen with increasingly larger herds now supply consumers
with an adequate supply of milk. Production is becoming specialized
with dairying being a full time occupation for an increasing number of
farmers.
Number and Size of Production Units
In 1969, the Census of Agriculture reported 452,852 farms with dairy
cows, a decrease of 680,737 units since 1964. W Declines occurred
in the number of herds with 50 or less cows, with significant reductions
in herds of 1 - 19 head
Number Farms
Size Herd
1-19
20-50
51-99
100 or more
1964
871,987
215,155
37,601
8,846
,133,589
1969
247,267
157,309
38,457
9,819
452,852
Change
-624,720
- 57,846
856
973
-680,737
In 1969, forty-five percent of all cows were in herds of 20-50 head,
located on 157,000 farms. Concentration of cows in this size category
did not change during the past two census periods.
_ The 1969 Census included only farms with gross incomes of $2,500 or
more while the 1964 Census included all farms. Part of the decrease in
number of small dairy farms may have resulted from the definition of farms.
IV-1
-------
Shifts in concentration by herd sizes occurred in those herds under 20
and greater than 50 head. Only 15. 2 percent of all cows were in the
smaller herds in 1969 compared to 29 percent in 1964 (Table IV-1).
Cows in herds of 50 or more head increased from 27 percent to 40
percent during this five year period;
Percent of Cows
in Herds of: 1964 1969
1-19 29 15
20-50 44 45
51-99 3 23
100 or more 11 17
Continued increases in herd sizes, and reductions in the number of
dairymen are anticipated. New technologies in handling and milking cows
combined with feed harvesting and storage will require increased invest-
ments in a dairy unit. These investments will necessitate large produc-
tion units in order to spread fixed costs over a larger output. In the near
future, however, herds of less than 100 cows will prevail with herds of
50-100 cows being the dominant herd size.
Volume of Marketings
Milk production has approximated 120 billion pounds during the past decade
(Table IV-2). During the early sixties about 125 billion pounds were pro-
duced with this amount decreasing by about three percent in the latter part
of the decade. Less production was required as total consumption was
decreasing.
In 1972, production again equalled 120 billion pounds, the first time since
1965. This amount was needed as total consumption has increased during
the past three years after declining during most of the 1960's.
Ninety-five percent of all milk produced is presently sold to plants and
dealers as whole milk (Table IV-2). This compares to 84 percent in I960.
The volume of mi Ik used on farms, so Id as cream and sold directly to
consumers has been decreasing and represents an insignificant proportion
of milk marketed.
Over three-fourths of all milk is presently sold as Grade A milk which is
elgible for use in fluid products. In,1950, sixty-one percent of all milk
sold met Grade A requirements. Dairy farmers have been increasingly
converting from the production of Grade B (manufacturing) production to
Grade A One of the primary reasons for this conversion is that the price
IV-2
-------
Table IV-1. Number of farms with milk cows, by size, and percent
of milk cows, 1964 and 1969-
1964 I/
Size of Herds
1 - 19
20 - 50
51 - 99
100 or more
No
Percent
of
Farms
871,
215,
37,
8,
1,133,
987
155
601
846
589
Farms
76.
19-
3.
0.
100.
9
0
3
8
0
Percent
of
Cows
28.
44.
16.
11.
100.
6
0
3
1
0
No.
Farms
247,
157,
38,
9,
452,
267
309
457
819
852
1969 z/
Percent
of
Farms
54.6
34. 7
8. 5
2. 2
100. 0
Percent
of
Cows
15.
44.
22.
17.
100.
2
9
6
3
0
Source:
!_/ 1964 Agricultural Census, all farms.
1969 Agricultural Census. Farms with Gross Incomes of $2,500
or more.
IV-3
-------
Table IV-2. Total milk production, milk used on farms and marketed,
1960-1972, United States
Milk
Marketed by
Farmers
Sold to Plants
and dealers
Year
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Production
1
1
1
1
1
1
1
23.
25.
26.
25.
27.
24.
19-
118.
1
1
1
1
1
17.
16.
17.
18.
20.
1
7
3
2
0
2
9
7
2
1
0
5
3
Milk used
on farms
9-
8.
7.
7.
6.
6.
5.
5.
4.
4.
4.
3.
3.
2
4
7
1
5
0
5
2
7
3
0
7
5
as whole
milk
103.
108.
110.
111.
114.
112.
109-
109-
108.
108.
110.
112.
114.
9
4
7
2
2
7
7
4
8
5
0
2
4
as
cream
7.
6.
5.
5.
4.
3.
3.
2.
2.
1.
1.
1.
0.
9
9
9
1
4
7
0
4
0
6
2
0
8
Sold Directly
to Consumers
2.
2.
2.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1
1
0
9
9
«
7
8
8
7
7
6
5
Source: Dairy Situation, E. R. S. , U.S.D. A. , May, 1973.
IV-4
-------
level of Grade A milk exceeds that of Grade B by a dollar or more per
hundred weight. This differential makesthe conversion a profitable
endeavor.
The value of all milk sold by dairymen last year, was $7, 156 million
dollars, an increase of 42 percent relative to 1965. This increase in
the gross receipts to farmers has primarily resulted from increases
in the price of milk. The average price received by dairymen for all
milk in 1972 was $6. 08 per cwt. compared to $4. 81 in 1966.
Age of Production Facilities
There are no known published studies pertaining to the age of production
facilities used in farms for milk production. Data pertaining to age of
facilities was obtained from private sources and believed to be represen-
tative information for dairy production units.
Data obtained pertains to the type of management systems used in handling
and milking dairy cows, and the percent of these facilities built since I960.
Two-thirds of all farms house and milk cows in stanchion barns (Table IV-3).
Most of these facilities are old with only eight percent being built since
I960. This type of system prevails in the Northeast, Lake States and
portions of the Midwest.
Open lot systems are used by 35 percent of all dairymen. This sytem
prevails in the West, Southwest and South where climatic conditions do
not necessitate the housing of cows. About one-fourth of these facilities
have been built since I960. It is assumed that this system is used by the
larger dairies in these areas.
Free stall systems are currently being used to replace stanchion barns in
the northern milk producing areas and account for about 15 percent of all
facilities. About one-half are less than ten years of age.
Overall we can conclude that the average age of all production systems is
probably ten years old or older. The majority of producers using stanchion
barns have probably fully depreciated their facilities. Free stall systems
are relatively new with an estimated average age of five years. Open lot
systems are estimated to be five to ten years of age.
IV-5
-------
Table IV-3. Types of facilities used by dairymen, 1970
Percent Percent Built
Management System Farms Since I960
Stanchion Barns 66 8
Open lot
- loose housing . 21 23
- free stall 15 28
Free Stall
- cold overed 13 49
- warm covered 2 34
Source: Estimated, private source.
IV-6
-------
Location of Major Production Segments
Wisconsin is the leading dairy state with 15. 6 percent of all cows.
Minnesota ranks second followed in order by New York, California,
Pennsylvania, Iowa, Ohio, Michigan, Texas and Kentucky. Sixty-
one percent of all dairy cows are located in these ten states.
All states have some dairy cows as milk production has traditionally
been located adjacent to consuming areas. The number of cows per
state range from a low of 6, 000 in Rhode Island to 1, 832, 000 head in
Wisconsin (Figure IV-1).
Leading Dairy States Average No. Cows - 1972
Wisconsin 1 , 832
Minnesota 932
New York 920
California 778
Pennsylvania 684
Iowa 458
Ohio 436
Michigan 427
T exa s 358
Kentucky 325
Since I960 the average number of milk cows on farms has declined by
5, 789, 000 head, a decrease of 33.0 percent. Cow numbers in 1972
equalled 11, 710,000 head compared to 17,499,000 head in I960. The
rate of decline has decreased during the past three years to about one
percent decrease annually.
All major dairy states had significant decreases in milk cow numbers
with the exception of Florida and California. Cow numbers increased
in Florida by 11 percent and dropped by only one percent in California.
Since 1970, cow numbers have increased in Wisconsin, Florida, Idaho,
Utah, Washington, California, Vermont, Texas. Increases in these
states have partially offset declines in other states.
Average number
Year of cows - U. S.
-1,000-
1960 17>499
1965 14,953
1970 12j000
1971 11,842
11,710
IV-7
-------
I
00
Figure IV-1. Number of milk cows, 1972, and percent change, 1965-1972.
NOTE: Top figure -- Average number of milk cows, 1972 (thousands).
Bottom figure -- Percent change since 1965.
-------
Level of Technology
The level of technology used in milk production can best be evaluated
by using production per cow as a standard for measurement. Using
this criterion for measuring the level of technology, the conclusion
can be drawn that the level of technology used has been increasing,
but is not being used at the available optimum level.
Significant increases in production per cow have occurred. Since
I960, production per cow increased by 3,242 pounds equalling 10,271
pounds per cow for the United States.
Milk Production
Year Per Cow - U.S.
-pounds -
I960 7,029
1965 8,305
1970 9,747
1972 10,271
Increased production has been a function of better breeding, improved
feeding, and improved management. An increasing number of cows
are being "challenged fed". This involves feeding increased amounts
of concentrates to challenge the genetic ability of a cow to produce milk.
Challenge feeding has not been universally adopted by dairymen. This
is evident by the variation in productionper cow by states. Production
per cow is greatest in the states of California, Arizona, Washington,
and Colorado. The lowest production records are in the Mississippi,
Alabama, Louisiana, andArkansas. The difference in production per
cow between California and Mississippi is 7,023 pounds.
Part of the variation in production among states may be explained by
differences in climatic conditions which can influence milk production.
Most of the variation, however, is a function of the level of technology
employed.
Generally, the use of capital and level of management employed in the
West, Southwest, and New York -New England area has been superior
relative to the South, South Atlantic, and portions of the Midwest.
IV-9
-------
Level of Integration
The production and distribution of dairy products involves the successive
activities of dairy farming, processing or manufacturing, merchandising,
wholesaling and retailing. Vertical integration is the process of linking
together under one ownership of two or more of these activities. Some
vertical integration has occurred in the dairy industry involving production
units, but the volume of milk produced is insignificant. In some areas
producers have integrated forward by establishing small processing and
distribution outlets. In other cases processors have integrated backwards
by establishing their own herds. In both cases the volume of milk represents
a very small percent of all milk produced.
Level of Diversification
One measure of the level of diversification in dairying is to express
dairy sales as a proportion of total farm sales. If dairy sales represent
a low percent of total farm sales we can conclude that farmers are highly
diversified. If the ratio is high, specialization exists.
A U.S.D.A. report released in July 1970, followed the preceding rationale.
In the Northeastern states 85 percent of farm income was derived from
the sales of milk and dairy animals (Table IV-4).
Specialization was greatest in the Northeast, Delta States, Pacific, and
Southern Plains. In the Corn Belt, the Northern Plains and Appalachian
areas were more diversified with dairying accounting for less than one-
half of farm income.
B. Number of Plants and Employment by Segments
In 1969, the Census of Agriculture reported 452,652 farms with dairy cows.
Over half of these farms were small with less than 20 cows per farm.
Size Herd Number Farms
1-19 Z47.267
20 - 50 15/.809
51 - 99 38,457
100 + 9.819
452,852
IV-10
-------
Table IV-4. --Distribution of farms reporting dairy sales by the proportion of total
sales from dairy sources, by region, 1964
Percentage of
total farm sales
from dairy sources
10-29
30-49
50-69
70-89
90-100
Average, all farms..
Northeast
21
1
2
8
42
47
85
Lake
: States
4
6
17
25
40
8
63
Corn
Belt
: Northern :
: Plains :
25 62
24 15
19 13
15 6
16 4
2 21
Percentaee of total
37
16
Appala-
chian
of farms
: Delta
: States
surveyed
: Southern :
: Plains :
I/
15 4 14
28 11 4
20 10 5
16 6 11
12 23 39
9 46 27
farm sales from dairy sources-
42
73
68
Pacific 1
9
2
6
14
38
31
72
Total
3/
11
11
3/
If
2/
54
I/ Data may not add to 100 due to rounding.
7/ Less than 0.5 percent.
3/ Data not computed.
Source: "Farms Reporting Dairy Sales in 1964," U. S.D.A., E.R.S. , in cooperation with Minnesota
Agricultural Experiment Station, University of Minnesota, June, 1970.
-------
Employment on farm units were estimated assuming that as size
of herds increased there would be a proportioned increase in labor
requirements. It was assumed that all dairy farms with less than
50 cows would require one full-time man, farms with 51-99 cows
would require two men, and farms with 100 or more cows would
require an an average of six men.
Size Herd
1-19
20-50
51-99
100 +
Number-
Farms
247,Z67
157,309
38,457
9,819
452,852
Estimated Labor
Required per
Farm
1
1
2
6
Total
labor
required
247,267
157,309
76,914
50.914
540,914
An estimated 541,000 persons are employed on dairy farms. Eighty-
four percent of total labor requirements are filled by individual
entrepreneurs and their families. The remaining 16 percent or
88,000 persons, represent hired labor.
C. Relationships of Segments to Total Industry
Number of Production Units
Of the 452,852 dairy farms in 1969, fifty-four percent were located in
the ten leading milk producing states (Figure IV-2). The largest number
of dairy farms are located in the midwest and northeastern areas of the U. S.
Wisconsin has the largest number of dairy farms with about 58,000 units
(Figure IV-2). Minnesota ranks second followed in order by Iowa, New
York, Pennsylvania, Missouri, Kentucky, Ohio, Michigan, Tennessee,
Texas and Illinois. Dairy units in these areas, with the exception of
Texas, are relatively small with most cows in herds of less than fifty
head (Table IV-5).
The size of da^ry herds varies significantly by state. In Florida, California,
Arizona, and New Mexico over 70 percent of all cows are in herds of 100
or more head. In contrast only 3 percent of the cows in New York and one
percent in Wisconsin are concentrated in these larger herds.
IV-12
-------
Figure IV-2. Number of farms with dairy cows and farms with herds of 100 or more cows, 1969.
Note: Top figure: Total number farms with dairy cows.
Bottom figure: Number of farms with milk cow herd of 100 or more head.
-------
Table IV-5. Number of farms and percent of dairy cows, by size
of herd, by ten leading states, 1969
Size of Herd
Wisconsin
No. farms
% farms
% cows
Minne s ota
No. farms
% farms
% cows
New York
No. farms
% farms
% cows
California
No. farms
% farms
% cows
Pennsylvania
No. farms
% farms
% COWS
Iowa
No. farms
% farms
% cows
Ohio
No. farms
% farms
% cows
Michigan
No. farms
% farms
% cows
1-19
15,197
26.3
11. 1
18,325
45.9
23.4
3,936
17.4
4.7
1,877
34.8
1.3
6,954
31.6
10.4
18,445
64.4
29.8
9,711
53.0
20.5
6,051
41.2
15.0
20-49
37,087
64.1
67.7
19,986
50. 1
65.2
13,085
57.7
49.5
695
12.9
3.5
12,302
56.0
60
9, 136
31.9
55. 5
6,989
38. 1
52. 1
6,800
46.3
51.6
50-99
5,258
9.1
18.6
1,482
3.7
10.0
4,858
21.5
34.4
723
13.4
8.0
2,417
11.0
23.3
961
3.4
12.4
1,445
7.9
21.7
1,558
10.6
24. 5
100 +
322
0.5
2.6
98
0.3
1.4
742
3.4
11.4
2, 104
38.9
87.2
297
1.4
6.3
82
0.3
2.3
184
1.0
5.7
263
1.9
8.9
Total
57,864
100
100
39,891
100
100
22,621
100
100
5,399
100
100
21,970
100
100
28,624
100
100
18,329
100
100
14,672
100
100
IV-14
-------
Table IV-5. (continued)
Size of Herd
Texas
No. farms
% farms
% cows
Kentucky
No. farms
% farms
% cows
1-19
10,348
74.0
8.2
14,322
74
34.9
20-49
1,265
9.0
14.0
4, 147
21.4
42.8
50-99
1,586
11.4
33.9
766
4.0
17.0
100 +
781
5.6
43.9
109
0.6
5.3
Total
13,980
100
100
19,344
100
100
Source: 1969 Agricultural Census, Farms with gross income of $2,500 or more.
IV-15
-------
Most significant, however, are the absolute number of farms with herds
of 100 or more cows (Figure IV-2). Larger herds have existed in California
and Florida for years, but have more recently emerged in all states.
The number of farms with 100 or more cows and percent of cows
controlled by the larger producers for the ten leading dairy states are
as follows:
State Number of Farms Percent of Cows
Wisconsin 322 2. 6
Minnesota 98 1.4
New York 742 11.4
California 2,104 87.1
Pennsylvania 297 6. 3
Iowa 82 2.3
Ohio 184 5.7
Michigan 263 8. 8
Texas 781 43.9
Kentucky 109 5. 3
Since 1965 there have been slight changes in the concentration of dairy
cows by regions. Concentration increased slightly in the West, South-
west, Eastern Cornbelt and the New York - New England area. Decreases
occurred in the South and Western cornbelt.
Milk Production
Wisconsin is the leading milk producing state accounting for 16. 3 percent
of all milk in 1972. California ranks second followed in order by New
York and Minnesota. The combined marketings from these four states
account for 42 percent of all milk (Table IV-6).
Milk production is concentrated in the midwest, northeast and Pacific
coast. Of the fifteen leading states, seven are located in the midwest,
three in the northeast, two in the Pacific coast, two in the midsouth
and one in the south central area (Table IV-6).
Production per cow is highest in the western states with the northeast
ranking second. California leads the nation with production per cow of
13,406 pounds. Arizona ranks second and Washington third.
The lowest production occurs in the south and south central states.
Mississippi averages only 6,383 pounds per cow, the lowest average in
the nation. The top five and low five states in production per cow, for
1972, are as follows:
IV-16
-------
Table IV-6. Pounds of milk produced, rank of states by number cows,
and production per cow, fifteen leading milk producing states, 1972
State
Wisconsin
California
New York
Minnesota
Pennsylvania
Michigan
Ohio
Iowa
Texas
Missouri
Illinois
Kentucky
Washington
Tennessee
Vermont
Milk
Production
-million pounds -
19,079
10,327
9,985
9,295
6,880
4,802
4,405
4,330
3,300
2,918
2,741
2,357
2,250
2,048
1,993
Number of
Dairy Cows
Rank -by States
1
4
3
2
5
8
7
6
9
11
12
10
17
13
16
Milk Production
Per Cow
10,719
13,406
11,076
10,279
10,279
11,513
10,408
9,838
9,444
9,365
9,890
7,785
12,538
8,475
10,400
IV-17
-------
Top Five States Prod/Cow/lbs.
California 13,406
Arizona 12,800
Washington 1Z.538
Colorado 11,633
Michigan 11,513
Low Five States
North Dakota 7,554
Arkansas 7,313
Louisiana 7,303
Alabama 7,183
Mississippi 6,383
United States 10, 271
Employment
Employment on milk production units is highly correlated with the number
of production units. This is particularly true for the corn belt, northeast,
and mid-south where dairying is primarily a farm family enterprise. In
California, Arizona and Florida outside labor is required to maintain the
larger herds which prevail in those states.
IV-18
-------
II. DAIRY INDUSTRY FINANCIAL PROFILE
Financial profiles were developed for six different sizes of production
units and three methods of holding dairy cows. This methodology was
used to more fully represent management systems used for various
size herds.
A. Plants by Segments
Financial profiles were developed for milk production units with herds
of 25, 50, 100, 200, 500 and 1, 000 cows. Cows in herds of 25 and 50
head were assumed to be housed in stanchion barns. This system is
prevalent in the major milk producing areas of the North Central, Lake
States and New York-New England areas. Herds of 100 and 200 cows
were assumed to be housed in loose housing, a management practice
which is increasing in the North as herd sizes increase. Herds of 500
to 1, 000 head were assumed to be in open lots, a management practice
conducive for large herds, and widely practiced in the South, Southwest
and West.
All model plants were assumed to be operating at 100 percent capacity.
Level of technology used varied by segments, increasing as herd sizes
increased.
Annual Profits Before Taxes
Milk producers that are included in our study showed after-tax return
on sales from 3 to 7 percent (Table IV-7). After-tax ROI is estimated at
between 4.6 percent to 9.0 percent. The low level of these returns may
be attributed to high levels of investment required as compared to sales.
There is significant differences in profitability due largely to different
types of operations and the amount of labor that the farmer operator is
able to contribute to the overall operation.
Annual Cash Flows
Estimated annual cash flows (after-tax income plus depreciation) and cash
flow on average fixed investment are shown in Tables IV-8 and IV-9 for
selected model operations. Depreciation schedules for operations indi-
cated are $23/cow per year, 5 percent per year of original building invest-
ment and 7.5 percent per year of original equipment investment.
IV-19
-------
Table IV-7. Estimated pre-tax income and rate of return on average invested capital and
after-tax return on sales for dairy farms by size of herd, 1971
Size of Herd
Financial Measure 25 50 100 200 . 500
Pre-tax net income ($) 1,851 1,523 5,523 7,253 21,834
Pre-tax ROI* (%) H-5 5- 9 10.9 7.5 11.0
After-tax ROI* (%) 9-0 4.6 8.5 5.9 8.6
After-tax return on sales (%) 7.4 3.0 5.5 3.6 4.4
" / Average return on fixed investment calculated by financial statement method.
ro
0
1,000
46,010
12. 2
8. 1
3.9
-------
Table IV-8. Estimated cash flow for dairy farmers, by size of herd, 1971
Size of Herd
Financial Measure
25
50
100
200
500
1,000
Annual cash flow ($)
3,196 3,868
9,788
15,928 36,661
67,016
Cash flow on average fixed
investment (%)
19-9
14.9
19-3
16. 5
18. 5
17.7
-------
Table IV-9. Estimated cash flow for dairy herds by number of cows, 1971.
IN)
ts)
Utilization
Annual Output (100 Ibs. )
Sales
Milk ($6.20)
Calves
Total
Fixed Expenses
A I
Variable Expenses
Cash Earnings
Depreciation
Interest
Pre-Tax Income
Excluding Family Labor
Cash Earnings
Less Depreciation
Less Interest
Pre-Tax Income
25i/
100%
3,000
18,600
1,020
19,620
292
21,075
-1,747
1,752
900
-4,399
4,503
1,752
900
1,851
so y
100%
6, 000
37,200
1,980
39, 180
387
39,400
-607
2, 680
1,440
-4,727
5,643
2,680
1,440
1,523
Size of Herd
100-/ 200 -^
100%
12, 000
74,400
3,900
78, 300
767
69,900
7,633
5,480
2,880
-727
13,883
5,480
2,880
5,523
100%
24,000
148, 800
7,800
156,600
1,367
138,500
16, 733
10,270
5,460
1, 003
22,983
10,270
5,460
7,253
500 U
100%
60, 000
372, 000
19,500
391,500
2,066
343, 000
46,434
19,630
11,220
15,584
52, 684
19,630
11,220
21,834
1,000 I/
100%
120, 000
744, 000
39,000
783,000
3,350
682, 000
97,650
36,590
21, 300
39,760
103,900
36,590
21,300
46,010
L' Cows are housed in stanchion barns.
_' Cows are housed in loose housing.
_ Open lots.
A I
Includes $6,250 family labor charge.
-------
Cash flows are composed of approximately 50% depreciation and 50%
earnings. This yields some stability to cash flows; however, cash
flows are still heavily dependent upon milk and feed prices.
Producers who generate cash flows of less than $10, 000 annually are
assumed to consume the cash flow in retiring government insured and
other loans and to provide funds to live on. These producers typically
do not attempt to reinvest depreciation and earnings nor accumulate
them to replace worn out facilities.
Producers who'generate more than $10, 000 annual cash flows are
assumed to consume the cash flow to retire government insured and
other loans and to provide funds to live on. The residual after providing
the above items is assumed to be reinvested or distributed to partners or
other investors.
Market (Salvage) Value of Assets
The salvage value of dairy operations is dependent on the type of manage-
ment systems used. Stanchion operations generally have older facilities.
Stanchion barns with some modofications could be used for housing other
enterprises. However, the age of the facility limits the amount of re-
modelong that would be possible. For stanchion dairy operations the
estimated salvage value of assets, at most, would be ten percent of
replacement value.
Loose housing dairy operations consist of a large open building with an
adjacent milking parlor. These operations are relatively new and could
be modified to house other enterprises without much difficulty. Estimated
salvage value of assets for a loose house dairy operation is assumed to be
40 percent of the replacement value.
Open lot dairy operations consist of open fenced lots with shelters and
central milking parlor. Alternate uses of the milking parlor are rel -
lively non-existent. In some cases the fences and shelters could be used
for alternative large animal enterprises. To do this, however, would
not change the general function of the lot. Estimated salvage value for
this type of operation is assumed to be 10 percent of replacement value.
IV- 23
-------
Capital Structures
Investment required to operate dairies is in direct relationship with
the number of cows being milked (Table IV-10). To milk 25 cows re-
quires an estimated investment of $30,000, 100 cows require $96,000,
and a 1, 000 cow operation would require an investment of $710, 000.
It should be noted that as size of the cow herd increases, the types of
milking systems used changes.
Cost Structure
Model plant data were developed to estimate the cost structure of six
representative operations. Costs associated with milk production were
classified into two categories -- fixed and variable (Table IV-H).
Fixed expenses were defined as those which do not vary as output
changes. These expenses include:
depreciation
insurance
taxes
interest on building and equipment.
Variable costs were defined as those costs which do vary with output.
Costs included were:
feed
milk hauling
insurance and taxes on cattle
bedding
breeding costs
- health care
interest on cattle
other miscellaneous costs.
Variable costs comprise about 90 percent of the annual costs for all size
operations. A major component of variable costs is feed which accounts
for over 70 percent of these costs.
Feed costs comprise about 56 percent of total sales for all size oper-
ations (Table IV-12). Direct operating expenses for all but the smallest
operator vary between 25. 1 and 28. 4 percent of sales. Depreciation and
interest expense both decrease as a percent of sales as herd sizes increase.
IV-24
-------
Table IV-10. Estimated replacement value and working capital requirements for dairy
farms, by size of herd, 1971
Size of Herd
Capital Component 25 50 100 200 500 1,000
Replacement value of facilities,
dairy herd, and equipment ($) 30,000 48,000 96,000 182,000 374,000 710,000
Net working capital ($) 1,045 1,815 2,740 5,355 11,500 22,600
Replacement value of total
assets ($) 31,045 49,815 98,740 187,355 385,500 732.000
<;
i
CsJ
-------
Table IV- 11. Estimated costs for dairy farms, by size of herd, 1971
Size of Herd
25
50
100
200
500
1000
Item
$
$
$
$
$
$
Sales
Raw materials
*i*
Direct operating costs''
Indirect operating costs
Depreciation
Interest
Total before-tax cost
19,620 100.0 39,180 100.0 78,300 100.0 156,600 100.0 391,500 100.0
11,000 56.1 22,000 56.2 44,000 56.2 88,000 56.2 235,500 60.1
3,825 19.5 11,150 28.4 19,650 25.1 44,250 28.3 101,250 25.9
292 1.5 387 1.0 767 1.0 1,367
1,752 8.9 2,680 6.8 5,480 7.0 10,270
900 4.6 1,440 3.7 2,880 3.6 5,460
.8 2,066 .5
6.5 19,630 5.0
3.5 11,270 2.9
17,769 90.6 37,657 96.1 72,777 92.9 149,347 95.3 369,716 94.4
783,000 100.0
471,000 60.1
204,750 26.2
3,350 .4
36,590 4.7
21,300 2.7
736,990 94.1
Excluding family labor
[SJ
cr-
-------
Table IV- 12. Total investment and annual costs for dairy herds by number of cows, 1971
Size of Herd
Investment
Buildings
Equipment
Cattle
Total investment
Annual Fixed Cost
Depreciation
Buildings
Equipment
Cows
Insurance
Taxes
Interest (Bldg. k Equip)
Total fixed cost
Annual Variable Cost
Feed
Bedding
Breeding
Veterinary
Supplies
Power -fuel
Auto & tractor
Insurance & tax
Milk hauling
Miscellaneous
25i'
9, 000
8, 500
12, 500
30, 000
540
637
575
117
175
525
4, 038
11, 000
1, 000
250
450
250
200
175
50
1,200
250
50^'
13, 000
10, 000
25, 000
48, 000
780
750
1, 150
157
230
690
3, 757
22, 000
2, 000
500
900
500
400
350
100
2, 400
500
100^
18, 000
28, 000
50, 000
96, 000
1, 080
2, 100
2, 300
307
460
1, 380
7, 627
44, 000
4, 000
1, 000
1, 800
1, 000
800
800
200
4, 800
1, 000
20<£'
32,000
50, 000
100,000
182, 000
1,920
3,750
4,600
547
820
2,460
14, 097
88, 000
8, 000
2, 000
3, 600
2, 000
1, 600
1, 000
400
9, 600
2, 000
500^
78, 000
46, 000
250, 000
374, 000
4, 680
3, 450
11, 500
826
1, 240
3,720
25, 416
235,500
5, 000
9, 000
5, 000
4, 000
4, 000
1, 000
24,500
5, 000
1,000^
144, 000
66, 000
500, 000
710, 000
8,640
4, 950
23, 000
1, 340
2, 010
6, 300
46,240
471, 000
10, 000
18, 000
10, 000
8, 000
8, 000
2, 000
45, 000
10, 000
continued
-------
Table IV-12. Total investment and annual costs for dairy herds by number of cows, 1971 (continued)
Size of Herd
25^
Annual Variable Cost (con't)
Interest (Cattle)
Labor!/
Total variable cost
Total Cost
Total Cost (excludes family labor)
6,
21.
25,
19,
375
250
450
488
238
50^
750
9,750
40, 150
43, 907
37, 657
100^
1,
10,
71,
79,
72,
500
500
400
027
777
200^
3,
19,
141,
155,
149,
000
750
550
647
397
500^
7,
50,
350,
'375,
369,
500
000
000
916
666
1, 000^
15,
100,
697,
743,
736,
000
000
000
240
990
Cows are housed in stanchion barns.
Cows are housed in loose housing.
Open lots.
4/
Includes $6,250 family labor charge.
IV
00
-------
B. Ability to Finance New Investments
Milk production is one of the more profitable farm enterprises with a
good cash flow. The latter is generally large enough to pay off invest-
ments within a five year period.
Another advantage of dairying, from a financial institution's viewpoint,
is that dairymen receive a monthly or bi-monthly payments for milk
sales. This enables payment of debts on a continuous basis rather than
when animals are sold or crops are harvested.
Dairymen are good credit risks and should have little difficulty in ob-
taining investment capital.
IV-29
-------
PART V: THE SHEEP INDUSTRY
I. SHEEP INDUSTRY SEGMENTS
A. Types of Firms
Sheep production is scattered throughout the United States with all
states reporting some production. Most production, however, is
concentrated in the western portion of the nation.
Sheep thrive under a wide range and variety of physical and biological
conditions. They graze well on terrain too rough, high and arid to
be habitable by other domesticated animals. They utilize plants
unacceptable to other animals. Also, sheep blend well in a size
range either as a supplementary farm enterprise or a highly spe-
cialized enterprise.
With these attributes, sheep production might be expected to have had
significant increases in production. However, the opposite has occurred
with the number of sheep declining during the past several decades.
This decline has resulted because of a number of factors including
declining per capita consumption of lamb and wool, and low wool prices.
A once thriving industry has been and is, declining and now plays a
secondary role in the livestock and poultry economy of the United States.
Number and Size of Production Units
In 1969> the Census of Agriculture reported 123,858 farms with sheep
and lambs (Table V-l). This represented a decrease in the number of
farms of over 118,000 since 1964. The decline in number of farms
occurred for all size segments, with the greatest decrease occurring for
those farms with less than 300 head.
Number of Farmsi.'
Farms with
< 300 Head
300 - 999
1,000 -2,499
2,500 -4,999
5,000 +
1964
221,641
8,687
3,052
939
470
234,789
1969
105,566
7,406
2,458
806
426
116,672
Includes only those farms with breeding herds.
V-l
-------
Table V-l. Number of farms selling sheep and lamb, percent
of farms and sheep and lambs sold, by size of enterprise,
1969
Number of Sheep
and Lambs on Farm
1
2
1 -
25 -
100 -
300 -
,000 -
,500 -
5,000
24
99
299
999
2,499
4,999
or more
Total
Other
Total
Farms
Number
44
44
17
7
2
116
7
123
,190
, 148
,238
,406
,458
806
426
,672
,186
,858
1969
Percent
35.
35.
13.
6.
2.
0.
0.
94.
5.
100.
7
6
9
0
0
7
3
2
8
0
Percent of Sheep
and Lambs Sold
1
1
1
1
1
1
3.
0.
2.
7.
7.
3.
9.
94.
5.
100.
5
9
6
4
6
5
4
8
2
0
Source: 1969 Census of Agriculture
V-2
-------
Production has become slightly more concentrated, with 53 percent
of all sheep and lambs, in 1969, sold by farmers with 1, 000 or more
head. This compares with 47 percent in 1964. The slight shifts in
concentration to larger units occurred even though there was an exodus
of larger producers during the interval between census periods.
Percent of Sheep and Lambs Sold
Farms with 1964 1969
<300 . 34.6 28.5
300 - 999 17.6 18.4
1,000 - 2,499 17.9 18. 6
2,500 - 4,999 12. 1 14. 2
5,000+ 17.8 20. 3
100.0 100.0
Volume of Marketings
The number of head, and volume of sheep and lambs sold has been
steadily decreasing.(Table V-2). In 1950, slightly over 1.4 billion
pounds of lamb and mutton were sold by farmers. Ten years later
the voJume had slightly increased to about 1. 6 billion pounds. By
the early seventies, the volume sold had decreased to 1.0 billion
pounds. This amount represented the lowest level of production
during the past forty years.
Farm cash receipts from the sale of mutton and lamb equalled
$313,502, 000 in 1971, six-tenths of one percent of total farm in-
come. In addition farmers received $31, 165,000 from the sale of
wool. Combined receipts from the sale of lamb, mutton and wool
equalled $344,667,000.
Sales of lambs and sheep as a percent of total farm income are
significant in only a few -western states. In the leading producing
states of Texas, Colorado, and California, lamb and sheep sales
represent less than two percent of total farm sales.
Sales of Lamb and Sheep
Thousands of Percent of Total
State Dollars Farm Income
Texas $43,424 1.4
Colorado 43, 294 3. 2
California 24,886 0.5
Idaho 20,438 2.8
Iowa 18,816 0.4
Wyoming 16,879 6.4
Utah 13,011 5.8
Minnesota 11,579 0.5
Montana 11,155 1.7
V-3
-------
Table V-2. Number of sheep and lambs marketed and pounds
produced, U.S. 1950 to 1971
Year
1971
1970
1965
I960
1955
1950
Sheep
2,206
2,048
2,454
3,572
2,896
2,640
Marketings
Lambs
1, 000 head
12,240
12,478
15,213
19,068
18,736
16,486
Quantity Produced
Liveweight
1, 000 Ibs
1,038,685
1,092,575
1,217, 139
1,628,014
1,618,013
1,335,720
Source: Agricultural Statistics, U.S.D.A. 1972
V-4
-------
Age of Production Facilities
Sheep production is one of the oldest forms of agriculture in the United
States and characterized by limited investment in capital equipment.
This is particularly true for breeding stock which is maintained pri-
marily on open range in the west and pastures in the eastern portions
of the United States. Production facilities consist of fencing and
perhaps some type of winter shelter in colder areas.
In feeding lambs for market, the average feeder has not made the
investment in production facilities that has occurred in feeding of hogs
and cattle. This was the comment received from various industry
personnel. The investments made b / the average feeder consist of
sheds for shelter, self feeders, and automatic waterers. Feeding is
done with limited mechanized equipment. With limited fixed investment
the primary costs to feeders is the cost of lambs and feed supplements.
Basically, feeding of lambs involves unsophisticated production systems
relative to other livestock and poultry enterprises.
Since production has involved limited investment in production facilities,
and since production has declined, it is unlikely that many new production
facilities have been constructed in recent years. There are exceptions,
but these new enterprises are a minority. Therefore, we conclude
that facilities are old and in many cases fully depreciated.
Location of Major Producing Segments
The major concentration of ewes are found in the western half of the
United States with 80 percent of the breeding stock located in this area.
Of the ten leading states, measured by the number of ewes, eight are
located in the west (Table V-3). Texas, the leading state, reported
2, 530 thousand ewes on farms representing 20 percent of all breeding
stock. Wyoming ranked second followed in order by California, South
Dakota, Utah and Montana.
Feeding of lambs is more widely dispersed than breeding stock. Colorado
is the leading state, based on number of lambs on feed, with 16. 2 of
lambs. Texas ranks second, and is followed in order by Iowa, Nebraska,
South Dakota, Wyoming, Minnesota, Ohio, Idaho, and California
(Table V-3). These ten states account for 68 percent of all lambs fed.
V-5
-------
Table V-3. Ranking of states by number of ewes and lambs
on feed, 1971
State
Number of
Ewes on Feed
State
Number of
Lambs on Feed
Texas
Wyoming
California
South Dakota
Utah
Montana
Colorado
Idaho
New Mexico
Ohio
Iowa
1
2
3
4
5
6
7
8
9
10
10
Colorado
Texas
Iowa
Nebraska
South Dakota
Wyoming
Minnes ota
Ohio
Idaho
California
1
2
3
4
5
6
7
8
9
10
Source: Agricultural Statistic s , U. S.D.A., 1972.
V-6
-------
Level of Technology and Efficiency
The level of technology used and efficiencies attained in sheep production
are considered to be inferior relative to the production of other livestock
and poultry. Breeding stock is held on open range and pasture and used
primarily as scavengers of grasses not adaptable for other livestock.
Breeding stock receive little supplementa 1 feeding resulting in poor
fertility and less than desirable lambing rates.
Lamb feedlots can be characterized as having limited investments in labor
saving technologies. The typical feedlot, as described by industry
personnel, consists of sheds for shelter, self feeders and waterers.
Roughage and feed is fed by hand with limited use of available technology
in roughage handling, bunk line feeding, manure disposal, and feeding
rations.
Level of Integration
Integration in sheep production and/or feeding is assumed to be limited
in scope. Breeding herds are controlled by over 100,000 producers,
with each having a relatively insignificant portion of total breeding stock.
Producers are integrated to the extent that some farmers with breeding
stock do feed out lambs. This is particularly true in grain producing
areas.
There is some vertical integration in the feeding of lambs. The Packers
and Stockyards Resume of December 15, 1972, reported that 9- 7 percent
of all lambs slaughtered, in 1971 , were fed by or for meat packers.
This compares to over 13 percent in the two preceding years. All other
lambs were assumed to be fed by independent producers and sold on a
free market.
Level of Diversification
Sheep production is generally considered to be part of larger diversified
farm or ranch enterprises. Range flocks in the West are used to complement
a total ranch enterprise. Farm flocks in other areas of the United States
are small and considered as secondary farm enterprises.
Lamb feedlots are usually part of larger farm production systems involving
roughage and feed grain production and/or other cattle feeding. Lambs
are fed to utilize roughage and feed grains.
V-7
-------
B- Number of Plants and Employment by Segments
In 1969, the Agricultural Census reported 109,188 farms with sheep
or lambs. These producers were further classified by the number
of sheep and lambs on place.
Inventory of Number
Sheep and Lambs Farms
1-24 , 44,190
25 - 99 44,148
100 - 299 17,238
300 - 999 7,406
1,000 - 23499 2,458
2,500 - 4,999 806
5,000 + 426
Other!/ 7,186
123,858
There are no known published data on the number of people employed in
sheep production. Due to lack of information we can only assume that
employment would at least equal the number of farms with sheep and
lambs and not exceed 150,000 persons.
C- Relationships of Segments to Industry
Of the 123,858 sheep production units reported in 1969, over 60 percent
are located in the eastern half of the U.S. Iowa has the largest number
of farms with sheep reporting 16,375 units in 1969 (Figure V-l). Texas
ranks second followed in order by Ohio, Illinois, Minnesota, and South
Dakota.
The size of flocks varies greatly by geographic area. Farm flocks are
common in the eastern half of the U. S. and comprise over 90 percent of
all production units, but produce less than a third of all lambs. Sheep
ranches in the V/est vary from 1,500 to 1 0, 000 head per ranch and pro-
duce more than half the lambs.£'
Variation in size of production units is evident when comparisons are
made between the ten leading states (Table V-4). In Colorado, Wyoming,
California, Idaho, and Oregon over one-third of all sheep and lambs sold
are from ranches with 5,000 or more. In Iowa less than six percent of
all sales originate from farms of this size.
!_/ Farms which only feed lambs. Have no breeding herds.
_' Costs and Returns, Migratory-Sheep Ranches, Utah-Nevada, 1972, by
W.D. Goodsell and M. Belfield, ERS, USDA, June, 1973.
V-8
-------
Figure V-l. Number of farms with sheep and lambs, 1969
Source: 1969 U.S. Census of Agriculture
-------
Table V-4. Number of farms with sheep and lambs, percent of farms and sheep and lambs
sold, by inventories per farm, ten leading states, 1969
Inventories of
Texas
N o . Fa r m s
Percent Farms
Percent Sold
Colorado
No. Farms
Percent Farms
Percent Sold
Wyoming
No. Farms
^ Percent Farms
i Percent Sold
o
California
No. Farms
Percent J^arms
Percent Sold
South Dakota
No. Farms
Percent Fa rms
Percent Sold
Idaho
No. Farms
Percent Farms
Percent Sold
1-
24
1,549
15. :,
.9
423
19- 9
1. 0
176
8.4
1. 1
611
26.6
. 7
1,388
20. 0
2.2
388
23.4
. 7
25-
99
2,297
22. 9
3. 5
502
23.6
1. 8
416
19. 8
1. 8
565
24. 6
1. 8
3,004
43. 3
13. 5
485
29-3
4. 2
100-
299
2,951
29- 5
11.6
473
22. 3
5. 8
577
27. 5
6.8
411
17.9
4.4
1,655
23.9
21.5
402
24. 3
7. 3
300-
999
2,228
22. 2
24. 6
364
17. 2
12. 3
478
22. 8
14. 9
365
15.9
14. 2
722
10. 4
28. 3
178
10. 7
13.4
1,000-
2,499
716
7. 1
23.7
255
12. 0
26. 6
258
12.3
22.6
177
7. 7
16.6
129
1.9
14. 1
107
6. 5
19. 1
Sheep and Lambs
2,500-
4,999
210
2. 1
20. 9
74
3. 5
17.9
105
5.0
18. 2
91
4.0
18.1
29
.4
10. 9
60
3.6
23. 0
5,000+
66
. 7
14. 8
32
1. 5
34.6
87
4.2
34.6
77
3. 3
44. 2
6
. 1
9. 5
36
2. 2
32. 3
Total
10,017
100%
100%
2,123
100%
100%
2,097
100%
100%
2,297
100%
100%
6,933
100%
100%
1,656
100%
100%
-------
Table \' -4 (i-nnt inutd)
Iowa
No. Farms
Pei cent Farms
Percent Sold
Montana
N o . Fa r m b
Pe rcent. Fa r AI 5
Percent hold
Utah
No. Farru^
Percent Fa i u, ;
Per^ eut Soi 1
Oregon
No. larr^s
Percent Farms
Percent Sold
in-'entorit s 01 Sh<
1- 25- 100» 300- 1.UUO-
21 99 299 999 2,499
7,472 0,151 1.111 2.1., 53
49. 7 40. 9 7.4 16 .2
12. S 31- 8 18. 5 2u. o 1C [;
159 t-.H m 5L' 217
j i -. 24, -i .l.i. 20. ^ o o
L . 3 57 1 1 r, "'6 T, . v 1
}(>G ,11 i 1 ' - ~ . 1 C 0
i 7 - _ i . 2 Mi ji ''-j
r .- i / '. J . '' '3 4
MJ, "-i2 c.2 i 2.: ""<
21. 4 3'). 8 J'o. 5 M. i lo
20 7. 8 ID. 3 14 '/ R. 4
'ep and Laa'ibs
2, "t.OO-
4,999 5,000+
5 2
.1 .1
2.5 3. 1
5n 13
.: . 2 . b
i 5 r, 7.7
7 o 25
J ^ 1.4
; i ! ^ i . 3
1 J 11
. ', ,5
J.3 47.3
Total
15,021
100%
100%
2,513
100%
100%
1,748
100%
100%
2, 367
100%
100%
Source: 19&9 Census of Agriculture
-------
Lamb and Sheep Production
Texas is the leading sheep producing state producing over 175 million
pounds of lamb and mutton in 1971. This amount accounted for 17
percent of U.S. output (Figure V-2).
California ranks second in sales of lamb and mutton followed in order
by Colorado, Wyoming, South Dakota, Idaho, Utah, Montana, Iowa
and Ohio. These ten states accounted for 70 percent of all lamb and
mutton production in 1971.
Seventy-seven percent of all production is concencentrated in ,the western
half of the U.S. Increased concentration in this area is anticipated.
Reports of sheep and lambs on feed for 196Z and 1972 show declining
inventories for all states in the eastern half of the U. S. States with
increases in number of head on feed were all located in the west or
southwest (Table V- 5). States with increases were Texas, Wyoming,
Idaho, Montana, Oregon, Arizona, Utah and Nevada.
Employment
The number of people employed in sheep and lamb production is assumed
to be a function of the number and size of production units.
Of the estimated 150,000 people employed on production units, 60,000
are assumed to be located in the eastern half of the U. S. The other
90, 000 persons are assumed to be employed in the west.
V-1Z
-------
410
^- ' If****' i, 377
'
Figxire V-Z, Quantity of sheep a ad J 'unlit,
Source: A gr Cultural Statistics , USbA .
eo in pounds, live .* ei silit basis, 1,000 pounds, 1971
-------
Table V-5. Sheep and lambs on feed, number by states,
percent of production, ranked by states, U.S. 1972
State
Colorado
Texas
Iowa
Nebraska
South Dakota
Wyoming
Minnesota
Ohio
Idaho
California
Montana
Oregon
Kansas
Arizona
Utah
North Dakota
Illinois
Michigan
Mi s s ou ri
Oklahoma
New Mexico
Nevada
Washington
Indiana
Wisconsin
New York
Total U.S.
Source: Agricultural
January 1.
Numb e r
1962
570
240
474
377
257
105
248
198
<55
302
98
64
314
76
82
113
163
84
116
53
52
8
30
60
50
21
4,250
Statistics, U. S.D.
on Feedi/
1972
440
399
179
152
145
116
109
108
102
102
100
99
97
91
85
73
55
46
44
33
32
28
25
21
21
13
2,715
A., 1972
Percent of
U.S. - 1972
16.2
14.7
6.6
5.6
5.3
4. 3
4.0
4.0
3.8
3.8
3.6
3.6
3.6
3.4
3. 1
2.7
2.0
1.7
1.6
1.2
1.2
1.0
0.9
0.8
0.8
0.5
100.0
V-14
-------
Comment
Due to limited time, and also lack of success in obtaining cost of pro-
duction data, a financial profile for sheep and lamb production is not
included in this draft. If requested, this data will be included in the
final report.
V-15
-------
PART VI: THE EGG INDUSTRY
I. EGG INDUSTRY SEGMENTS
A. Types of Firms
Since the early 1950's, the market egg industry has undergone rapid
and at times revolutionary change. Emerging is an industry which
bears little resemblance to that which existed several decades ago.
Large commercial flocks have emerged, increased efficiency has re-
sulted in increased egg production per bird, egg quality has improved,
marketing channels have been shortened, and increased coordination has
occurred involving input-supplier s , egg producers, processing, and
distribution. These changes have not occurred uniformly throughout
the United States as some regions such as the South, Southwest and
West have undergone a more rapid evolution than other areas.
Number and Size of Production Units
The 1969 Census of A griculture reported Z79,899 farms with layers.
This represented a 67 percent decrease since 1 964 when 1, 145, 447
farms were reported to have layers. _ Decreases in the number
of farms occurred in those farms with flocks of under 10,000 birds
(Table VI-1). Farms with larger flocks increased in number.
During this five year period there were significant increases in con-
centration of birds in larger flocks. The number of farms with over
10, 000 birds increased from 5,4l4to7,175. The percent of birds
controlled by these larger producers increased from 39 to 67 percent.
In 1969 two and one-half percent of all farms with layers controlled two-
thirds of all birds.
Percent of layers in Flocks
Under Over
10,000 10,000
1964 61 39
1969 33 67
_' Part of this decrease may be explained by the fact that the 1964
census included all farms and the 1969 census included only those
farms with gross incomes of $2,500 or more.
VI-1
-------
Table VI -1. Number of farms with layers and percent of layers,
by size, 1964 and 1969, U.S.
19691/
Size/Birds
1,
3,
10,
20,
50,
100
1 - 99
100 - 399
400 - 1,599
600 - 3,195
200 - 9,999
000 - 19,999
000 - 49,999
000 - 99,999
,000 +
Total
Number
Farms
166,591
72,957
21,525
3,630
8,021
4,047
2,238
565
325
279,899
Percent
Farms
59-
26.
7.
1.
2.
1.
0.
0.
0.
100.
5
1
7
3
9
4
8
2
1
0
1964^
Percent Number Percent
layers Farms Farms
2.
5.
5.
3.
17.
19-
22.
11.
14.
100.
0
1
3
1
5
3
1
2
4
0
832,790 72.7
223,080 19-5
62,314 5.5
9,540 0.8
12,309 1-1
3,466 0.3
1,484 0.1
329
135
1,145,447 100.0
Percent
layers
7.
12.
12.
6.
21.
14.
12.
5.
6.
100.
6
6
4
8
7
4
7
7
7
0
Source: _ 1969 Agricultural Census, Farms with gross incomes of
$2, 500 or mote,
I/ 1964 Agricultural Census. All farms.
Vl-2
-------
Volume of Marketings
The average number of layers on farms has exceeded 300 million
birds during the past eight years. In 1965 there were 301 million
birds on farms. The number on farms increased to 319 million in
1971 and then decreased to 307 million in 1972.
Average No. of Layers
(1,000's)
1972 307,090
1971 314,805
1970 312,922
1969 306,281
1968 309,824
1967 313,720
1966 303,833
1965 301,055
The decline in layer numbers since 1971 was partially offset by in-
creased productivity of layers. Average number of layers decreased
by 2.4 percent while shell egg production decreased by only one percent.
Increased productivity resulted from reduced mortality of pullets prior
to and after entering the laying flock and also improved health and vigor
of layers. The primary factor influencing productivity was the continued
and increased use of Marek's vaccine.
The volume of eggs sold from farms has not changed significantly during
the past seven years. In 1972 farmers sold 5, 898 million dozen eggs,
an increase of less than one percent since 1965.
Eggs Produced
Million dozens
1972 5,898
1971 5,987
1970 5,853
1969 5,629
1968 5,680
1967 5,777
1966 5,517
1965 5,463
VI-3
-------
The value of eggs sold equalled $1,832 million in 1972 and represented
3. 5 percent of total farm income.
The significance of eggs as a source of farm income varies greatly
by states. In Connecticut, Maine and New Hampshire, egg sales account
for over twenty percent of farm income. In Alabama, Massachusetts
and Georgia, eggs contribute between ten and thirteen percent of farm
income. In other egg producing states, eggs contribute less than ten
percent of farm income.
Age of Production Facilities
There are no known studies pertaining to the age of houses for layers.
Therefore, estimates by regions are made on the basis of shifts in
egg production by areas, rates of growth by states and types-of manage-
ment systems used in production.
The average life of a layer house is estimated to be twenty years. In
areas where the climate is harsh the life expectancy maybe greater
due to construction of better facilities for warding off the effects of
extremely cold temperatures. These facilities require larger capital
expenditures and, therefore, longer use before being replaced.
Egg production has shifted geographically during the past decade. The
South, from the Carolina's to Arkansas, has experienced a rapid growth
in the number of layers. Also growth has occurred in Maine and Cali-
fornia. To accomplish this growth construction of new laying houses
must have occurred.
In other traditional production areas of the United States, such as New
York, Pennsylvania and the Corn Belt states, egg production has been
declining. With production declining, we can assume that few new replace-
ment houses are being built and that most houses have been fully de-
preciated and are approaching obsolesence.
If these assumptions are correct, we can conclude that the average age
of layer houses is lowest in the South Atlantic, Mid-South and the states
of Maine and California. Average age of houses in these areas is esti-
mated to be 5-10 years. Housing in the Corn Belt and New York area
is estimated to average 15 years of age.
VI-4
-------
Location of Major Production Segments
California is the leading egg producing state with over 39 million layers,
representing 12. 8 percent of all birds in the United States. Of the ten
leading states, six are located in the South or Southwest and include
Georgia, Arkansas, North Carolina, Alabama, Texas and Florida.
(Figure VI-1).
Percent of
State U.S. Layers
California 12.8
Georgia 8. 1
Arkansas 5.4
North Carolina 4. 9
Pennsylvania 4. 9
Indiana 4. 2
Alabama 4. 1
Texas 3.9
Florida 3.9
Minnesota 3. 6
Egg production has shifted geographically during the past seven years
with production being concentrated in the South, California, Maine and
Indiana (Table VI-2). Major increases in layer numbers, since 1965,
have occurred in Florida, Arkansas, Georgia, Maine, the Carolina's,
Alabama, California, and Indiana. Declines occurred in other leading
states such as Iowa, Wisconsin, Illinois, Minnesota, Ohio, Texas,
New York, Michigan, and Pennsylvania. Major egg producing states
which had increases in layer numbers since 1965 are as follows:
Percent change in
State layer number, 1965 - 1972
Florida 57
Arkansas 49
Georgia 32
Maine 31
South Carolina 27
North Carolina 22
Alabama 20
California 20
Indiana 13
Mississippi 4
Missouri 2
VI-5
-------
<
i*
t
Figure vi. i. CHICKENS ON HAND, THREE MONTHS OLD AND OVER, 1969
I
\ :
- \ -_^_. ^ -. .
: V ^:-/V^--\jU'"J-
*t- I r . . "-»»-' -^^JIT, ' \ ~\
C ' - !-- . '. .' R1--S: .-(
- lr-\ l - . ."' /? \ (_^-rr
x\ ' -.-'. r.;^-""
V /--x . > ;- -^
\ ./"
t. J SHKC C«SBJ am
^'-}
V'
j*V-
T*.
%
«»
ft". '
»
i DOT -- m,tw «M
41 STITt TOTM. JH.IBMM
Source; Pouitry and Egg Situation, Economic Research Service, U.S. Department of
Agriculture, November 1972.
-------
Table VI-2. Number of layers, by states, ranked in declining order
of significance, 1972
State
California
Georgia
Arkansas
North Carolina
Pennsylvania
Indiana
A labama
Texas
Florida
Minnesota
Mis sissippi
Ohio
New York
lowA
Illinois
Missouri
Michigan
Maine
Wisconsin
South Carolina
United States
Numb e r
layers
39,
24,
16,
15,
15,
12,
12,
12,
12,
10,
171,
10,
10,
9,
9,
7,
6,
6,
5,
5,
5,
78,
307,
201
754
519
172
081
865
552
115
075
917
231
424
158
903
814
804
661
621
902
806
757
850
090
Percent of
U.S.
12.
8.
K
4r
4,
4.
4,
3.
O .
J t
55.
3.
3.
-> .
3
2.
"1
^
J. ,
1,
I.
25,
8
1
4
9
9
2
i
9
Q
.">
8
i
^
J
5
'>
t.
9
r.
Q
f
Percent change,
1965-1972
20
32
49
22
- 3
13
20
- 5
57
-}
~ I
4
- 6
- 5
-41
- 7
2
- 4
31
-13
?"
-
Source: USDA, SRS
VI -7
-------
Level of Technology and Efficiency
The commercial egg industry must be regarded as an industry which
is innovative and relatively efficient in the use of resources. New
technology is rapidly adopted, particularly by larger producers, as a
means to reduce costs in a highly competitive industry.
Poultry houses are engineered for minimizing labor requirements in
feeding, cleaning, as well as egg collection. Houses are also designed
for specific climatic conditions.
Methods of handling layers has changed drastically during the past half
decade. Data from trade sources show a shift from traditional floor-
litter systems of handling birds to the use of cage or wire-type systems.
It is estimated that 75 percent of all layers in 1972 were housed in cage or
wire-type houses compared to only 44 percent in 1965. Use of cage systems
has grown most rapidly in the growth areas.
Adoption of new health practices has been accelerating. An example is
the use of Marek's vaccine. The time span from the inception of the
vaccine to widespread use was about one year. The resultant effect
was decreased mortality and increased productivity per layer.
Size of flocks has been increasing, mortality rate has decreased,
eggs per hen have increased, quality of eggs has improved, and the
labor requirements per hen have declined. All the factors are indica-
tive of increasing efficiency resulting from widepsread use of new
technology.
Perhaps the best measure of increased efficiency are the changes
which have occurred in the farm to retailer price spreads. In 1955
this spread equalled 18. 1 cents per dozen. By 1969 it had decreased
to 9.0 cents., Without a progressive industry, consumers v/ould have
paid 9.0 cents more per dozen for all eggs consumed.
Level of Integration-Coordination
The egg industry has evolved from small farm flock oriented production
systems to large scale commercial production units. Three decades ago
production was concentrated in small flocks with surplus eggs being sold
to local buying stations, stores or consumers. Producers made all
management decisions relative to feeding programs, types of chicks
to buy, remedies for disease control or prevention, and other manage-
ment practices.
VI-8
-------
As time passed, technological advances were made in disease control
and feeding practices. These advances coupled with improved trans-
portation, and communication made larger production units more feasi-
ble. At this stage many functions formerly performed by producers left
the farm and specialization developed in feed milling, hatching, and
egg distribution. Producers relied more and more upon outside sources
for production inputs and for egg distribution.
Then as some production units reached larger scales, many began to
integrate both backward and forward. Producers established their own
feed milling facilities , hatcheries, breeding flocks , egg proce ssing
facilities and distribution programs.
The industry today is a composite of completely integrated units to
producers who remain relatively independent. The trend is toward
greater vertical integration and/or coordination.
The percent of table eggs produced by owner-integrators increased
from 1.5 percent in 1955 to 20.0 percent in 1970. _' A corresponding
increase occurred with eggs produced under production contracts.
Contract marketing of eggs has increased slightly from 12, 5 percent
in 1955 to 15.0 percent in the 1970's. Percent of eggs from independent
producers has decreased rapidly accounting for only 45.0 percent of
all eggs in 1970.1/
Percent of Market Eggs Produced By:
Owner Contract Contract Independent
Integrator Producer Marketing Producers
1955 1.5 0.5 12.5 85.5
1970 20.0 20.0 15.0 45.0
The extent of integration varies by region of the United States. Egg
production from owner- Integra ted operations and contract production
is most significant in the South Atlantic, South Central, and the West.
Owner-integrator controls via ownership all factors of production
and processing.
£.' Production contracts. Includes all contractional arrangements between
an integrator and grower including: (a) supplying of production inputs by
a contractor; and (2) payments of a stipulated amount per dozen to a
grower who has ownership of production facilities.
£/Marketing Channels for Eggs, G-M. Rogers, Marketing Economics Div. ,
U.S.D.A. , Marketing & Transportation Situation, May, 1973.
VI-9
-------
Percent of 1969 Market Egg Supply From:
Owner Contract
Area Integrators Producers
North Atlantic 11.5 16.8
East North Central 8.0 11.5
West North Central 4.7 5.6
South Atlantic 19.2 24.1
South Central 32.3 33.5
West 39.0 13.7
United States 19.2 19.0
Source: Vertical and Horizontal Integration in the Market Egg
Industry, 1955-69, ERS, USDA, ERS 477.
Level of Diversification
The majority of egg producers are specialized units with specialization
increasing as flock size increases. Flocks of 20, 000 birds or more
require a full time commitment of an entrepreneur. As flock sizes
have increased, egg production has moved from being a supplementary
farm enterprise to a full time occupation.
In the major egg producing states of New England, New York, the South
and West egg production is a specialized enterprise. In portions of the
Midwest some producers still have small flocks to supplement farm in-
come. These numbers, however, are rapidly decreasing.
With the exception of the Midwest, most egg producers have few farm
alternatives other than egg production. In most areas of the South
and New England, the topography of the land limits row crop production.
Also land bases are relatively small preventing expansion into livestock
production which require larger acreage. The best alternative egg pro-
ducers have in these areas is probably off-farm employment.
In the corn belt areas egg production has been a diversified enterprise
particularly with farm flocks of 5,000 or less birds. Having other farming
alternatives, is one of the factors that has led to the decrease in egg
production in the midwest. The comparative advantage of row crops
and/or livestock, and larger land basis, has resulted in many midwest
farmers discontinuing egg production.
1969 Census of Agriculture.
VI-10
-------
B. Number of Plants and Employment by Segments
In 1969 the Census of Agriculture reported 279,899 farms with layers,
These farms were further classified using the number of layers as a
measurement of size.
Size of Flock Number of Farms
1'- 99 166,591
100 - 399 72,957
400 - 1,599 21,525
1,600 - 3,195 3,630
3,200 - 9,999 8,021
10,000 - 19,999 4,047
20,000 - 49,999 2,238
50,000 - 99,999 565
100,000+ 325
Total 279,899
Statistics pertaining to the number of people employed in egg production
units is not available,. Therefore, employment was estimated using size
of flocks as the criterion for determining Labor requirements.
Labor requirements for caring for flocks with I. ss than 400 birds is
assumed to be insignificant. Flocks of thi« size are primarily located
in the Midwest and used as a source of supply for home consumption.
To estimate the labor requirements for all flocks exceeding 400 birds,
the assumption was made that producers sell eggs to processors in case
lots, with all grading and cartoning being done by egg processors.
Next the assumption was made that a 25,000 bird flock would require
the full time efforts of one man. Labor requirements for larger flocks
were prorated using a 25, 000 bird flock as a norm. Fa rms with flocks
under 25,000 birds -were assumed to require one full time man.
VI-11
-------
Size
Flock I'
1,000
2,400
6,500
15,000
35,000
75,000
135,000
Number
Farms
21,525
3,630
8,021
4,047
2,238
565
325
40,351
Labor Required
Per Farm
1.0
1.0
1.0
1.0
1.4
3.0
5.4
Total
Labor
21, 525
3,630
8,021
4,047
3,376
1,695
1,755
44,049
Midpoint of range used by Census of Agriculture
Units of full time labor required per flock
An estimated 44,049 people are employed on 40,351 units and supply
93 percent of all table eggs. The remaining eggs are supplied by small
farm flocks for which it is difficult to estimate employment.
Of the 44,049 people employed in egg production, 40,351 are estimated
to be individual producers and does not include family labor. The other
3,698 people are assumed to be hired labor.
C. Relationship of Segments to Total Industry
Number of Production Units
In 1969 the Agricultural Census reported 279, 899 farmers with layers
(Table VI-3 ). These farms were scattered throughout the United
States with all states having some flocks.
Of the total number of farms, 5.4 percent had flocks of 3,200 or more
birds. These 15, 196 production units controlled 85 percent of all layers.
Concentration of layers in these larger flocks has been increasing and
represents the relevant segments of the egg industry.
Georgia has the largest number of farms with flocks of 3,200 or more
birds (Table VI-3 ). North Carolina ranks second, followed in order
by California, Arkansas, Alabama, Ohio and Pennsylvania.
VI -12
-------
Table VI-3.Numbe r of farms with layers and number of farms with
flocks of 3,200 or more layers, 1969
State
Georgia
North Carolina
California
A rkansas
Alabama
Ohio
Pennsylvania
Indiana
Texas
Minnesota
Iowa
Florida
Michigan
New York
Illinois
South Ca rolina
Maine
Missouri
Mis sissippi
New Jersey
Tennessee
A rizona
Connecticut
Wisconsin
Virginia
Washington
Louisiana
Kansas
Kentucky
Massachusetts
Maryland
New Hampshire
Oklahoma
South Dakota
Oregon
West Virginia
Utah
Nebraska
Idaho
Delaware
Farms with 3, 200
or More Layers
1,497
1,059
994
951
935
814
789
756
521
487
455
433
437
411
350
313
298
296
296
275
265
264
218
206
197
173
171
154
150
139
113
102
97
92
81
69
59
48
35
35
All Farms
with Layers
4,448
9,449
2,805
3,837
3,845
9,855
7, 961
8,039
14,462
15,955
26,450
1,526
4, 964
3, 314
14,863
2,653
538
15, 980
4,009
856
9,068
315
b34
14, 304
6, 177
1, 826
3,261
13, 184
10,504
497
1,725
305
7,970
12,034
1,750
1,705
712
17,024
2, 113
269
VI-13
-------
Table VI-3.(continued)
State
Colorado
Monta na
Rhode Island
Vermont
New Mexico
North Dakota
Wyoming
Nevada
Total
Farms with 3,200
or More Layers
33
31
27
21
18
14
7
--
15, 196
All Farms
with Layers
3,590
4,367
86
416
931
7,651
1,504
268
279,899
Source: 1969 Census of Agriculture. Farms with gross incomes of
$2, 500 or more.
VI-14
-------
Production
Egg production is highly correlated with the average number of layers
on farm. Therefore, the relationship of segments to the total industry
will be analyzed by using average number of layers on farm.
There is considerable variation, by states, in the percentage of layers
controlled by different size segments of layers. In the ten leading egg
producing states, concentration of birds in flocks of 50, 000 or more
varies from a high of 66 percent in California to a low of 13.6 percent
in Minnesota (Table VI-4). Generally the greatest concentration of
layers in large flocks are found in those states which have recently emerged
as major egg producing centers. States included are Alabama, Texas,
Florida, Georgia, Arkansas, North Carolina and California.
Employment
Egg production up to a certain size layer flock is primarily a family-
type of operation. The concensus of trade people is that the average
farmer with family labor can care for a layer ilock of 25 , 000 birds .
This assumes he sell eggs in cases to a processor and does not grade
or carton eggs on farm.
As the size of flocks increase by units of 25,000 birds it is assumed
one additional man will need to be hired. Und^r this assumption, a
100, 000 bird flock would require four full time employees.
An estimated 44,000 people are employed on farms with layers. This
number can essentially be allocated among states relative Lo the per-
centage of larger farms lo.cated in each of these states.
VI-15
-------
Table VI-4. Number of farms and percent of layers, by size, ten leading states, 1969
California
No. farms
Percent farms
Percent layers
Georgia
No. farms
Percent farms
Percent layers
Arkansas
No. farms
Percent farms
Percent layers
North Carolina
No. farms
Percent farms
Percent layers
Pennsylvania
No. farms
Percent farms
Percent layers
1-99
1,569
55.9
. 1
2,682
60.3
.2
2,659
69.3
.3
7,211
76.3
1.3
2,731
34.3
.8
100-
399
70
2.5
. 1
104
2.3
. 1
134
3.5
. 1
687
7.3
.7
2,076
26. 1
3.2
400-
1,599
95
3.4
.2
77
1.7
.3
44
1. 1
.2
337
3.6
1.8
1,870
23.4
10.9
1,600-
3, 199
77
2.7
.4
88
1.9
.8
49
1.3
.7
155
1.6
2.6
495
6.2
8.5
3,200-
9,999
257
9.2
3.8
641
14.4
15.4
490
12.8
17.2
609
6.4
25.3
461
5.8
20.0
10,000-
19,999
271
9.7
9.2
498
11.2
25.3
268
7.0
18.8
291
3.0
26. 1
210
2.6
20.6
20,000-
49,999
282
10.0
20.5
267
6.0
28. 1
143
3.7
22.0
127
1.4
23.9
94
1.2
19.7
50,000-
99,999
103
3.7
15.9
60
1.9
13.4
34
.9
11.4
24
.3
9.6
17
.2
6.4
100,000+
81
2.9
49.8
31
.8
16.4
16
.4
29.3
8
. 1
8.7
7
. 1
9.9
Total
2,805
100
100
4,448
100
100
3,837
100
100
9,449
100
100
7,961
100
100
-------
Table VI-4. (continued)
Indiana
No. farms
Percent farms
Percent layers
Alabama
No. farms
Percent farms
Percent layers
Texas
No. farms
Percent farms
Percent layers
Florida
No . fa rm s
Percent farms
Percent layers
Minnesota
No. farms
Percent farms
Percent layers
1-99
3,869
48.1
1.2
2,574
66.9
. 5
11,093
76.7
2.6
957
62.7
. 1
4,666
29.2
2
100-
399
2,435
30.3
4
154
4.0
.2
2, 124
14.7
3.0
45
2.9
. 1
7 , 640
47.9
17.7
400-
1,599
770
9.6
4.6
110
2.9
.7
561
3.9
3.2
52
3.4
.3
2,943
18.4
19.6
1,600-
3, 199
209
2.6
4.4
72
2.0
1.4
163
1. 1
3.0
39
2.6
.6
219
1.4
5. 1
3,200-
9,999
428
5.3
21.4
524
13.6
25.0
227
1.6
10,7
102
6.7
4.7
350
2.2
23. 1
10,000-
19,999
186
2.3
20.8
262
6.8
26.0
129
.9
13, 8
117
7.7
12,0
104
.6
15, 0
20,000-
49,999
118
1.5
27.0
106
2.8
21.8
118
.8
26.8
154
10. 1
33.5
20
. 1
4.9
50,000-
99,999
18
.2
9. 1
32
.8
14.9
30
.2
16. 1
38
2.5
17.4
6
1
2.9
100,000+
6
. 1
7.5
11
.2
9.5
17
. 1
20.8
22
1.4
31. 2
7
. 1
9.7
Total
8,039
100
100
3,845
100
100
14,462
100
100
1,526
100
100
15,955
100
100
Source: 1969 Agricultural Census: Farms with gross sales of 2, 500 or more.
-------
II. EGG INDUSTRY FINANCIAL PROFILE
The commercial egg industry is characterized by operations with 9, 000-
bird flocks or greater. The industry is primarily concerned with the
production of eggs for retail sale and home table consumption. We are
including for purpose of comparison of financial profiles flocks of 3, 000
or more birds.
At this time we are limiting our analysis to first cycle production, with-
out consideration of molting or other means of extending the useful pro-
ductivity of hens.
It is assumed that there are sufficient numbers of producers and pur-
chasers in the egg industry that no firm or operation can affect the prices
paid or received by either in the overall industry.
A. Plants by Segments
Flocks with 3, 000 or fewer birds are basically a farm operation producing
a very insignificant portion of the total eggs produced (although significant
in number). These operations typically provide eggs for home consumption
with surplus production being sold. These operations are also character-
ized by very low levels of investment, and very limited use of labor savings
technology.
Our primary study is directed at three different types of operations with
flock sizes ranging from 8,700 to 18,800 birds. The three operations are
defined as follows:
1. Flocks of 8, 780 birds housed in conventional floor systems.
2. Flocks of 9, 70Z birds housed in manual cage systems.
3. Flocks of 18, 886 birds housed in automatic cage systems.
All three of these operations are assumed to be operated exclusively by
family labor. Diseconomies of scale exist when size of flock involved
exceeds the capacity of family labor to operate the operation Operations
of such capacity do not represent a significant number of the total oper-
ations in the industry.
In all three operations utilization is assumed to be 100 percent.
VI-18
-------
Egg Industry Profitability
Commercial egg producers that are included in our study showed after-
tax return on sales from 7 to 10 percent (Table VI-5). After-tax ROI
is estimated at between 33.7 percent to 51.9 percent. The high level of
these ratios may be attributed to the low level of investment as compared
to the level of sales. Earnings are very sensitive to changes in feed costs
and retail egg prices. A one percent drop in the price of eggs results in
an average 7.5 percent drop in pre-tax income. Similar effects may be
expected for changes in feed prices.
There is a significant relationship between the level of labor saving
machinery used and the dollar profits accruing to the owner, although
ROI is declining as dollar returns are increasing. Family labor in the
three commercial units remains constant so that there are significant
increases in dollar returns to owners for their efforts by using labor
saving machinery.
Annual Cash Flow
Estimated annual cash flow (after tax income plus depreciation) and cash
flow on average fixed investment are shown in Tables VT-6 and VI-7 for selected
model operations. Depreciation schedules for operations indicated are
based on a useful life of 10 years for building and 10 years for equipment.
Cash flows like profitability are highly variable and dependent upon egg
price and feed costs. In our model operation data on the three commercial
size ope rations , depreciation composed from 21.8 percent to 31.7 pe rcent
of total cash flows.
The majority of the egg producers apply their annual cash flow two-fold,
one to retire government insured and other loans and secondly, to live on.
The majority of farmer type growers typically do not attempt to reinvest
depreciation and earnings nor accumulate them to replace worn out facilities,
but rather apply these funds to pay for the day to day expenses of living and
maintaining a family.
Market (Salvage) Value of Assets
The salvage value of the assets in the commercial egg industry are
limited to the value that an individual producer would place in the
physical structure (building) for alternative use, perhaps 15 percent
of original investment.
VI-19
-------
Table VI-5. Estimated pre-tax income and rate of return on average invested capital and after-
tax return on sales for egg producersby size of flock, 1971
Size of Flock
Financial Measure 3,000 8,780 9,702 18, 886
Pre-tax net income $1,530 $6,000 $6,762 $11,011
Pre-tax ROI* (%) 42.3 51.5 66.6 43.3
After-tax ROI* (%) 33.0 40.2 51-9 33.7
After-tax return on sales (%) 7.0 9-5 10.1 8.5
*/ Average return on fixed investment calculated by financial statement method.
tN)
O
-------
Table VI-6. Estimated cash flow for egg producers by' size of flock, 1971
Size of Flock
Financial Measure 3,000 8,780 9,702 18,886
Annual cash flow ($) 1,734 6,471 $6,739 12,593
Cash flow on average fixed
investment (%) 48.0 55.6 66.4 49.5
-------
Taole VI -7. Estimated cash flow for egg producers, by size of flock, 1971
Utilization (%)
Annual Output
Sales
Variable Expenses
Feed
Other
Fixed Expenses
Cash Earnings
Depreciation
Interest
Pre-tax Income
Excluding Family Labor
Cash Earnings
Depreciation
Interest
Pre-tax Income
3,000
100
16,974
9,126
7,779
54
15
540
-525
2,070
540
1,530
8,780
100
49,342
26,892
16,310
555
5,585
1,791
1,713
2,081
9,504
1,791
1,713
6,000
9,702
100
52,049
27,932
17,689
480
5,948
1,465
1,687
2,796
9,914
1,465
1,687
6,762
18,886
100
101,319
54,373
30,690
2,554
13,702
4,004
2,662
7,036
17,677
4,004
2,662
11,011
-------
Feeding equipment, cages and egg collection and storage equipment
being highly specialized in nature has zero salvage value.
Buildings comprise approximately 50 to 60 percent of total investment
in the conventional floor systems, 45 to 55 percent in manual cage
systems and 35 to 40 percent in mechanical cage systems.
Capital Structure
The commercial egg industry 'generally requires a low level of invest-
ment for each dollar of sales. In the commercial egg industry the ratio
is between $2. 50 to $3. 50 depending upon the type of operation involved.
The capital requirements are indicated in Table VI-8 and as can be
seen, the amounts of capital do not appear to be materially large in
amount. Both fixed asset and working capital requirements a re a
function of the number of birds to be handled.
Cost Structure
Fixed expenses are defined as those that do not vary in relationship
to output. These include:
Depreciation
Interest on Buildings and Equipment
Taxes and Insurance
Variable expenses are those expenses that do vary in relationship to
output. These include:
Feed
Hen depreciation
Medication, sanitation
Miscellaneous
The specific breakdown of these costs are presented in Table VI-9.
Table VT-lOshows the relationship between sales and various cost com-
ponents. Raw materials (hen depreciation and feed) compose the majority
of costs, representing 77 percent of sales for commercial operations.
Other cost components are relatively insignificant in amount when compared
to raw material costs.
For this reason even minor changes in raw material costs will cause
very significant changes in the total cost structure of the operation.
VI-23
-------
Table VI-8- Estimated replacement value and working capital requirements for egg
producers, by size of flock, 1971
Size of Flock
Capital Component 3,000 8,780 9,702 18,886
Replacement value of facilities
and equipment ($) 5,400 17,911 14,650 40,038
Net working capital!/($) 912 2,689 2,793 5,437
Replacement value of total
assets ($) 6,312 20,600 17,443 45,475
Net working capital = current assets - current liabilities
Current assets = 10% of feed costs + hen depreciation
Current liabilities = hen depreciation
I
INJ
-------
Table Vl-9. Total investment and annual cost of producing eggs, by size of flock, 1971
Size of Flock
3,000!^
9,
Investment Costs
Building and Equipment
Annual Fixed Costs
Depreciation
Interest on Building & E
Taxes and Insurance
Total Fixed Costs
Annual Variable Costs
Feed
Hen Depreciation
Interest on Operating Capital
Medication & Sanitation
Miscellaneous
Labor (family)
Total Variable Costs
Total Costs
Total Costs Excluding Farm labor
$ 5,400
$17,911
540
quipment
54
594
9,126
5,238
pital
162
324
2,055
16,905
17,499
m labor 15,444
1 ,
1,
3,
26,
11,
3,
43,
47,
43,
791
063
555
409
892
106
650
714
571
919
852
261
342
$14,650
18.886.2/
$40,038
1 ,465
967
480
2,912
27,932
12,351
720
830
569
3,966
46,341
49,280
45,314
4,
1,
2,
7,
54,
24,
1 ,
1,
1,
3,
86,
94,
90,
004
261
554
819
373
043
401
564
108
975
464
283
308
_' Costs derived from various Iowa State University, Farm Management Extension
2/ Source: Cost and Returns Analysis for Independent Commercial Egg Producers in Georgia, G. C. Lance, College
of Agriculture Experiment Stations, Research Bulletin 113, June, 1972.
- Flocks of 8,780 are housed in conventional floor systems
- Flocks of 9.702 are housed in manual cage systems
- Flocks of 18,886 are housed in automatic cage systems
- All systems are assumed to be operated by owner with no hir^d labor.
-------
Table VI- 10. Estimated costs for egg producers, by size of flock, 1971
II
I
3, 000
Item
Sales-
Raw materials-
Direct operating costs
Indirect operating costs
Depreciation
Interest
Total before-tax cost
$
16,974
14, 364
486
54
540
-0-
15,444
%
100.0
84.6
2.8
.3
3.2
90.9
8,780
*t O/
49,
37,
1,
1,
1,
43,
342
998
285
555
791
713
342
100.
77.
2.
1.
3.
3.
87.
0
0
6
1
6
5
8
9,702
$
52, 049
40,283
1,399
480
1,465
1,687
45,314
18, 886
Of d? of
100.0
77.4
2.7
.9
2.8
3.2
87.0
101,
78,
2,
2,
4,
2,
90,
319
416
672
554
004
662
308
100.0
77.4
2.6
2.5
3.9
2.7
89. 1
Based on price of 31. l£/dozen.
Includes feed and hen depreciation.
-------
B. Ability to Finance New Investment
As indicated earlier, virtually all of the internally generated cash flow
is applied to pay off loans and to live on. However new financial invest-
ment would generally not be difficult to generate considering the avail-
ability of funds from government insured loans, local bank mortgage
financing or from feed manufacturing firms.
The availability of these funds would generally not be tied to the
profitability of the operation..
VI-27
-------
PART VII: THE BROILER INDUSTRY
I. BROILER INDUSTRY SEGMENTS
A. Types of Firms
The broiler industry in the United States has evolved from an industry
in which production originated from a multitude of small farm flocks
to the present system of large production units. The bulk of commercial
production today is concentrated on less than 29,000 production units
with each unit averaging about 100, 000 birds annually m 1972. Growers
have used broilers as a means to supplement farm income. The present
trend is toward larger units requiring full-time employment of farm labor.
Broiler production today is a highly integrated system (figure VII-1).
Integrators generally have their own hatcheries, feed mills, processing
plants and distribution systems. They own the birds which are placed
on farms, supply feed and medication and then process the birds. The
farmer, or grower, supplies land, buildings, equipment, and labor.
For these facilities and/or functions he receives a stipulated rate per
pound of broilers produced.
The individual grower is dependent upon a contractor integrator for
survival. Management decisions are made by the contrai tor with tne
grower making only the basic decision to grow or not grow out broilers.
Number and Size of Production Units
In 1969 the Agricultural Census reported 23,704 growers producing
broilers. This represented a decrease in grower numbers of 6,050
since 1964 (Table VII-1). The decrease in grower numbers was a
function of smaller growers leaving broiler production. In the five
year interva 1 between 1964 and 1969, 10,592 growers producing less than
60,000 birds each discontinued production.
Production has become concentrated in units of 60,000 or more birds.
The number of units producing 60,000 or more birds annually increased
from 10, 282 in 1964 to 14, 824 in 1969- These larger producers in
1969 produced 80 percent of all birds compared to 66 percent in 1964.
VII-1
-------
Figure VII-1
FUNCTIONS OF A TYPICAL INTEGRATED BROILER FIRM
Reody-To-Cook
Broilers
Processing
Plant
Live Broilers
Broiler Feed and
Flock Service
Broiler Growout:
(1) Contract Growers
(2) Company Farms
Broiler Chicks
(1) Contract
(2) Company
Source: U. S. Department of Agriculture, Economic Research Service,
The Chicken Broiler Industry: Structure, Practices, and Costs,
Marketing Research Report No.
VII-2
930, May, 1971.
-------
Table Vll-i.Number of farms selling broilers and number sold, 1964 and 1969, U. S.
forty-eight states.
19691/ 1964ji/
Broilers sold
2,000-3.999
4,000-7, 999
8.000-15.999
16, 000-29,999
30,000-59, 999
60,000-99,999
100, 000 or more
No
Farms
1 ,
2,
8.
7,
7,
28,
188
555
63 ^
923
576
194
630
704
Percent
Percent Broilers
Farms Sold
0.
I.
5.
10.
29.
25.
26.
100.
7
9
7 1
2 3
9 16
1 22
5 5>)
0 100
No.
Farms
1,
1,
4,
6,
10,
5,
4,
34,
003
818
336
862
453
886
396
754
Pe.rcent
Farms
2.
5.
12.
19-
30.
16.
12.
100.
9
2
5
7
2
9
6
0
Percent
Broilers
Sold
-
-
3
8
23
23
43
100
_ All farms with sales of $2500 or more. Sales of broilers and other meat type chickens less than
three months old. 1969 U.S. Census of Agriculture.
_ All farms. Number of broilers and other meat type chickens sold. 1964 Census of Agriculture.
-------
Percent Growers Percent Broilers Grown
Growers producing
Less than 60, 000 birds
60,000 - 99,999
100, 000 or more
1964
70
17
13
1969
48
25
27
1964
34
23
43
1969
20
22
58
Of the larger growers there were 7, 630 in 1969, who produced more than
100, 000 birds each per year. These growers in total, grew 58 per-
cent of all broilers grow.n. The' number of growers in this size category
increased by seventy-three percent. Production is being increasingly
concentrated with larger growers and will probably increase in the future.
Fewer and larger growers can significantly affect an integrator's cost
by reducing costs associated with feed delivery, bird pickup, and super-
visory field management.
Volume of Marketings
Broiler production has grown rapidly since its infancy in the mid-thirties,
Production equalled 43 million birds in 1935, increasing to 1, 092 million
by 1955 and in 1972, 3, 075 million birds. During the past seven years,
the number of commercial broilers produced has increased by thirty-
two percent. In 1972, over three billion broilers were produced repre-
senting increases in production of over 650 million birds since 1965.
Million Birds Percent change
Year Produced 1965 to 1972
1965 2,334
1966 2,571 10
1967 2,592 11
1968 2,620 12
1969 2,789 20
1970 2,987 28
1971 2,945 26
1972 3,075 32
Gross receipts from broilers equalled $1.492 million in 1971, representing
2.8 percent of gross farm income. J_' In several states, broiler production
comprises a significant portion of gross farm income. In Delaware, one-
half of all farm income is derived from broilers. Other states in which
Gross receipts from live birds. It does not represent the receipts received
by an individual grower producing birds on contract.
VII-4
-------
broiler production represents significant portions of farm income are
Maryland (26. 1 percent), Alabama (21. 1 percent), Maine (19.6 percent),
Arkansas (18.8 percent), and Georgia (15.9 percent).
Age of Production Facilities
There is limited information available pertaining to the age of grow out
facilities. A study of broiler growers in Louisiana in 1966 reported
the average age of broiler houses to be 6.7 years.'
The age of facilities 'can be assumed to be highly correlated with growth
in production. States such as Arkansas, Virginia, Alabama, Mississippi,
North Carolina, and Texas have l-.ad increases in production, since 1965,
of twenty-five percent or more. These increases combined with an
exodus of smaller producers necessitates the construction of new housing.
Therefore, we can assume that housing in these states would be newer
than in those states where production has remained relatively stable.
Average age of housing in the growth states is estimated to be 10
years of age. Ages of housing in other areas is estimated to be
15 years.
Location of Major Production Segments
Major production areas are located in the northwestern corner of Arkansas;
northern Georgia and Alabama; Central Mississippi; east Texas, southern
Maine; the Delmarva Peninsula of Maryland, Delaware and Virginia;
central North Carolina and California. These areas account for a majority
of all production with other areas having limited output.
The ten leading broiler producing states produce eighty-four percent of
all "broilers grown in the United States. The three leading states of
Arkansas, Georgia and Alaba-ma alone produce forty-five percent of all
broilers. Of the ten leading states, all but Maine, Delaware and Maryland
are located in the South and/or South Central area.
J_/ "Costs and Returns in Producing and Marketing Broilers Under Contract
in Louisiana," E.P. Roy andF.R. Baker, Louisiana State University,
Agr. Exp. Station, D.A.E. Re search Report No. 380.
VII-5
-------
Percent of
State U.S. Prod.
Arkansas 17.3
Georgia 14.4
Alabama 13.0
North Carolina 9. 8
Mississippi 8. 3
Texas 5.8
Maryland 5.8
Delaware 4. 3
Virginia 2. 5
Maine 2.3
83.5
Growth in the industry since 1965 has not been spread evenly in major
producing areas. States in which production has increased more rapidly
than the national average of thirty-two percent are Arkansas, Virginia,
Alabama and Mississippi. Many of the traditional producing states
such as Georgia and Maine have had only modest increases in production.
Change in Production
State 1965 to 1972
Arkansas 67%
Virginia 61
Alabama 53
Mississippi 53
North Carolina 29
Texas 26
Maryland 22
Delaware 21
Georgia 10
Maine 4
Level of Technology and Efficiency
Broiler production has been characterized by rapid adoption of increasing
efficiency. Improved housing, automation in feeding and watering, pre-
ventative disease management, improved rations, and faster growing
birds have all resulted in reducing costs of production. In a recent
report by the U.S.D.A. gains in broiler production were characterized
by the following quotation:
VII-6
-------
"The greater-than-50-percent reduction in price and cost from 1949
to 1969 was possible because of substantial increases in production
efficiency. Primary breeders have improved broiler strains
sufficiently to reduce the time needed to produce a 3. 5-pound
live bird from 12-14 weeks 20 years ago to 8-9 weeks now.
Poultry nutritionists have developed improved feed formulations
which have helped reduce the amount of feed needed to produce
1 pound of live broiler from 4 pounds in 1940 to 2. 2 pounds today.
Mortality rates of 10 to 20 percent were common 20 years ago,
while a rate of more than 6 percent is considered high today.
Man-hours per 1,000 broilers prod-iced declined from 250 in 1940
to 15 in 1969 as a result of increased mechanization, more efficient
farm layouts, and larger flock sizes. Recent improvements in
modern poultry housing have stressed ;omplete environmental
control; that is, control of light, temperature, humiditv, and air
movement. Although further gains in efficiency are possible, it
is difficult to see how they can be 01 the magnitude of those in the
past 20 years. "_
Tncrcaseci efficiencies can be accomplished in broiie-r production wuh
emphasis today being placed on housing, handling and feeding >>i birds.
At present, most broilers are grown in confine.-, housing with housing
having 20, 000 to r.O, 000 square foot of space. Birds are tree to roam
throughout this space, manure is deposited on liner which may or may
not be removed after each batch, and birds ure ubiected to changes in
temperature.
Changes in production practices which could lead to increased efficiency
were discussed by Dr. Hal Yacowitz in a recent odilion of Feedstuffs
Magazine..'.:' Dr.. Yacowitz suggestions were:
-Stabilise the environmental temperature m house? io about
70 degrees t'ahrenheit. Feed conversion is reduced by either
higher or lower temperatures.
-Darker houses to reduce
-Use partitions within a house fo confine b^rds to smaller groups.
Smaller groups have less activity due to fewer disruptions and
activity in establishing pecking orders.
_!' "The Chicken Broiler Industry, Structure, Practices and Costs",
U..S.D.A., E.R.S., Marketing Research Report No. 930, May, 1971.
_' "Reducing Costs in Broiler Production," Dr. Hal Yacowitz, Dir. of
Research and Nutrition Services, The Amburgo Co. , Inc. , Philadelphia,
Pa., Feedstuffs, February 12, 1973.
VII-7
-------
-Use meal feeding instead of continuous feeding. Feed efficiency
increases if birds are fed meals instead of being allowed to
continuously nibble.
Level of Integration
The broiler industry is highly integrated with 95 percent or more of all
broilers produced under contract or by integrated firms. In this system
broilers are produced and marketed under contract between the grower
(farmer) and contractor (integrator) where each bears a specified part
of the costs and risks in production. Generally, growers provide
housing, equipment, litter, power, and labor. The contractor furnishes
chicks, feed, medicines and field supervision.
In this contractional arrangement, title to broilers remains with the
contractor. The grower in essence rents a fixed facility and labor to
the contractor and receives a fee based on pounds of birds produced.
The fee or payment received varies from one production area to another
depending upon the type of contract.
Some representative contracts are as follows:
Feed conversion - payment in this contract is based on feed conversion
rate. The grower receives a payment of 1 to 2 1/2 cents per pound
depending on his feed conversion rate per flock.
Prime Cost - minimum guarantee per thousand birds started. A growers
payment is based on his average production costs relative to the average
production costs of all growers with the contractor during the two weeks
prior to settlement. There is a minimum guarantee per thousand birds
started and all profits above the guarantee are divided between the
contractor and growers.
Cost of Production grouping - Growers are paid from 1 1/2 to 2 1/4 cents
per pound of broilers raised. Payments are determined by comparing
each grower's cost of production to that of the most efficient grower.
Feed conversion-body weight - Growers receive a base payment of 1 1/2
cents per pound. A bonus is paid to growers based on feed conversion and
average broiler weight.
Prime production costs - Growers receive 2 cents per pound plus or minus
the full amount of the difference between his cost of production and the
average cost of all growers, depending on whether the cost of production
is above or below the average of all growers. Minimum payment is guaranteed
not to be less; than 1.5 cents per pound.
VII-8
-------
Level of Diversification
With the exception of the California area broiler production is concentrated
in areas in which growers have limited farming alternatives. The topogra-
phy of the land and soil fertility are not conducive for intensive crop and/or
livestock production. These areas are deficit in grain production and
require imports of feed grains for survival of the broiler industry.
In most of the major producing areas, broiler production is considered as
a part time occupation, particularly for growers with housing capacity
of 40,000 or less birds. Many of these.- bmaller producers grow broilers
to supplement off farm income and to more fully utilize family labor.
Limited research on grower characteristics indicates that beef brood
cows is the next best alternate e for broiler growers. Most growers do
have some acreage which can best- b<. used for grazing cattle.
Once committed to broiler production bv building housing growers iiave
few alternatives. With modifications, nuusing facilities couid DC used
for other poultry such as layers or brooding turkey pouits, but have
limited possibilities for use in producing livestock.
B. Number of Plants and Employment by Segments
In 1969, the Agricultural Census reported 28, 704 farm? producing broilers.
These producers were further classified by the number of broilers sold.
The number of farms for each size classification are as follows:
Broilers Sold Number Farms
2,000-3,999 185
4,000-7,999 555
8,000-15,993 1,638
16, 000-29, 99q 2,923
30,000-59,999 8,576
60,000-99, 999 7, 194
100, 000 or more 7, 630
28,704
Limited data is available on the number of people employed on these
farm units. Noles in a study of Georgia broiler growers reported that
eighty percent of the labor used on broiler farms consisted of family labor.-I'
-I' "Broiler Production in Georgia: Growers Costs and Returns, " R.K. Noles,
M.Y. Dendy, University of Georgia, Research Report No. 34, Dec. 1968.
VII-9
-------
While some farms hired full-time caretakers, most farms limited hired
labor for the cleaning operation.
The number of people employed in broiler production was estimated
using the following assumptions: (1) a grower and his family can handle
a flock of 60,000 birds; and (2) each incremental addition of 60,000
birds requires an additional full-time hired hand. Using these assump-
tions, total labor employed on broiler production units approximates
39,930 persons excluding family labor.
Employees Total
Size of Flock Number Farms Per Unit Employment
<59,999 13,880 1 13,880
60,000-99,999 7,194 1.5 10,790
100,000 or more 7,630 2.0 15,260
28,704 39,930
C. Relationships of Segments to Total Industry
Number of Production Units
Of the 28, 704 broiler production units, eighty-four percent are located
in ten states. The largest number of production units are located in the
South and South Central states and include Georgia, Arkansas, Alabama,
North Carolina, Mississippi, Texas, Maryland, Delaware, Virginia
and Maine.
Number Production Number Birds
State Units - 1969 Produced - 1972
--1,000--
Georgia 5,351 442,937
Arkansas 4,259 532,135
Alabama 4,419 399,274
North Carolina 3,187 301,772
Texas 1,727 178,511
Maryland 1,444 177,247
Mississippi 1,431 256,264
Delaware 1,065 131,873
Virginia 746 77,238
Maine 551 71,344
Total 24,180 2,568,595
Production
Broiler production by states is highly correlated with the number of pro-
duction units (growers). The ten leading broiler states have 84 percent of
all production units and account for the same percentage of birds raised
(Fig ire VTI-2).
VII-!0
-------
Figure vii-z, BROILERS AND OTHER MEAT-TYPE CHICKENS SOLD, NUMBER 1S69
*'.'.''
I DOT = 500,000 IIROS
41 STATE TOTH 2.42M41.02I
Source; Poultry and Egg Situation, Economic Research Service, U.S. Department of
Agriculture, November 1972.
-------
There is considerable variation, by states, in the percentage of broilers
raised by larger growers. In Maine, Maryland, Delaware, Virginia, and
Texas, over 60 percent of all broilers are grown by producers growing
more than 100,000 birds annually (TabLe VII-2). In comparison, less than
half the birds in Mississippi, Georgia, and Alabama are produced by
these larger growers.
Employment
The number of people employed in broiler production is assumed to
approximate the number of production units. The limited hired labor
employed is used primarily to assist in cleaning houses either after
each flock is grown or annually. Cleaning requirements depend upon
a contractors management practices.
VII-12
-------
Table \il-2. Number of farms with broilers sold by size, ten leading states
Arkansas
No. farms
Percent farms
Percent broilers
Georgia
No. farms
Percent farms
Percent broilers
Alabama
< No. farms
"-1 Percent farms
^ Percent broilers
North Carolina
No. farms
Percent farms
Percent broilers
Mississippi
No. farms
Percent farms
Percent broilers
1- 2- 4-
1,999 3,999 7,999
10 7 42
* := 1 . 0
;',; :;: ;]:
10 13 71
* * 1.3
9 15 66
* --:- 1 . 5
=;= * *
17 7 34
* * 1.1
* * *
5 515
* * 1.1
f * *
Number of
8-
15,999
146
3.4
;|;
240
4. 5
*
184
4. 1
177
5.6
;];
60
4. 2
1.7
Broilers
16-
29,999
243
5. 7
1. 5
623
11.6
3. 7
482
10 . 9
294
9- 2
2. 7
46
3. 3
4. 2
Sold
30-
59,999
1 ,232
28. 9
15. 1
1,855
34. 7
21. 6
1,780
40. 4
23. 2
940
29- 5
15. 9
260
18. 1
25. 5
60-
99,999
1,301
30. 6
26. 1
1,461
27. 3
29- 1
1, 163
26. 3
26. 2
863
27. 1
26. 1
320
22.4
23. 6
100 ,000
1 ,278
30. 0
56. 8
1,078
20. 2
44. 8
720
16. 3
46. 6
855
26. 8
54. 4
720
50. 3
44. 5
Total
4,259
100
100
5, 351
100
100
4,419
100
100
3, 187
100
100
1,431
100
100
-------
II. BROILER INDUSTRY - FINANCIAL PROFILE
The focal point of this financia I analysis is the farmer who grows broilers
on a contract for a contractor (integrator). Under the provisions of the
contract, growers (farmers) provide housing, feeding, water, utilities
and labor. He does not take title to birds, buys no feed and accepts
supervision from a field man employed by contractors- In simplest
terms, the grower rents production facilities to a contractor. In turn
growers receive a rental payment based upon the number of pounds
of birds grown.
A. Plants by Segment
The financial profile of two contract growers are used in this analysis.
One grower is located in Maine and the other in Georgia. Both growers
were assumed to have the same capacity houses and produce the same
number of birds. Differences existed in investment costs and annual
operating expenses.
This methodology was used rather than developing financial profiles for
successfully larger growers. It is our opinion that financial profiles
vary more between regions than by size of operations. Economies of
scale in grow out operations are not relevant for the existing structure
of growers. Costs are a function of the number of birds grown with
a producer growing 20,000 birds at one time having basically the same
per unit cost of a grower with a flock of 50 or 100 thousand birds. (For
a description of model plant see Table VII-9).
Annual Profit Before Taxes
The estimated annual pre-tax net income for growers in Georgia and Maine,
producing about 1 87, 000 broilers annually was $2,077 and $3,189 respec-
tively (Table VII-3).
The difference between Georgia and Maine rates of return on investment
both before and after tax, is due largely to different levels of investment
required (which tend to be determined by region) and different contract
payment levels. In Georgia the moderately efficient grower ma/ expect
a return of 2. 2£/lb. while in Maine the same grower could expect 2. 6£/lb.
It is significant to note that a . 1^/lb. increase in contract payments yields
VII-14
-------
Table VII- 3. Estimated pre-tax income and rate of return on average
invested capital and after-tax return on sales for
broiler operations
Financial Measure Georgia
Pre-tax net income 2,077
Pre-tax ROI* (%) 6.9
After-tax ROI* (%) 5.4
After-tax return on sales (%) 11.8
Maine
3,189
8. 6
6. 7
15. 3
'^J Average return on fixed investment calculated by financial statement method-
VII-15
-------
an increase of $187 which in Georgia represents a 9% increase in pre-
tax net income, and in Maine a 5. 9% increase.
It is also important to note that contract payments are also often tied to
feed conversion ratios which is an indication of the efficiency with which
a bird converts feed to meat. Skillful management by growers will enhance
the feed conversion ratio and thus improve the return to the grower. This
situation can cause widely differing yields even between similar growers
in a region. We believe our estimates however, represent average growers
in the regions indicated.
Annual Cash Flow
Estimated annual cash flow is calculated by adding depreciation charges
to after tax net income. The percentage cash flow on average fixed invest-
ment and the annual cash flow are shown in Table VII-4 for selected growers.
Depreciation rates for growers is based on a useful life of buildings of
12. 5 years and of equipment of 8 years. Buildings represent approximately
60% of total investment and equipment approximately 40%. The rates of
depreciation are based on industry averages.
The majority of the growers apply tneir annual cash flow two fold, one
to retire government insured loans used to acquire facilities and secondly,
to live on. The majority of farmer type growers typically do not attempt
to reinvest depreciation and earnings nor accumulate it to replace worn
out facilities, bat rather simply apply these funds to pay for the day to day
expenses of living and maintaining a family
In our estimates we are excluding family labor as an expense since it is
difficult to measure. However, when an attempt to include family labor
is made, both Georgia and Maine growers show a negative pre-tax income
(See Table VII-5).
Market (Salvage) Value of Assets
The facilities required to produce broilers is simple in nature, a facility
to house the birds with adequate heating facilities to meet climate conditions
and feeding equipment that tends to be highly specialized to the needs of
b 'oilers.
The house arid heating equipment could presumably be converted into
alternative uses at a value of 15% of original investment The feeding
equipment would have little or no salvage vetlue since :t is highly specialized
equipment. Alternative uses might include other livestock operations,
storage facilities, or some type of machine shop It is also assumed that
the grower could recover his working capital requirements
Vll-ih
-------
Table VII- I- Estimated rash flow for broiler operations
Financial Measure
Georgia
Maine
Annual Cash Flow
7,402
9,172
Cash Flow on Average
Fixed Investment { %)
24. 5
24. 8
VII-17
-------
Table VII- 5. Estimated cash flow for a broiler operation,
Georgia and Maine, floor system, 1971
Utilization
Annual Output (pounds of broilers)
Sales -
Fixed Expenses
Variable Expenses
Cash Earnings
Depreciation
Interest
P re -Tax Income
Excluding Family Labor
Cash Earnings
Depreciation
Interest
P re -Tax Income
Georgia
100%
627,000
$ 13,794
629
7, 140
$ 6,025
5,781
1,767
- 1,523
$ 9,625
5,781
1,767
2,077
Maine
100%
627,000
$ 16,302
2, 110
5,760
$ 8,432
6,684
2, 159
-411
$ 12,032
6,684
2, 159
3, 189
' Assumes average prices paid to contract growers of:
2.2 cents/lb in Georgia
2.6 cents/lb in Maine
VII-18
-------
Capital Structure
It may be assumed that entry into the broiler industry is relatively easy,
in that only moderate capital is required to build the facilities required.
(See Table VII-6). The necessary capital is readily available to qualified
farmers through various government insured loans on reasonable terms
to the farmer.
Only a minimum of working capital is required which would be provided
by the farmer, representing-his only personal outlay to establish the
business.
Tie total capital required is a direct function of the desired level of
output with virtually no economies of scale.
Cost Structure
Model broiler grower data and budgets were prepared to estimate the cost
structure of representative operations.
Fixed expenses were defined as those which do not vary in relation to number
of broilers started- These include: (See Table VII-7)
Depreciation
Insurance and Taxes
- Interest on investment
Variable expenses ass those expenses that are a function of the number of
birds started. These include: (See Table VII-7).
Power (Heat, electricity)
- Litter
Repairs and Maintenance
Clean out
Miscellaneous
Fixed <. osts make up approximately 59- 3% of sales in Georgia and 67. 2%
of sales in Maine , while variable costs represent 25. 7% in Georgia and
13. 2% in Maine- Such a cost structure is typical for the contract broiler
industry since the grower does not incur costs associated with purchase
of chicks or feed. (See Table VII-8).
VII-19
-------
Table VII- 6. Estimated replacement value and working capital
requirements for broiler operation
Capital component Georgia Maine
Replacement value of facilities
and equipment 57,480 71,100
Net working capital . ' 1,428 1,440
Replacement value of total assets 58,908 72,540
VII-20
-------
Table VII-7. Total investment and annual costs of growing broilers,
thirty thousand square foot houses in Georgia and Maine, 1971
Georgia
Maine
Investment Costs
Building
Heating System
Feeding Equipment
Total Investment
$31,200
5,630
20,650
$57,480
$42,000
10,300
18, 800
$71,100
Annual Fix?d Costs
Deprec lation
Puildlng (8%)
Heating System (12.5%)
Feeders (12.5%)
Insurance and Taxes
Interest
Total Fixed Costs
Annual Variable Costs
Electricity
Heat
Litter
Repairs and Maintenance
Clean Out
Miscellaneous
Labor
Total Variable Costs
Total Costs
Total Costs excluding labor
2,496
704
2, 581
627
1,938
$8,346
370
1,530
890
400
150
200
3,600
$ 7, 140
$13,548
$ 9,948
2,814
1,370
2, 500
2,110
2,305
$9,099
690
x
X I/
510
450
510
3,600
$ 5,760
$14,554
$10,954
Source; Data were derived from the following secondary sources and updated by
contact with University and industry personnel.
"Estimated Cash Flows and Profitability of Maine Broiler Farms,"
K. E. Wing and W.C. Geiss, Jr., Life Sciences and Agriculture
Experiment Station, University of Maine at Orono, Bulletin 694,
Dec. , 1971.
"Broiler Production in Georgia: Grower's Costs and Returns," R. K-
Noles and M. Y. Dendy, College of Agriculture Experiment Station,
University of Georgia, Research Report 34, Dec. , 1968,
_' Heat and litter are provided by contractors.
VII-21
-------
Table VII-8. Estimated costs for broiler operations
Georgia Ma ine
Item ($) Percent ($) Percent
Sales!/ 13,794 16,302
Raw Materials -0- -0-
Direct Operating Cos.ts ' 3,540 25. 7 2,160 13.2
Indirect Operating Costs 629 4.6 2,110 12.9
Depreciation 5,781 41.9 6,684 41.0
Interest 1,767 12 8 2,159 13.3
Total before-tax cost 11,717 85.0 13,113 80.4
!/ See Table VII-7
VII-22
-------
Labor is not a variable cost since it is normally provided by owners
and therefore the cost of owner provided labor is the residual after
all other costs are deducted.
B. Ability to Finance New Investment
Since the broiler grower operation requires relatively little capital
investment as compared to other industries in the United States,
the broiler industry tends to be comprised primarily of single
proprietorship farmer units.
The farmer typically finds several available sources for capital
financing. These are primarily government insured load programs
such as Production Credit Association and Farmers Home Adminis-
tration. In addition to these, financing is available from local banks
via mortages on personal farm property as well as through the con-
tractors themselves.
It is assumed that the typical farmer operated broiler operation would
have little difficulty in acquiring additional financing for new investment.
VII-23
-------
Table VII- 9- Volume of birds produced and prices received
by growers, Georgia and Maine, 1971
House capacity
Birds started
Number lot
Broilers started per year
Mortality rate
Broilers delivered to
processing plant
Gross weight delivered to
processing plant, Ibs.
Net weight delivered-
Gross weight less
condemnations
Average prices paid to contract
broiler growers for marketable
broilers
Georgia
Maine
30, 000 sq. foot
37, 500 each lot
five
187,500
2. 5 percent
182,813
639,845 Ibs.
627,048 Ibs.
2.2 cents/lb
2.6 c e nt s / Ib
Source: A Comparison of Returns to Poultry Growers, ERS, USDA,
Marketing Research Report, No. 814, February, 1968.
The Delmarva Poultry Industry in Interregional Competition,
I.E. Via andJ.S. Crothers, Agricultural ExperLnent
Station, University of Maryland, M. P. 750, March 1970.
VII-24
-------
PART VIII: THE TURKEY INDUSTRY
I. TURKEY INDUSTRY SEGMENTS
A. Types of Firms
The turkey industry of today.is a highly concentrated industry with birds
being produced by relatively few growers within limited geographic areas.
Turkey production today bears little resemblance to the small farm flock which
dominated production systems of several decades ago.
Number ond Size of Production Units
The 1969 Census of Agriculture reported 5, 424 farms selling turkeys
(Table VIII-1). These farms averaged selling about 20, 000 birds each.
One-third of all turkey producers sell less than 2, 000 birds annually.
These 1,815 producers sold less than one-half of one percent of all turkeys.
in 1969.
Most significant are those farms selling 8, 000 or more birds annually.
There were only 2,617 of these farms in 1969, but they sold 95 percent of
all turkeys. The average number of turkeys sold per farm equalled
38,583.
Farms in 1969 Selling Percent Farms Percent Turkeys
Less than 8, 000 birds 52 5
More than 8, 000 birds 48 95
Of the larger growers there were 140 farms in 1969 that sold an average
of 200, 000 birds each. These farms produced 26. 4 percent of all turkeys.
Volume of Marketings
The number of turkeys raised has increased during the past seven years
with production equalling 128, 808, 000 birds in 1972. This was a produc-
tion record and represented a twenty percent increase in birds raised
since 1965.
VIII-1
-------
Table VIII-1. Number of farms with turkeys by size, and percent
of turkeys sold, 1964 and 1969
Size
1 - 1,999
2,000 - 3,999
4,000 - 7,999
8,000 - 15,999
16,000 - 29,999
30,000 - 59,999
60,000 - 99,999
100, 000 or more
Size
Under 5, 000
Over 5,000
Number
Farms
1,815
327
665
911
754
595
217
140
5,424
Number
Farms
37,289
4,331
41,820
1969 I/
Percent
of Farms
33. 5
6.0
12. 3
16. 8
13. 8
11.0
4.0
2.6
100. 0
1964£/
Percent
of Farms
89. 1
10. 9
100. 0
Percent of
Turkeys Raised
0. 4
1. 0
4. 0
11.0
16. 1
22. 9
18. 2
26. 4
100. 0
Percent of
Turkeys Raised
5. 4
94. 6
100. 0
1969 U.S. Census of Agriculture, Farms with Gross Incomes of
$2 , 500 or more.
2/
' 1964 U. S. Census of A griculture, All Farms.
VIII-2
-------
Year Turkeys Raised - U.S.
--1,000 birds--
1965 105,914
1970 116,401
1971 120, 121
1972 128,808
Of the total turkeys raised, 113.8 million were heavy turkeys and 15.0
million were light birds. Total pounds of turkeys produced equalled
2, 424 million in 1972. Value based on a 22 cent per pound farm price
was $537,249,000.
Age of Production Facilities
There are no known statistics on the age of facilities used by turkey
growers. Therefore, age of facilities was estimated by analyzing
growth in production and date on the average life expectancy of facilities.
Housing used in turkey grow-out operations consist of a house to brood
poults in and in some areas, such as Minnesota and Virginia, pole sheds
for semi-confining birds.
The production systems used for growing turkeys involves placing day-
old poults in brooding houses. At about eight weeks of age, poults are
moved to open range with limited shelter or placed in semi-confinement
The latter practices consists of providing about two square feet of housing
for poults and also range.
The average age of brooder and pole sheds used for semi-confinement is
estimated to be ten years, one-half the average life expectancy.
Location of Major Production Segments
Turkey production is concentrated in ten major producing states with
increased concentration occurring during the past seven years. These
ten states produced 77 percent of all birds in 1972 compared to 71 percent
in 1965 (Figure VIII-1).
Minnesota is the leading state producing 16.2 percent of all turkeys in
1972. California ranks second and is followed by North Carolina and
Missouri. These four states alone produced 60.6 million birds in 1972,
representing 47 percent of U.S. production.
VIII-3
-------
Figure vm-1. TURKEYS SOLD, 1969"
48 STATE TOTAL - 103,454.667
1 DCT = 50,000 BIROS
FARMS WITH SALES OF $2,500 AND OVER
SOURCE CENSUS DATA
Source: Poultry and Egg Situation, Economic Research Service, U.S. Department
of Agriculture , November 1972.
-------
Percent of U. S.
Ten leading states Production
Minnesota 16.2
California 13.7
North Carolina 9. 3
Missouri 7. 8
Arkansas 6.3
Texas 6. 1
Iowa 5. 1
Indiana , 4. 7
Virginia ' 4. 3
Ohio 3.2
77.7
Significant shifts in turkey production have occurred since 1965. The
Carolina's, Arkansas, Colorado, Pennsylvania, Indiana and Texas have
experienced increases in production of 48 percent or more since 1965.
The growth rate in the Carolina's between 1965 and 1972 exceeded 150
percent with North Carolina now being the third largest producing state.
Traditional turkey producing states such as Iowa, 'Wisconsin, Virginia
and West Virginia have all experienced decreases in production. The
number of birds raised in these states decreased by 3, 723, 000 million
since 1965, representing an 18 percent decline.
The top twenty produc-ne states ranked in order of percent change
in production are as follows:
Percent change Rank in
State 1965 - 1972 1972
South Carolina 169 15
North Carolina 156 3
Arkansas 70 5
Colorado 70 13
Pennsylvania 67 14
Indiana 51 8
Texas 48 6
Utah 36 12
Georgia 35 17
Minnesota 34 1
Missouri 32 4
Oklahoma 24 18
Oregon 20 16
Ohio 16 10
California 13 2
North Dakota 6 20
Virginia -3 9
Iowa -20 7
Wisconsin -26 11
West Virginia -30 19
VIII-5
-------
Level of Technology and Efficiency
The technology used in growing turkeys has not changed greatly during
the past decade. Day old poults are started in brooder houses, which
provide heat if needed and shelter. These poults are started on floors
with litter used to collect excretions.
At about eight weeks of age poults are either placed on open range or
placed in semi-confined or totally confined systems. Industry personnel
estimate that 70 percent are grown on open range, Z5 percent in semi-
confinement and 5 percent in totally confined systems. The type of
system used will vary by geographic location. In Minnesota, semi and
total confinment systems represent the principal management system.
In California most birds are grown in sem i-confinem ent. In Missouri,
and many areas of the South and Southwest, the majority of birds are
grown on range.
The use of semi-confinement and fully confined production units are
increasing. Semi-confinement systems involve construction of housing
providing about two square foot of space per birds. Houses provide
shelter at night and during inclimate weather. At other times poults are
free to roam on open range. Fully confinement systems require about
four square foot of space with birds being confined from the time of hatching
to being processed.
Both types of confinement systems require additional investment relative
to open range systems. As production of poults becomes less seasonal,
industry personnel anticipate increased use of semi and full confinement.
houses.
Efficiency in growing turkey poults is poor relative to broilers. It is the
opinion of some industry personnel that efficiency in turkey production is
ten years behind the level achieved in broiler production.
Efficiency standards used in turkey production include feed conversion
rates, percent liveability and the percent of birds grading Grade A. In
turkey production, the efficiency levels of individual producers will vary
greatly about industry norms. In broiler production, efficiency levels of
individual growers are generally clustered near industry averages .
VIII-6
-------
Efficiency standards used in turkey production and normal variation
occurring are as follows:
Feed Conversion Feed/pound of Gain
Hens Toms
Norm 3.00-3.05 3. 15-3.25
Excellent 2.80-2.90 3.05
Poor 3.40 3.60
j-iive ability
Norm 90 percent
Excellent ^5 percent
Poor 70 percent
Grades - Percent Grading Grade A
Norm
Excellent
Poor
Hens
82-33%
85%
30%
Toms
67-70%
75%
5%
Significant variation occurs in liveability clu-j to outbreaks of cholera,
blue comb disease and leg problems. The latter problem is most evident
in tom's because of heavier body weight.
Variation in Grades occur due to damage Lo exterior portions of a turkeys
body. Scratches, bruises and infested sores from chiggers require
" cut-outs" and therefore a lower grade bird.
Efforts to overcome these factors include toe clipping to prevent scratching,
better disease prevention and better range managemtnt. At present, little
progress is being made and considerable improvement is required before
optimum efficiency levels are achieved.
Level of Integration
An estimated 90 percent or more of all turkeys .it present are grown on some
type of contractional arrangement between a grower and an integrator (contractor).
Contracts vary greatly from specific payments to growers on production contracts
to agreements by integrators to process and market a grower's birds. Some
typical contractional arrangements were outlined by Rhodes in discussions
of turkey production in Missouri._j_/
_ Changes in Turkey Contracting, 1967-68, Agricultural Experiment Station,
University of Missouri at Columbia, Station Bulletin 886, March, 1970.
VIII-7
-------
I. Production Payment Contract
"This type of contract shares production risks between grower
and contractor (feed company or processor or both), but the con-
tractor takes all of the market price risk for the birds contracted
because the contractor owns the birds."
The production payment is a price wage for output accomplished. The
contractor pays the producer so much per pound for turkeys marketed.
This payment may include incentives for other aspects of performance
such as mortality and feed efficiency. In another form of this type
contract, the size of the per'pound payment is related to the costs of
production for a flock as compared to average costs of all comparable
flocks owned by that contractor.
II. Floor Price Contract
The grower owns the birds, takes all of the production risks and shares
the price risks with the contractor. In turn, the contractor guarantees
to purchase the birds at either a price which is no lower than a fixed
minimum (floor) or at a schedule of prices related to market prices.
In the usual case, the grower trades part of his potential profit if market
prices are high for a guaranteed floor price if they are low.
III. Financing Contract
The grower owns the birds and takes all production and price risks. How-
ever, in return for contractor financing of turkey production, the grower
agrees to buy the contractor's feed and/or to sell the finished birds to the
contractor.
IV. Marketing Contract
"A marketing agreement constitutes an agreement of a processor
t-o market a grower's birds and to return to him the net proceeds above
processing, storage and other costs. Such an agreement is equivalent
to a forward sale at an undetermined price. It insures a market for
an otherwise independent grower, and it likewise schedules processing
business for the processor. These purely marketing agreements
should not be confused with floor price contracts which are often titled
marketing agreements."
V. Profit Share Contract
There is great variety of definitions of pr.fits, risks, and management.
Generally, the producer supplies land, equipment and labor while the
contractor furnishes the rest.
To grow turkeys a farmer must either have an arrangement with a processor
to process his birds or do his own processing. The latter is not a com.non
practice.
VIII -8
-------
Level of Diversification
Turkey production is rapidly becoming a highly specialized farm enterprise.
As the size of flocks increase more producers are specialising and
diversification is decreasing. Farm flocks which were once u-.ed to
complement farm income have become almost nonexistent.
The opportunity to diversify into other farming enterprises varies by
areas of the United States. In the Ozarks producers have limited farming
alternatives. In other concentrated producing areas sued as the San Joaquin
Valley ot California, Central Minnesota, Texas and the Coastal Plains of
N'orth Carolina, other farming alternatives do exist. However, with the
ixception of California, most turkeys aie grown in marginal farming areas.
Climatic conditions, typography of land, and land bases provide limited
opportunities tor other farming enterprises.
JR. Number oi Plants and Employment bv Segments
The Census of Agriculture in 1969 reported 5,424 farms Crowing turkey-
These growers wort further classified by the number of turkeys sold. j
number of farms for Ui-. se si/.e classifications were as follows:
Turk' vs Sold Number Farms
-i,ooo-
4.0- 7.9 ^>h5
rt.G - 15.9 91 1
:',. o ?. , 9 754
""C. 0 - 5 '->. 9 595
oO.O-'VJ.o 217
iOr.O or more i 40
rT\;tal 5, 424
No published n- o rmali on is available on total people employed in turk<. /
production rn farms. Kidman, L/'.-^n and Carter in a study of Economies
of Scale in Oai;fornia I urkey Production, estimated tne follouir.g labor
requirements by flo-:k size.
25, OGO birds = one man
50, 000 birds = two men
100, 000 birds = three men
VIII-9
-------
Using these estimates, the total labor requirements were estimated
assuming that: (1) One entrepreneur would be employed regardless of
size. For smaller flocks entrepreneurs would be underemployed; (Z)
That flocks larger than 25, 000 birds would require hiring additional
labor. This assumes extra family labor was not available.
Using these assumptions, the total number of people employed on
turkey production units is estimated to be 12, 000 persons. This includes
5, 424 farm managers and 6, 576 hired laborers.
C. Relationships of Segments to Total Industry
Number of Production Units
Sixty percent of all farms with turkeys are located in the ten leading
turkey producing states (Table VIII-2). Minnesota has 446 turkey growers,
the largest number of any state. Missouri ranks second followed in order
by Texas, Iowa and Indiana.
The size of production units varies significantly among the ten leading
producing states. North Carolina has the largest sales per unit averaging
over 66, 000 birds per flock (Table VIII-2). Other states in which sales
per farm exceed the ten state average of 30,511 birds are California,
Minnesota and Arkansas.
Production
Turkey production is highly concentrated with ten states accounting for
77 percent of all birds grown. Minnesota is the leading state, producing
about 21,000,000 birds in 1972. California ranks second followed in
order by North Carolina a.id Missouri.
The concentration of birds by flock sizes varies greatly among the ten
leading states. Over half of all turkeys sold in Minnesota, California,
North Carolina and Texas are produced by farmers selling 60, 000 or
more birds annually. (Table VIII-3). In the other large producing states,
sales of 8, 000 - 60, 000 are most common.
Employment
The number of people employed on farms producing turkeys are a function
of the number of arid the size of production. In states such as Missouri,
Iowa, Indiana and Ohio, production units are small and little labor is hired.
VIII-10
-------
Table VIII-2. Number of farms selling turkeys, number of turkeys sold
and average per farm, ten leading states, 1972.
State
Minnesota
California
North Carolina
Missouri
Arkansas
Texas
Iowa
Indiana
Virginia
Ohio
Ten States
Number ±J
Farms-1969
446
341
181
417
214
412
405
343
217
260
3,236
Turkeys
Sold-1972
-1,000-
20, 880
17, 636
1?., 035
10, 000
8, 165
7, 851
6, 524
6, 060
5,519
4, 064
98,734
Average
Per Farm
46, 816
51,718
66,492
23,981
38, 154
19,056
16, 109
17,668
25,433
15,631
30,511
_' 1969 Census of Agriculture.
' Turkeys, U.S.D.A., S.R.S, various additions.
VIII- 11
-------
Table VIII-3.Number of farms raising turkeys and percent of turkeys sold by size,
ten leading states, 1969
Minnesota
No. Farms
Percent farms
Percent Turkeys sold
California
I\To. farms
Percent farms
Percent turkeys sold
North Carolina
No. farms
Percent farms
Percent turkeys sold
Missouri
No. farms
percent farms
Percent turkeys sold
Arkansas
No. farms
Percent farms
Percent turkeys sold
1-
1,999
73
16.4
. 2
30
8. 8
. 1
12
6. 6
. 1
70
16. 8
. 4
13
6. 1
. 1
2,000-
3,999
27
6
. 5
12
3. 5
. 2
7
3.9
1. 1
23
5. 5
. 9
8
3.7
.4
4,000-
4,999
67
15
2. 6
24
7. 1
1. 0
19
10. 4
3. 2
56
13.4
4.9
13
6. 1
1. 3
8,000-
15/999
78
17. 5
5-9
53
15. 5
4. 1
25
13.9
11. 5
112
26. 8
18. 9
49
22. 9
9. 2
16,000-
29,999
61
13.7
8.9
58
17.0
9-0
46
25.4
20. 8
104
25.0
31. 8
62
29.0
21. 2
30,000-
59,999
66
14. 8
17. 2
100
29- 3
27. 3
45
24. 9
12. 2
37
8.9
20. 7
53
24. 8
34. 9
60,000-
99,999
46
10. 3
23.0
48
14. 1
25. 2
27
14. 9
51. 1
10
2. 4
11. 0
11
5. 1
12. 3
100,000
or more
28
6. 3
41. 7
16
4. 7
33. 1
_
-
-
5
1. 2
11.4
5
2. 3
20. 6
Total
446
100%
100%
341
100%
100%
181
100%
100%
417
100%
100%
214
100% '
100%
-------
Table VIII-3. (continued)
Texas
No. farms
Percent farms
Percent turkeys sold
Iowa
No. farms
Percent farms
Percent turkeys sold
Indiana
No. farms
Percent farms
Percent turkeys sold
Virginia
No. farms
Percent farms
Percent turkeys sold
Ohio
No. farms
Percent farms
Percent turkeys sold
1-
1,999
228
55. 3
. 3
65
16. 1
. 3
37
10. 8
. 4
44
20. 3
. 3
36
13. 8
. 4
2,000-
3,999
21
5. 1
. 8
48
11. 9
2. 6
23
6. 7
1. 5
11
5. 1
. 8
33
12. 7
2. 5
4,000-
4,999
41
10.0
3. 1
93
22. 9
9- 3
84
24. 5
10. 4
37
16. 9
5. 2
60
23. 1
9. 1
8,000-
15,999
27
6. 6
3. 8
90
22. 2
17. 9
114
33. 2
27. 7
56
25. 8
15. 9
58
22. 3
17. 7
16,000-
29,999
36
8. 7
10. 4
67
16. 5
26. 2
52
15. 2
23. 3
31
14. 3
16. 9
36
13. 8
21. 2
30
59
,000
,999
35
8. 5
19
7
23
7
19
12
27
11
29
. 3
32
. 9
. 8
24
.0
, 4
26
.0
. 1
29
. 2
-9
60,
99,
1
3.
13.
1
2.
19-
2.
11.
2.
12.
2.
9-
000-
99 V
4
4
8
0
5
9
7
0
4
6
8
2
5
0
6
100,000
or more
10
2.4
48. 5
_
-
-
2
. 6
5.9
6
2. 8
21. 6
3
1. 1
9- 6
Total
412
100%
100%
405
100%
100%
343
100%
100%
217
100%
100%
260
100%
100%
Source: 1969 Agricultural Census. Farms with Gross Incomes of $2, 500 or mor<=.
-------
Total employment would approximate the number of production units and
consist primarily of family labor.
In states such as Minnesota, California, North Carolina and Texas where
flock sizes are larger, labor other than family labor would be required.
Total employment, therefore, would be approximately two to three Urnes
greater than the number of production units.
VIII-14
-------
II. TURKEY INDUSTRY FINANCIAL PROFILE
The focal point of this financial analysis is the farmer growing turkeys
as an independent producer selling his output to a processor. Cost data
used to develop model plants were obtained from several sources with
primary reliance based on a University of California study, i'
A. Plants by Segments
The financial profiles of eight different turkey growers, varying in size
were developed for this analyses. Size of growers varied from production
of 10,000 birds annually to 200,000 birds. Growers were assumed to
brood two hatches of poults annually and operate at 100 percent capacity.
Growers purchased all inputs used in each of these model grow-out
operations.
Annual Profit Before Taxes
Annual pre-tax net incomes varied among model plants from $5. 00 for
a producer growing 10,000 birds annually to $18,536 fora producer
selling 200, 000 birds (Table VIII-4). Differences in pre-tax income
was a function of number of birds sold and costs per bird. Economies
of scale do exist in turkey production with costs per unit falling rapidly
up to an output of 20, 000 birds annually. After a production level of
20,000 birds has been reached per unit costs are relatively constant.
With the exception of producers selling 10, 000 birds after tax R. O. I.
varied from 3.7 to 4. 3 percent increasing as size of grow outs increased.
Average fixed investment on which the above rates of return were calcu-
lated, was derived by dividing replacement costs by two (an estimate of
average fixed investment) plus networking capital (current a s sets) less
current liabilities. This average fixed investment value is intended to
approximate invested capital.
Profitability of a turkey grower varies greatly as end product prices
vary and as feed costs fluctuate. Feed costs represent about two-thirds
of all va riable costs in producing turkeys. Variations in prices received
Economies of Scale on California Turkey Production, Eidman, Dean
and Carter, Giannini Research Report No. 298, August, 1968.
VIII-15
-------
Table VIII-4. Estimated pre-tax income and rate of return on average invested capital and
after-tax return on sales for turkey growers, 1971
Financial Measure
Number of Turkeys Started
10,000 20,000 30,000 40,000 50,000 70,000 100,000 200,000
Pre-tax net income
$5 $1,961 $2,802 $3,351 $4,010 $6,448 9,358 $18,536
Pre-tax ROI (%)
.02
4.7
4.8 4.5
4.4
5.3
5.5 5.5
After-tax ROI (%)
-02
3.7
3.7 3.5
3.5
4.2
4.3 4.3
After-tax return on sales (%)
.01
1.9
1.7 1.6
1.5
1.8
1.8 1.8
Average return on fixed investment calculated by financial statement method.
-------
of one cent per pound for a grower producing 40,000 birds will cause
pre-tax income to increase three fold.
Annual Cash Flow
Estimated annual cash flow - after tax income plus depreciation - and
the ratio of cash flow to average fixed investment are shown in Tables
VIII-5 and VIII-6. Depreciation was computed using industry guidelines
for buildings and equipment.
Annual cash flows varied from $3,054 for the smaller model grower
to $38, 310 for the largest producer. Cash flow as a percent of average
investment was relatively stable varying between 11. 3 and 12. 1 percent.
Market (Salvage) Value of Assets
The salvage value of assets used in turkey grow out operations is some-
what limited. Facilities and equipment used are designed for performing
specific functions - producing turkeys. This is particuarly true for
feeders, waterers, and range shelters. Brooder houses could con-
ceivably be converted and used for other poultry or livestock enter-
prises. The value of these facilities in alternative uses would vary
greatly. For purposes of simplicity we are assuming a salvage value
equal to 10 percent of replacement costs for brooder houses. Salvage
value for brood houses for growers producing 40,000 birds annually
would approximate $12,000.
Capital Structure
Investment required to produce turkeys is a function of the desired level
of output (Table VIII-7). The investment required to grow-out 10,000
birds annually is estimated at $43,700, a cost of $4.37 per bird.
Investment costs increase as the scale of production units increase,
but not in direct proportion to volume produced. Investment for a
200,000 bird operation approximates $550,000, a cost of $2.76 per
bird. Lower costs per unit of production for larger scale operations
are a result of internal economics, namely, more intensive use of
equipment such as tractors, wagons for delivery, etc.
Cost Structure
Costs for producing turkeys were prepared to determine the relative
importance of various inputs. Costs were classified into two categories--
fixed and variable (Table VIII-8). Costs for a 40, 000 production unit
are as follows:
VIII- 17
-------
Table VIII-5. Estimated cash flow for turkey growers, by number of turkeys started, 1971
Financial Measure
Number of Turkeys Started
10,000 20,000 30,000 40,000 50,000 70,000 100,000 200,000
Annual cash flow
$3,054 $5,065 $6,780 $8,348 $10,266 $13,667 $19,226 $38,310
Cash flow on average fixed
investment (%)
12.1
12. 1 11.7 11.3 11.4 11.4 11.4
11.4
1
h-1
00
-------
Table VIII-6. Estimated cash flow for turkey growers, by number of turkeys started, 1971
Number of Birds Started Annually
Utilization (%)!/
Annual Output - Pounds of
Turkeys U
Sales-''
Variable Expenses
Feed
Other
Fixed Expenses
Cash Earnings
Depreciation
Interest
Pre-tax Income
Excluding Family Labor
Cash Earnings
Depreciation
Interest
Pre-tax Income
10,000
100
180,000
41,040
24,458
10,915
1,963
3,704
3,050
2,424
-1,770
5,479
3,050
2,424
5
20,000
100
360,000
82,080
48,854
21,630
5,042
6,554
3,535
4,448
-1,429
9,944
3,535
4,448
1,961
30,000
100
540,000
123,120
73,230
32,331
7,275
10,284
4,644
6,228
-588
13,674
4,644
6,228
2,802
40,000
100
720,000
164,160
97,626
42,730
9,672
14,132.
5,734
8,437
-39
17,522
5,734
8,437
3,351
50,000
100
900,000
205,200
122,033
53,215
11,757
18,195
7, 138
10,437
620
21,585
7,138
10,437
4,010
70,000
100
1, 260,000
287,280
170, 846
74,075
16,330
26,029
8,637
14,334
3,058
29,419
8,637
14,334
6,448
100,000
100
1,800,000
410,400
244,066
104,870
23,250
38,214
11,926
20,320
5,968
41,604
11,926
20,320
9,358
200,000
100
3,600,000
820,800
488,132
206,650
46,510
79,508
23,852
40,510
15,146
82,898
23,852
40,510
18,536
_' Two broods per year.
_' Average weight of turkeys marketed equal 20 pounds each
2/ Price used was average price received by Western growers, 1971, price = 22. 8^/lb.
-------
Table VIII-7. Estimated replacement value and working capital requirements for turkey
growers, by number of poults started, 1971
Capital Component
Number of Poults Started
10,000 20,000 30,000 40,000 50,000 70,000 100,000 200,000
Replacement value of
facilities & equipment
$43,700 $70,550 $96,100 $122,510 $148,925 $196,470 $275,630 $551,265
Net working capital
3,340 6,575 9,695 12,870 15,982 22,172 31,165 60,720
Replacement value of
total assets
47,040 77,125 105,795 135,380 164,907 218,642 306,795 611,985
tx)
O
-------
Table VIII-8. Total investment and annual costs of growing turkeys, by number of turkeys started, 1971
Number Turkeys Started
Total investment - buildings
and equipment
Annual Fixed Costs
Depreciation
Buildings & Equipment
Interest
Taxes, Insurance & Main.
Toal Fixed Costs
Annual Variable Costs
Feed
Poults
Medication
Litter
Insurance
Electricity & Fuel
Machinery Operating Expense
Inte re s t
Miscellaneous
Labor
Total Variable Costs
Total Costs
Total Costs Excluding family
labor of $3, 390 /year
10,000
$43,700
3,050
1,009
1,963
6,022
24,458
5,650
1,940
220
440
430
210
1,415
250
1,775
36,788
42,810
41,035
20,000
$70,550
3, 535
1,628
5,042
10,205
48,854
11,300
3,870
440
880
860
400
2,820
490
3,390
73,304
83,509
80, 119
30, 000
$96, 100
4, 644
2,218
7,275
14, 137
73,230
16,950
5, 881
660
1,325
1,290
540
4,010
740
4,945
109,571
123,708
120,318
40,000
$122,510
5,734
2,827
9,672
18,233
97,626
22,600
7,750
880
1,770
1,710
650
5,610
990
6,380
145,966
164, 199
160,809
50,000
$148,925
7, 138
3,437
11,757
22,332
122, 033
28,250
9,690
1, 105
2,210
2, 145
780
7,000
1,235
7,800
182,248
204,580
201, 190
70,000
$196,470
8,637
4,534
16,330
29,501
170,846
39,550
13,560
1,550
3,090
3,015
1,050
9,800
1,730
10,530
254,721
284,222
280,832
100, 000
$275,630
11,926
6,360
23,250
41,536
244,066
56,500
19,370
2,210
4,420
4,290
1,450
13,960
2,470
14, 160
362,896
404,432
401,042
200,000
$551,265
23,852
12,720
46,510
83,082
488, 132
113,000
38,740
4,420
3,840
8,680
2,830
27,790
4, 940
25,200
722,572
805,654
$802,264
Source: Investment and cost of production data were obtained from the following sources and modied to reflect costs in 1971.
A Comparison of Returns to Poultry Growers, U.S.D.A., E.R.S., Ma rketing Resea rch Report No. 814, Feb. 1968
Economies of Scale on California Turkey Production, V. P. Kidman, G. W. Dean, and H. O. Carter, California
Agricultural Experiment Station, Giannine Foundation Research Report No. 298, August, 1968.
-------
Annual Fixed Costs Dollars Percent
Depreciation 5,734 3.5
Interest 2,827 1.7
Taxes, Insurance & 9,672 5.9
Maintenance
Total Fixed 18,233 11. 1
Annual Variable
Feed~ 97,626 59.5
Poults 22,600 13.8
Other 25,740 15.7
Total Variable Costs 145,966 88.9
Total Costs $164,199 100.0
The most significant costs are feed and poult expenses which account
for 59. 5 and 13.8 percent of all costs, respectively (Table VIII-8).
Generally, costs equal 98 percent of total sales varying as end product
and feed cost fluctuates (Table VIII-9).
B. Ability to Finance New Investment
Generally, turkey growers have relied upon the Production Credit
Association, Farmers Home Administration, feed companies, turkey
processors and private financial institutions as sources of capital. The
willingness of these financial institutions to finance turkey growers is
dependent upon the ability of growers to pay back capital loans. During
periods of "good" turkey prices, financing is readily available. During
depressionary periods, availability of capital for new or expansion of
existing facilities is curtailed.
In view of today's situation with high feed prices and ceilings on retail
prices of turkeys, the availability of capital for financing turkey growers
is probably limited. Growers, without some type of production contract
are probably operating with a negative cash flow and lack the ability to
repay capital investments. They are poor credit risks.
VIII-22
-------
Table VIJJ-9. Estimated costs for turkey growers, by number of poults started, 1971 .
Number of Poults Started
Item I'D, 000 20,000 30,000 40,000 50,000 : 70,000 100,000
| % $%$% | % $%| % $%
Sales 41,040 100 82,080 100 123,120 100 164,160 100 205,200 100 .287,280 100 410,400 100
Raw materials 30,108 73.4 60,154 73.3 90,180 73.2 120,226 73.2 150,283 73.2 210,396 73.2 300,566 73.2
Direct operating 4,905 11-9 9,760 11.9 16,001 13.0 22,345 13.6 28,575 13.9 40,935 14.2 58,940 14.4
cost
Indirect operating 1,963 4.7 5,042 6.1 7,275 5.9 9,672 5.9 11,757 5.7 16,330 5.6 23,250 5.7
cost
Depreciation 3,050 7.4 3,535 4.3 4,644 3.8 5,734 3.5 7,138 3.5 8,637 3.0 11,926 2.9
Interest 1,009 2.5 1,628 2.0 2,218 1.8 2,827 1.7 3,437 1.7 4,534 1.6 6,360 1.6
Total before- 41,035 99-9 80,119 97.6 120,318 97.7 160,809 97.9 201,190 98.0 280,832 97.6 401,042 97.7
tax cost
-------
PART IX: THE DUCK INDUSTRY
I. DUCK INDUSTRY SEGMENTS
A . Types of Firms
The number of ducks raised annually in the United States has increased
slightly during the past two decades. The Census of Agriculture reported
13 million ducks raised in 1969 compared to about 10 million in 1949.
Ducks Raised
Year million head
1969 13.0
1964 12.5
1959 12.2
1954 11.1
1949 10.3
Source: U. S. Census of Agriculture
Number and Volume of Product Units
Production of ducks is concentrated in five states which produce about
90 percent of all ducks. These states include New York, Indiana, Wis-
consin, California and Illinois. New York is the major producing area
accounting for about 60 percent of U.S. production. Production in New
York is concentrated in the Long Island area.
In the five leading duck producing states there were 147 farms with ducks
(Table IX-1). Of the total number of farms, 79 were classified as Class I
farms by the Census Bureau. These farms have gross farm incomes of
$40,000 or more annually. Farms of this size, in these five states, ac-
counted for nearly all production.
Production
The number of ducks federally inspected has been relatively constant
during the period of I960 to 1971 (Table IX-2). In 1971, slightly over
11 million ducks were slaughtered under federal inspection. Liveweight
and pounds certified as ready-to-cook birds were 69,341 and 49,413
thousand pounds, respectively.
IX-1
-------
Table IX-1. Number of farms producing ducks and ducks sold, five
leading states, 1969
State
New York
Indiana
Wisconsin
California
Illinois
All
No. Farms
53
32
33
17
12
147
Farms
Ducks Sold
(1,000)
6,096
2,965
1,453
764
633
11,911
Clasp I
No. Farms
34
24
9
8
4
79
Farms1 /
Ducks Sold
(1,000)
6,073
2,899
1,437
763
628
11 , 800
Average No.
z/
Sold Per Farm
178,600
120,790
159,660
95,370
157,000
149,360
Farms with sales of $40,000 or more annually.
^/ Class I farms.
IX-2
-------
Table IX-2. Number and pounds of ducks federally inspected,
liveweight, U.S., I960 to 1972
Year
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
I960
Number
Inspected
(1,000)
11,030
11,883
11,589
10,257
10,133
10,496
10,455
10,714
10,368
9,344
9,626
10,086
Pounds
Inspected
Liveweight
/ 1 nnn
69,341
74,042
72,018
64,745
64,262
66,895
66,797
68,206
66,090
59,611
60,503
62,287
Pounds
Certified
Ready -to -cook
1V.O \
49,413
52,617
51, 133
46,369
45,937
47,928
47,898
48,395
46,865
42,084
42, 504
44,385
Source: Agricultural Statistics, U.S., I960 to 1972.
IX-3
-------
Level of Technology
No known studies are available on the level of technology employed in
the production of ducks. The average sales per production unit are
large, averaging 150,000 birds each. To produce this volume of birds
on individual units probably necessitates the use of available current
technology in feeding rations, handling of feed, preventative disease
practices, etc.
Level of Integration
It is assumed that duck production is a highly integrated industry -with
individual producers or cooperatives maintaining breeding flocks,
hatching eggs, raising ducklings to market weight and processing
mature ducks. The size of individual producing units would justify
an integrated approach to duck production.
Feedstuffs Magazine in their September 4, 1972 edition, reported on a
fully integrated operation located in Indiana. This one firm produced
16 percent of U.S. production. This firm grew 300,000 ducklings on it's
own facilities with the remainder being raised by 20 growers located in
adjacent areas . These growers produced birds under contract. A con-
tract grower furnishes the facilities and labor in the operation. The
contractor furnishes ducks, feed, medication and supervision. The
growers are compensated through three plans: one is by the bird,
another is by the pound, and the third is an incentive program for feed
and mortality efficiency.
Comment
Lack of data pertaining to duck production prevents a complete description
of the industry and the development of costs and investments in production
units. If data is located a more complete analysis will be provided.
IX-4
-------
PART X: GENERAL PRICING
A. Price Determination
Most segments of the feedlot industry are comprised of many producers,
each producing so small a portion of the total supply that they are unable
to independently influence the prices they receive. The possible exception
is duck growers. Here a small number of producers supply the nation's
ducks. Some duck operations are totally integrated, growing, processing
and distributing their product. In the case of at least one large duck
grower, who supplies 16% of U. S. duck supply, this grower contracts
with other duck producers to provide birds for his integrated operation.
Although dairy farmers cannot independently influence prices received,
many have joined in forming milk marketing cooperatives which serve as
the bargaining representative of producers and may also be involved in
milk processing. In addition, Federal and State programs directly or
indirectly affect the pricing of milk sold by farmers. Two Federal pro-
grams are concerned with pricing and marketing milk. The Federal
Milk Marketing Order program provides for the establishment of marketing
orders to regulate the terms under which milk dealers, selling milk within
a specified geographic area, purchase milk from farmers. These orders
require that dealers pay farmers a specified minimum price based upon
the use of milk. Milk for fluid use is placed in Class I, the highest
priced class. This class generally includes whole milk, skim, low fat
milk, milk drinks, flavored milk, and buttermilk.
Class II milk, that not used in Class I, is priced at levels approximating the
prices paid at unregulated plants that manufacture dairy products such as
butter and cheese. Farmers receive a weighted average or "blend price"
for milk that reflects the amount of milk used for fluid consumption and for
manufacturing purposes. In 1971, there were 62 Federal orders handling
81 percent of all fluid milk sales in the U.S. compared with 50 percent in
1950.
The dairy price support program, the second federal program, provides
for the U. S.D. A. to set a national average support price for manufacturing
milk based upon a Minnesota-Wisconsin price series. This price series
reflects the value of milk used in manufactured products. At present this
support price is $5. 29 per hundred weight. This support price is used to
calculate Class I prices for all market orders. The differential by which
the Class I price exceeds the Minnesota-Wisconsin price is determined for
each market based on several factors. These factors include the added
cost of producing milk eligible for fluid use (Grade A), costs of transportating
supplies from producing areas, supply and demand conditions in the market,
and other economic factors. The differential between Class II, (^ianufacturing)
X-l
-------
milk and Class I generally increases with distance from the Minnesota-
Wisconsin area. For example, the differential equalled $1. 06 per cwt.
for the Minneapolis-St. Paul order in December, 1971 and $3. 07 in the
Corpus Christie, Texas order.
In addition to the Federal programs some states have milk control
programs. The authority of these programs vary from setting producer,
wholesale and retail prices to establishing t^ade practice regulations.
(Figure X-l and Table X -1)
Previously mentioned bargaining cooperatives frequently have been able
to negotiate minimum Class I prices exceeding Federally established prices.
It is estimated that eight large federations of milk marketing cooperatives
control over forty percent of the nations milk supply.
Cattle, hogs and sheep are all marketed in a different fashion. Producers of
all three price takers who market their livestock either through terminal
markets, auction markets, or sell directly to packers or a country dealer.
The trend is toward selling directly to the packer or a country dealer
and away from the terminal market. Over 2/3 packer purchases of live-
stock were through direct purchase and country dealers. Slightly more than
15 percent through terminal markets and the remainder through auction
markets. While auction markets have remained stable or declined slightly,
considerable shifts have occurred between terminal and direct or county
dealer marketing. Since 1963 the percent marketed at terminal markets
have declined 23.2, 9-7, and 16.3 percent for cattle, hogs and sheep,
respectively. Generally, this loss to the terminal has gone to direct
marketing. Livestock producers are price takers because no producer
is large enough to independently influence the market and because live-
stock producers still act independently in marketing their product. Large
producers may be able to negotiate prices with the packer somewhat when
selling directly, but the bargaining power of the seller is generally low
as the packer can still buy elsewhere.
Area differences in prices are related to differences in transportation cost
and local demand and supply situations. Higher livestock prices are ex-
pected in deficit red meat producing regions.
Turkey, broiler, and egg producers operate in similar market environments.
In all three instances, contract production is more common than selling on
the open market. In each case, the industry is made up of many producers
who are not able to influence the market price. Over 60 percent
duction is on contract basis. Many of the independent producers process
and distribute their own eggs.
X-2
-------
X
STATES REGULATING FLUID MILK PRICES
January I, 1972
STATES REGULATING:
SALES BELOW COST
PRODUCER PRICES
RESALE PRICES
PRODUCER AND RESALE PRICES
Figure X-l.
-------
Table X-l. States regulating milk prices and trade practices and
authorizing milk promotion, January 1972.
State
Alabama
Arkansas
California
Colorado
Connecticut
Georgia
Hawaii
Idaho
Iowa
Kentucky
Louisiana
Maine
Massachusetts
Minnesota
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New York
North Carolina
North Dakota
Oklahoma
Ohio
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Puerto Rico
Minimum prices
established at
Producer
level
X
X
X
X
X
X
X
X
X
X
X
X
(»)
X
X
X
X
X
X
Whole-
sale
level
X
X
X
X
(O
X
X
X
(')
X
X
X
X
X
'X
X
'X
Retail
level
'X
X
X
X
(>)
X
X
X
(>)
'X
X
X
X
X
'X
'X
Trade
practice
regulations
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Milk
promotion
_
X
X
X
X
'X
X
X
X
4X
Jx
~
X
X
'X
X
Jx
X
'X
X
X
X
X
X
X
X
X = yes, - = No.
1 Also establishes maximum prices
1 Industrywide agreement on Oahu coordinated by State.
3 Authorized but not used
4 The Milk Control Law states " . :o promote pro-ams designed to increase the consump-
tion of milk."
'The State's Class I b reoooi Oregon-Washington Federal milk order pro-
ducer payments :f requested by individual Oregon producers
X-4
-------
The price an individual grower receives for growing broilers is determined
by contractors. Their choices are limited to making decisions to either
grow or not grow broilers and then what contractor they wish to work with.
The typical arrangement is for a grower to supply housing, feeders,
waterers, utilities and labor. The contractor will supply the birds,
feed, medications and supervisory assistance. In essence, a grower
rents facilities to a contractor. The rent received is a predetermined
amount per pound of broilers grown, and may vary by efficiency standards.
These standards may include feed conversion, mortality rates, rate of
condemnation, etc. The more efficient growers will receive a bonus
above the predetermined rate per pound. Less efficient growers are
penalized by reducing their payment per pound.
The price, or gross receipts, received by a turkey producer is dependent
upon the type of production or marketing arrangement with a processor.
The returns to a grow and the risks involved will vary by type of contract.
- Production payment contract
Contractor's (integrations) pay producers a stipulated
amount per pound for turkeys marketed. Amount paid
may vary relative to aspects of performance such as
mortality and feed efficiency.
- Floor price contract
Growers own the birds, assume all production risks, and
shares price risk with the contractor. The producer, in
turn, receives a price which is no lower than a fixed minimum
(floor) or at a schedule of prices related to market prices.
In this type of contract a grower trades part of his potential
profit if market prices are high for a guaranteed floor price,
if they ar e low.
- Marketing contract
A contractor agrees to process and market a producers birds
and to return to him the net proceeds above processing, storage
and other costs.
- Financing contracts
A grower owns the birds and assumes all production and
price risks. In return for contractor financing of turkey
production, the grower agrees to buy the contractor's feed
and/or sell the finished birds to the contractor.
X-5
-------
B. Demand
1. Retail
Trends in per capita consumption of livestock and poultry products are
shown for the years 1950-1971 in Figures X-Z and X-3. Consumption of beef
and poultry has increased considerably during this period. Neither com-
modity shows significant divergence in recent years. Decline in per
capita consumption in 1971 is the result of insufficient supply as can be
seen by the rise in retail prices of beef. The beef consumption tiend
when observed with the rising retail price trend indicates that the demand
curve for beef has been shifting outward as a result of not only increases
in consumer income but also shifts in consumer preference for beef.
Chicken consumption, on the other hand, has been heavily influenced by
declining retail prices for chickens. Retail price of chickens have fallen
from near $.60/lb in the early 50's to $.43/lb in 1971. During the same
time per capita consumption doubled going from Z0.6 Ibs in 1950 to 41.6
Ibs in 1971. The price elasticity of demand for chicken is - .777 . A
23 percent increase in quantity consumed would result from a 30 percent
decline in price indicating that although price decline was important, it
explained less than one-fourth of the increase in consumption. The
remaining increase is associated mainly with increases in consumer
income.
Pork consumption has tended to decline since 1950. However, some of
the loss has been recouped beginning in 1969. However, per capita con-
sumption still remains below 1950-1952 consumption. Pork prices have
increased during this period from $.50 per Ib in 1950 to $.687 per Ib in
1971. Change in consumer preference away from pork along with increases
in retail pork prices account for the decline in consumption. With the small
income elasticity (almost zero), increased consumption resulting from higher
consumer incomes could not offset the impact of the former factors.
Per capita consumption of eggs has declined from 37.9 Ibs in 1950 to
34.7 Ibs in 1971 (Figure X-2). Egg prices have declined moderately
during the same period (Figure X-4). The income elasticity is close to
zero. King and George _' detected a statistically significant negative time
trend of more than 5 percent per year in the consumption of eggs. This time
trend reflects changes in eating habits and the reduced appeal of eggs be-
cause of the general recognition of the high cholesterol content of eggs. Most
eggs are purchased as shell eggs with many of the shell eggs used for
breakfast. Declines in the percent of households eating breakfast plus the
growth of convenience foods have resulted in the erosion of the consumption
of shell eggs. The consumption of processed eggs or eggs incorporated in
_' George, P, S. and G. A. King. Consume r_ Demand for Food Commodities
in the U.S. with Proje^ lions for TWO", Giannirii FTnmdTtTorT"Mbno gTaph
#26,~Ma~rch, 1971, University of Calif.
X-6
-------
84
80
76
72
68
64
60
56
52
2 48
cu
a
en
44
40
36
32
28
24
20
Beef
Pork
Eggs
Chickens
Turkey
51 53 55 57 59 61 63 65
Figure X-2. Per Capita Consumption X-7
67 69
-------
Pounds per capita
330
320
310
300
290
280
270
260
250
240
X
20 -
Fluid milk
10
0
Ice c_reaiu __
Butter
_L
_L
J.
1970
1980
Year 1955 I960 1965
Figure X-3. Per capita consumption of selected dairy products in the
U.S. for selected years 1954-1972, with a forecast to 1980.
Note: 1972 Data are preliminary
Fluid milk consumption is based on the product weight
of the Economics Research Service, USDA Research Series.
Source: George, P.S. and G. A. King. Consumer Demand for Food
Commodities in the U.S. with Projections for 1980, Giannini
Foundation Monograph #26, March, 1971, University of California.
X-t
-------
100
96.5
93. 0
89.5
86.0
82. 5
79. 0
75. 5
72. 0
"0
§68.5
0,
£65.0
CO
£61. 5
58.0
54. 5
51. 0
47.5
44. 0
40.5
37. 0
33.5
30. 0
Beef
. Chicken
Eggs
51 53 55 57 59 61 63 65 67
Figure X-4. Retail Price of Meats and Poultry X-9
69
71
-------
other food items has increased, but the increase is small compared with
the decline in shell egg consumption.
Turkey consumption increased from 4. 1 Ibs in 1950 to 8.5 Ibs in 1971.
With the limited price data available, indications are that turkey prices
have increased moderately. The price elasticity of demand for turkey
is -1.55 indicating that a percentage increase in price will result in
more than an equal percentage decline in consumption. The demand
for turkey is relatively more income elastic than most food items having
a value of 0.768. Additionally, the development and acceptance by consumers
of frozen turkeys and frozen turkey products have increased turkey con-
sumption by slightly reducing the seasonality of the product.
Trends in the consumption of dairy products are mixed (Figure X-3). A
general decline in per capita consumption of fluid milk consumption since
1955 stopped in 1972. Consumption of evaporated milk continues to decline.
Ice cream consumption remains stable at just under 20 pounds per person.
Cheese consumption has increased, with a continuous upward trend since
I960 and an acceleration since 1971. The latter is attributed to the sub-
stitution of cheese for meat in the face of high meat prices. Consumer
demand for all dairy products has diminished slightly.
Lamb and mutton consumption remains low. Present consumption is about
4 Ib per person while per capita consumption has fallen slightly. No data
is available on consumption and retail prices of ducks. However,
production has increased from 54 million Ibs in 1959 to 69 million Ibs in
1971. Per capita consumption is about one-fourth pound.
2. Demand Projections
Some leveling off of the demand for beef is expected. However, con-
sumption is closely tied to production and if production increased to the
point where retail price retreated from recent levels, additional con-
sumption would be expected. Pork consumption per capita appears to have
leveled off and demand for pork will shift with population increases. A ten
to fourteen percent increase in population is expected between 1970 and 1980
based on official projections.
Present consumption of chicken already exceeds George and King's estimate
of 39 Ibs for 1980 . With some moderating of present trends per capita con-
sumption could reach 45 Ibs. by 1980. Egg consumption is declining at
L' Bureau of Census, Department of Commerce, "Population Estimates and
Projections," Current Population Reports No. 470, November, 1971.
George and King, p. 98, op. cit.
X-10
-------
a declining rate and George and King's estimate of 41 Ibs per person
in 1980 appears fairly reasonable. This would mean only a slight decline
in egg consumption. Turkey consumption has shown a steady increase
and will approach 10 Ibs per capita by 1980. Lamb and mutton consumption
is expected to continue to decline from the 1962-66 average of 3.9 Ibs to
3. 1 Ibs in 1980.
Based on recent trends, per capita consumption of fluid milk can be
expected to decline to about 265-270 pounds per year by 1980. The con
sumption of American cheese, however, has been increasing over the past
decade and is projected to a consumption level of about 14 pounds by 1980.
Estimated consumption of evaporated milk is based on a negative time trend
and no income effect. Evaporated milk was projected at 5 pounds per capita
by 1980, close to what would be obtained from a simple time trend. Esti-
mated consumption of ice cream for 1980 based on an income coefficient
is 20 pounds. Projected consumption for butter in 1980 is 4.9 pounds. This
is based on a positive income elasticity and a negative time trend which
indicates a change in preference away from butter.
Another significant trend has been that of increasing cottage cheese con-
sumption. This has probably been due in large part to the desire of
many people to take off or keep off weight by eating low-fat products.
Cottage cheese is also a cheap source of protein.
A 10-14 percent increase in civilian population from 1970 to 1980 is assumed
to occur. The demand for beef is expected to show strong increases with
combined effect of shifting demand on a per capita basis and continued
population growth. For pork increases in total demand will result almost
wholly from population increase. Per capita demand for eggs is expected
to decline less on a percentage basis than population. Thus, total egg
consumption should not change greatly. The demand for chickens has
shifted to the right, but not all of the increase in consumption is attributed
to shifting demand. Retail price fell during 1950-1971 resulting in movement
along the demand curve as well as shifting outward. Combined with population
growth total chicken demand should increase , but less than for beef. Turkey
demand will shift outward with both per capita consumption and population
increasing. Insufficient data is available to project demand for ducks,
however, it is expected that any increases will atbest be geared to
population increases.
X-ll
-------
In 1965, 124. 2 billion Ibs of milk were produced. Production fell to
116. 1 billion Ibs in 1969 and turned up to 118.6 billion Ibs in 1971.
Comparing dairy product consumption projections, which indicate a
slight decline in per capita use of all dairy products with projected
population increase indicates that use of milk for all dairy products
will range from remaining constant to increasing slightly.
3. Farm Level Demand Elasticities
Price elasticity of demand for livestock and poultry products are more
inelastic at the farm level than the retail level. Price elasticities of
demand for the products in question are as follows:
Price Elasticity of
Demand-Farm Levels
Beef
Pork
Lamb and mutton
Chickens
Turkey
Eggs
Milk
Duck
Source: George, P. S. and G. A. King.
for Food Commodities in the U.
-0.416
-0.241
-1.670
-0.602
N.A.
-0.225
-0.323
N.A.
Consumer Demand
S. with
Projections
for 1980, Giannini Foundation Monograph #26,
March, 1971. University of California.
The demand for lamb and mutton is most responsive to price changes at
the farm level. A one percent increase in price reduces the quantity
demanded by 1.67 percent. Chickens are next with a price elasticity of
-0.602. Price elasticity of demand for beef, at the farm level, is
-0.416, indicating that a one percent decline in price would result in a
0.4 percent increase in quantity demanded. With inelastic demand co-
efficients a small decrease in the quantity offered by producers will
result in a large percentage increase in price at the farm level.
X-12
-------
C. Supply
Cattle feedlots are only one segment of the beef industry. Cow-calf
operations and the size of breeding herds determine the number of cattle
that will be available at any point in time for feeding in feedlots. The
number of fed cattle slaughtered is a function of production decisions
made by brood-cow calf producers two years in the past.
The major changes in the beef industry during the post World War II
period has been the increase in the proportion of fed beef and in the size
and number of commercial feedlots. Since 1962, the number of feedlots
with capacity of 8, 000 head or more has tripled. With the shift toward
the large commercial feedlot, the feedlots are more sensitive to input
prices such as feed and feeder cattle than the general farmer who raises
his own feed and feeder cattle.
The cattle cycle is an important characteristic of the beef industry re-
sulting from the large time period required to complete production.
Cattle production and prices tend to follow 10-12 year cycles. During a
period of high prices, feeders bid up feeder cattle prices which, with
some lag in adjustment, encourages the cow-calf operations to save more
calves for breeding stock so as to increase production. With the long
time required to make the adjustment, there is a tendency to overproduce
which is not recognized until the oversupply reaches the retail level. At
this point the reverse process operates. The result is a cycling of pro-
duction and prices with prices inversely related to production.
Production cycling and general expansion of the supply to meet increasing
consumer demand can be seen in Table X-2.
Hog production is shifting from the farm lot to confinement feeding. Con-
finement feeding operations are usually of larger size than the average farm
lot operation. Still, a large portion of the hogs are raised in open lots
which requires less capital investment. Typical farm lot hog production
in the past had two farrowings, spring and fall, with the former being
the larger. Confinement feeding with higher investment costs encourages
producers to practice continuous farrowings in order to more fully utilize
their facilities.
Hog production tends to cycle as in the case for beef. However, the cycle
is much shorter, about four years. The shorter cycle is attributed to the
shorter production period involved. Confinement producers will tend
X-13
-------
Table X-2. Marketings of livestock and poultry, liveweight basis, 1950 to 1972, U.S.
Beef
Year
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
1959
1958
1957
195b
1955
1954
1953
1952
1951
1950
Sales
live wt.
billion
pounds
40. 6
39- 5
37. 1
36.4
35. 9
35. 0
34.0
34. 8
32. 8
30. 8
29. 9
28. 8
28. 3
26. 8
26. 6
27. 5
28. 1
27.6
27.4
24. 9
23. 0
21. 2
Average
Price
All Cattle
per/cwt.
$36.
34.
31.
27.
26.
26.
22.
20.
24.
25.
23.
22.
26.
25.
18.
16.
16.
16.
16.
25.
31.
26.
,30
, 50
. 50
, 60
, 30
00
.00
40
00
10
70
90
70
30
70
10
80
50
70
80
90
30
Pork
Sales
live wt.
billion
pounds
22.9
22.9
20. 5
21. 1
20. 6
19. 1
18. 1
20. 2
21.0
20.3
20.2
19. 2
21. 3
19. 2
18.4
19- 1
20. 2
18. 2
16. 8
19.7
21.4
20. 2
Average
Price
All hogs
per/cwt.
$17.50
22.70
22. 20
18. 50
18. 90
22. 80
20.60
14. 80
14.90
16. 30
16. 60
15. 30
14. 10
19. 60
17. 80
14.40
15. 00
21. 60
21.40
17. 80
20. 00
18.00
Lamb & mutton
Sales
live wt .
billion
pounds
1. 0
1. 1
1. 0
1. 1
1. 1
1. 2
1.2
1. 3
1.4
1. 5
1.6
1. 6
1. 7
1. 7
1. 5
1. 6
1.6
1.6
1. 5
1. 5
1.4
1. 3
Average
Price
lambs
per/cwt.
$25.90
26.40
27. 20
24.40
22. 10
23.40
22.80
19.90
18.10
17.85
15.80
17.90
18.70
21.00
19-90
18.50
18.40
19-10
19. 30
24. 30
31.00
25. 10
Turkeys
Sales
live wt,
billion
pounds
2. 3
2. 2
2. 0
2. 0
2. 3
2. 1
1. 9
1. 8
1. 7
1. 6
1.9
1. 5
1. 4
1.4
1.4
1.3
1. 1
1. 2
1. 0
1. 0
1. 0
0. 8
Average
Price
. turkeys
per Ib.
22. If
22. 6
22.4
20. 5
19. 7
23. 1
22. 1
21.0
22. 3
21. 6
18. 9
25. 4
23. 9
23. 9
23. 4
27. 2
30. 2
28. 8
33. 7
33.6
7. 5
32.9
Broilers
Sales
live wt.
billion
pounds
10. 8
10. 8
10.0
9.3
9- 2
9. 0
8. 1
7. 5
7. 3
6.9
6. 8
6. 0
5. 8
5.4
4. 7
4.3
3.4
3. 2
2. 9
2. 6
2.4
1. 9
Average
Price
broilers
per Ib.
Eggs
Average
Sales Price
live wt eggs
billion cents/lb.
pounds
13. 7£
13.6
15. 2
14. 2
13. 3
15. 3
15. 0
14. 2
14. 6
15. 2
13.9
16.9
16.1
18. 5
18. 9
19.6
25. 2
23. 1
27. 1
28.8
28. 5
27.4
9.4
9- 1
9.0
9.0
9.1
8.7
8.6
8. 5
8.3
8. 3
8. 1
8.0
8. 3
8. 0
8. 0
8. 0
7. 8
7.7
7. 6
7. 6
7.6
7.7
'31.4
39-1
40.0
34.0
3-1.2
39-1
33.7
33. 8
34.5
33.8
35. 6
36.1
31.4
38. 5
35.9
39-3
39.5
36.6
47.7
41.6
47.7
36. 3
Ducks
Sales
live wt.
million
pounds
69
74
72
65
64
67
67
68
66
60
61
62
54
NA
n
'
||
1 1
ii
ti
M
n
Average
Price
ducks
NA
ii
ii
n
n
n
n
n
n
ii
n
ii
ii
n
it
||
||
tt
n
n
n
n
-------
to operate near full capacity as long as receipts cover variable costs.
In times of high prices new producers enter production and then exit
as prices fall.
Production systems for broilers, eggs, turkeys, and ducks are similar.
These four segments are highly coordinated industries. Most production
occurs with producers entering into either production and/or marketing
agreements with processors. Production is becoming concentrated in
large units.
The supply of broilers has steadily increased during the past two decades.
In 1950, 631 million birds were produced increasing to 1.795 million in
I960 and equalling over 3.0 billion birds in 1972. These increases in supply
occurred even though the farm price for broilers was decreasing from about
27 cents per pound in 1950 to 14.2 cents in 1972. The use of new technology
resulted in increased efficiency and provided producers with a profit as
farm prices declined.
The supply of eggs decreased in 1972 after expanding during the sixties.
Total production in 1972 equalled 5,791 million dozens, a decrease of
one percent from 1971. The total supply of eggs from 1965 to 1972 are
as follows:
Eggs Produced
Year Million Dozen
1972 5,791
1971 5,846
1970 5,710
1969 5,629
1968 5,680
1967 5,777
1966 5,517
1965 5,463
This production originated from fewer, but larger producers. Production
is being concentrated on larger production units and also in specific geo-
graphic areas. In most instances, new production areas have arisen in
the South and South Central areas necessitating long distance movement of
eggs from surplus producing areas to major metropolitan centers.
X-15
-------
The production of turkeys in 1972 set an all time record of 2, 424 million
pounds live weight. This was in increase of 160, 000, 000 pounds and
represented the greatest production since 1967.
Pounds Produced Pounds-Ready
Year Live Weight to Cook Weight
million pounds
1972 2,424 1,935
1971 2,264 1,809
1970 . 2,203 1,757
1969 2,027 1,621
1968 2,028 1,622
1967 2,354 1,883
1966 2,107 1,685 '
1965 1,901 1,521
Of the total supply of ready-to-cook turkeys over half was sold as cut-up
or further processed meat. In 1972 there were about 300 million pounds
of ready-to-cook turkey cut-up, up 51 percent from the previous year.
In addition, 639 million pounds were processed beyond the cut-up stage,
up 14 percent. Cut-up birds accounted for 17 percent of the total turkey
certified in Federally-inspected plants and further processed 36 percent.
The production of turkeys in 1972 set an all time record of 2, 424 million
pounds live weight. This was an increase of 160, 000, 000 pounds and
represented the greatest production since 1967.
Milk production is regulated by the U.S.D.A. price support programs to
ensure an adequate supply of milk for domestic consumption. Production
of milk in 1972 equalled 120, 468 million pounds, an increase of about
4. 0 billion pounds since 1969 (Table X-3).
The production of milk is being concentrated on an ever - decreasing
number of farms with fewer dairy cows. Increased production per cow
and per farm has offset declines in the number of cows and farms, re-
sulting in a relatively stable supply of milk. These trends are expected
to continue in the near future.
X-16
-------
Table X-3. Total supply and utilization of milk, 1965 to 1972, U.S.
Utilization
Year
1965
1966
1967
1968
1969
1970
1971
1972
Total
Supply
124, 339
121,283
120, 109
117,421
116,402
117,493
118,725
120,468
Manufactured
Products
Fluid
Products
million pounds
61,768 55,400
57, 900
59,770
59,230
58, 315
59,992
61,492
62,837
55,400
54, 000
53,700
52, 800
52, 000
51,800
52, 300
On
Farm
5,974
5, 472
5, 164
4, 662
4, 315
4, 002
3, 743
3, 547
Total!/
124,339
121,283
120, 109
117,421
116, 402
117,493
118,725
120,468
- Total may not equal sums doe to residuals. Residuals includes minor
miscellaneous uses and any inaccuracies in production and utilization
estimates.
Source: Milk, Production, Disposition and Income, U. S.D.A., S. R.S. ,
April, 1973.
Milk, U.S.D. A., S.R.S. , January, 1973.
X-17
-------
PART XI: ECONOMIC IMPACT ANALYSIS METHODOLOGY
Responses to changes in factor and product prices by the farm firm
often are not satisfactorily explained by ordinary economic analysis.
Current evidence strongly suggests that larger farms are financially
better off than small farms and that the break-even point is ever in-
creasing and may be as high as $40, 000 gross sales. Yet this per-
sistence of large numbers of small farms continues in face of cost
inferences to the contrary drawn from ordinary theoretical and
accounting analysis.
It should be noted that significant shifts have and are occurring in
American agriculture. Farm numbers have decreased from 4.0
million in I960 to 2.9 million in 1971. While number of farms de-
clined by 1.0 million during the past decade, cash receipts from farming
increased from $34.9 billion to $56.2 million. Average annual cash
receipts per farm increased from $8, 800 to $19, 500 during the same
I960 to 1971 period. These shifts have resulted from significant structural
shifts. Farms with over $40, 000 annual sales have more than doubled in
number and in 1971 represented 8. 8 percent of all farms compared to
2.9 percent in I960. Cash receipts from these farms in 1971 represented
59 percent of all cash receipts from farming compared to only 33 percent
in I960. Cash receipts from farms with less than $10, 000 annual sales
fell from twenty percent of the total in I960 to 11 percent in 1971.
While in 1971, just over one-third of the farms, Classes I, II and III,
produced about 90 percent of the cash receipts from farming (compared
to 73 percent in 1960), there still remained 1. 9 million farms (out of a
total of 2.9 million) with annual sales of under $10,000 which produced
only 11 percent of cash receipts. !_/
Explanations for the continuation of small farm units generally fall into
fixed asset theory and the concept of the farm as a goods and services
firm. Fixed-asset theory posits that in the short run the firm will con-
tinue production so long as revenue covers variable costs. In the case
of farm firms, certain items such as the farmer's labor and management
resources may be the length of the farmer's life. Hence, the farmer
may view the salvage value (shadow price) of his labor at or near zero
Farm Income Situation, ERS, USDA, FIS-220, July, 1972, Washington,
D. C.
XI-1
-------
since he may be unwilling or doesn't consider that he has any other occupa-
tional opportunity and considers his labor to be fixed. When the farmer
decides that he does have other occupational opportunities, he then con-
siders his labor to be variable and concludes that revenues no longer
cover variable costs and that his financial well being will be enhanced
by seeking other employment.
The goods and services concept perceives the farm as producing off-
farm services such as custom work and off-farm jobs as well as goods
production with durable fixed resources. Custom work would include both
the hiring and the selling of equipment time or an off-farm job. The
effect of these services is to either raise revenues, cover variable
costs or both.
Evidence of the importance of the service concept is shown in Table
XI-1. Off-farm income in 1971 exceeded realized net farm income
for 65 percent of the farms. It should also be noted that total income
per farm operation for operators with farm sales of less than $2, 500
exceeded Classes IV and V and nearly equaled Class III total income.
Class III farms are those with $10, 000 to $20, 000 annual farm sales.
The significance of the Class VI farm (under $2,500 annual farm sales)
should be highlighted since it represents a "rural residence" category
that will most likely view the value of labor and management resources
at or near zero and possibly other fixed assets since the farming activity
is more of a leisure time activity. A similar situation may also exist
for Class IV and V farms, but probably to a lesser degree.
Although extensive data on profits in farming are not available, as op-
posed to sectors where corporations are the dominate business firm,
sufficient data are known to state that the book rate of return on in-
vested capital is very low--pa rticularly if operator and family labor is
valued at hired labor wage rates. Typical midwest cornbelt farms
have an ROI in the magnitude of 5.0 percent. Excluding operator and
family labor as a cost, raises the ROI to 7.0 to 8.0 percent. This com-
pares to approximately 10 percent for other segments of the U.S.
economy. _'
This brief background is given to illustrate the difficulties in formu-
lating an ordinary quantitative economic analysis of plant shutdown and
financial impacts. In summary, ordinary economic and accounting analysis
does not adequately explain farm firm responses to factor and product
_L' Farris, Donald E. and James I. Mallett, Return on Investment in
Agriculture Compared with Other Business in the U.S. , Texas Agri.
Ext. Ser., MP-1035, June, 1972, College Station, Texas.
XI-2
-------
Table XI-1. Net farm and off-farm income per farm operator by farm size, 1960-1971
Year Income
I960 Net farm income
Off farm income
Total
No. of farms
1965 Net farm income
Off -farm income
Total
No. of farms
£5 1971 Net farm income
w Off farm income
Total
No. of fa rms
I
$40,000
and
over
$19.0
2.2
$21.2
(113)
$25.7
4.4
$30, 1
(163)
$27,3
6.4
$33.7
(253)
II
$26,000
to
$39,999
$ 8.7
1.7
$10.4
(227)
$ 9.9
2. 5
$12.4
(282)
$ 9.7
3.8
$13.5
(365)
III
$10,000
to
$19,999
$ 5.4
1.3
$ 6.7
(497)
$ 6.2
2. 3
$ 8.5
(466)
$ 6.0
3.7
$ 9.7
(392)
IV
$5,000
to
$9,999
-------
price changes. Further, the limited rationale that does exist for
explaining these responses is difficult to empirically employ, due
to the lack of data on how individual producers value or categorize
their resources, i.e., capital, labor and management. This should
be qualified by stating that the large agricultural firms, that is with
sales above $40,000, probably will value their resources more nearly
at market values as do ordinary industrial businesses.
In addition to the persistence of small and apparent uneconomic farms,
American agriculture over the years has demonstrated a remarkable
ability to expand production as required and a remarkable inability
to contract production when no longer needed.
All of the above noted factors plus the limitations of time placed on
this study lead to the conclusion that a quantitative analysis of the key
impact effects - price and production - would not be feasible. In fact,
it is questionable where a rigorous price and closure analysis would be
warranted over a qualitative analysis in terms of precision of results.
A. Price Effects
At the outset, it should be recognized that price and production effects
are intertwined with one effect having an impact upon the other. Solu-
tions require knowledge of demand growth, price elasticities, supply
elasticities, markets, cost structure and industry structure as well
as a host of other endogenous and exogenous factors. In view of the
complexity and diversity of factors involved in determining price effects,
a quantitative approach is not feasible. Hence, the price effects analysis
will be based on fundamental demand and supply theory.
Salient features previously developed and the price analysis are as
follows:
1. Demand for beef is increasing rapidly although some leveling off
is expected while the demand for pork is shifting with the popu-
lation growth rate and the demand for milk is expected to re-
main constant or increase very slightly.
2. Price elasticity for these products is inelastic.
3. Feedlots tend to be primary producers, thus have little oppor-
tunity to pass prices backwards.
XI-4
-------
4. The cattle and swine sectors are composed of many independent
producers and price takers, whereas the dairy sector, although
many in number possess strong bargaining power through an
institutional structure creating a few large milk marketing
cooperatives.
5. Significant technological and structural shifts in feedlots are
occurring.
6. Large numbers of small producers continue to exist although
ordinary analysis does not explain their persistence. Their
presence is partially explained by a combination of fixed assets
theory and goods and service farm concept (significant off-farm
income exists for small farm operations).
7. Little salvage value for feedlots assets per se.
8. Supplies are extremely inelastic in the short run.
B. Financial Effects
Comprehensive financial data for farm firms and enterprises are not
widely available. Further, as pointed out earlier in this chapter, it
appears that ordinary financial analysis does not explain many farm
operator decisions. To provide some insight into the financial impacts
an after-tax return on investment valued at current market value before
and after pollution control and before and after cash earnings based on
model budgets will be computed. The latter measure is probably a more
useful financial measure, since for the family farm, it excludes an
allowance for family labor and management, which is quite difficult
to value.
Additional factors which also reduce the usefulness of financial measures
include:
-Many farmers do not have cost accounting systems and do not
know these costs. (It is realized that some farmers have
highly sophisticated accounting systems).
-Many, if not a majority of farmers determine costs of production by
measuring out-of-pocket costs. In producing milk, for example,
out-of-pocket costs would include purchased feed, medications,
sanitation supplies and perhaps taxes and insurance. Other costs such
as farm grown feed, depreciation, labor and equipment used such
XI-5
-------
as tractors may not be included as costs since they involve no out-
of-pocket costs. As a result of this different concept of determining
cost, many farmers over-estimate income and, therefore, make
decisions from a different financial base than do non-farm firms.
-Secondly, costs of effluent controls were estimated assuming that
all investments will be made by purchasing inputs at market prices,
* and that a typical pollution abatement system will be adopted. These
assumptions were necessary to provide a common norm for analysis.
Difficulties in estimating the financial impact of effluent controls on
farmers is compounded by the different levels of technologies used
to accomplish the desired end results. Also, rather than purchase
effluent disposal systems, many farmers may build their own systems
using existing farm equipment. Farmers are characterized as being
highly innovative and assumed to have the ability to modify present
management systems to meet effluent guidelines at minimal costs.
Capital availability will be commented upon, based on the equity position
of agriculture and past history of credit availability.
C. Production Effects
The effect of imposition of pollution control standards on production will
be qualitatively analyzed based upon key factors influencing the feedlot
industry. Rather than make numerical estimates of production effects and
closures, the magnitude and direction of impacts will be suggested. As will be
pointed out in the subsequent impact analysis, the primary production impacts
are expected to be in the form of structural shifts rather than pollution control
induced production changes in the aggregate.
XI-6
-------
The key factors in which the production impact implications were made
a re as follows :
-limited knowledge of farmers relative to actual costs of production
-production may be a part of a larger integrated farm production
system. For example, cash grain production may be a profitable
alternative for a Midwestern hog producer.
-the operation is a family tradition and a way of life
-there are few, if any, opportunity costs for the fixed assets employed
and for the family labor and management
-relative changes in cash earnings
-relationship of investment in pollution control facilities to primary
inve stment
-importance of off-farm income to small farmers
-number of producers and volume by segment size
-estimated portion of industry with pollution control facilities and
management in place
-already existing and established trends toward significant structural
shift to larger production units
D. Other Effects
Other effects of interest include employment, community and balance of
payments. Employment effects are difficult to assess, since impacted
farmers have several options: close the enterprise, but utilize the land
resource for cash and production or a pasture type livestock operation;
liquidate the farm and enter retirement or other occupations; expand
the feedlot enterprise or simply make the investment and absorb any
increased costs. In practice, it is likely that all of the above options
will be exercised, but the extent to which each will occur is not known.
These factors will be assessed in relation to employment and community
effects.
Balance of trade effects were omitted, since feedlot products are not
exported in large quantities nor are directly competitive livestock
products imported in significant quantities.
XI-7
-------
PART XII: COST OF POLLUTION CONTROL
The cost of pollution control was analyzed by first evaluating the state-
of-art relative to existing pollution controls in each of eight different
types of feedlots. Feedlot segments which had existing effluent controls
adequate to meet pending standards and tnose which do not need controls
were dropped from further analysis in Phase II. Secondly, investment
and annual operating costs for effluent controls were estimated for feed-
lot segments not meeting pending effluent guidelines.
A. State of Art in Pollution Control
Broiler Industry
All commercial broilers are grown in totally confined production systems with
no effluent discharge. Throughout their life cycle, broilers are held in houses
which protect them from all precipitation and extreme climatic conditions.
Excretions are dropped on dry litter which effectively absorbs excess moisture.
Basically broilers are grown in a dry environment.
At frequent intervals litter is removed from houses and spread on fields
in a semi-dry form. Litter is then turned under as fertilizer. No effluent
problems occur with this system.
Non-commercial broilers usually consist of a few birds grown "around the
barnyard." The density of these birds is such that they do not require
effluent control.
Turkey Industry
Turkeys are grown in either totally confined housed systems or on open
range. Poults are initially placed in houses and held in confinement until
about eight weeks of age. During this phase of their life cycle, turkeys are
held in a dry environment protected from precipitation with excretions de-
posited on dry litter.
At about eight weeks of age, poults are either placed on open range or held
in confinement. The former is the most widely practiced management
system. Birds grown out in confinement are held in a relatively dry
environment with no effluent discharge.
Birds placed on open range are stocked at a limited density rate with
ranges being rotated from one brood to another. This management prac-
tice is used primarily for disease control, but, also effectively prevents
XII-1
-------
build up of excretions. With excretions scattered over a broad area and
ranges being rotated, we assume that no effluent discharges occur. There-
fore, turkey producers are assumed to meet effluent guidelines.
Egg Industry
The majority of all layers are held in confinement housing through their
life cycle. The exceptions should be smaller farm flocks which may be
allowed to roam a barnyard. If the latter occurs a low density rate exists with
no problems resulting from effluent discharges.
Larger flocks are held in confinement either on floor or in cage systems.
In both systems birds are protected from precipitation and held in a rela-
tively dry environment. Excretions are either dropped on dry litter or on
concrete floors. In both cases manure is removed at frequent intervals
and spread on fields in a semi-dry condition and turned under as a source
of fertilizer, or washed into lagoons. The latter is a relatively new management
system and producers are assumed to meet effluent guidelines.
The management systems used in the egg industry effectively limits effluent
discharges. Therefore, we are assuming this industry meets effluent
guidelines and will not be impacted.
Sheep Industry
Two management systems prevail in the handling of breeding stock. In
the western half of the U.S. , where 80 percent of the breeding stock is
located, sheep are held on large ranches which may involve thousands of
acres. In the eastern half of the U. S. , most breeding stock is in small
farm flocks. In both cases, sheep are held in pastures with limited density.
Effluent discharges are widely scattered resulting in limited, if any,
effluent pollution problems.
Little information is available relative to lamb and sheep feeding in feedlots.
The following assumptions were made after discussions with industry
personnel and staff members of EPA:
- a large number of feedlots , feeding over 1, 000 head per yea r a re
assumed to presently meet proposed effluent guidelines.
-smaller feedlot operators generally feed in semi-confinement systems
involving low density lots. Density of animals is limited and therefore,
production units do not need effluent technologies.
XII-Z
-------
Duck Industry
Currently about 90 percent of the production of ducks is concentrated in five
states. Two production systems presently are in use -- wet and dry lots.
Ducks produced in dry lots have no access to water other than for drinking
purposes. Wastes are predominately deposited on litter inside houses and
no effluent problems are evident and these type of systems are assumed to
meet effluent guidelines.
Ducks produced in wet lot systems have a dry lot with access to water for
swimming which is necessary for types of feather development. These
operations are currently expected to meet 1977 standards but require
additional investments to meet zero discharge by 1983. It is believed
the imposition of effluent controls will impact this type of operation.
However, due to the lack of necessary data and the fact thc.t there is no
indication that the imposition of the 1983 standards will have a significant
impact on the industry, impact analysis and further discussion was eliminated.
Fed Cattle Industry
Nearly all fed cattle sold for commercial slaughter are fed in open lot
confinement. Exceptions are a limited number of feeders who feed in
totally confined systems.
In open lot systems, cattle are held in high density lots with about ZOO
square feet of space per animal. Shelter may or may not be provided
varying by region of the U.S. and size of feedlots. Farmer feeders in the
midwest normally provide some shelter while in large feedlots in the west,
cattle are exposed to all precipitation.
Feedlots are normally constructed on land with sloping topography. On
flat land, lots are mounded to provide some degree of slope. This practice
facilitates the disposal of liquid wastes via gravity flow eliminating excess
liquid waste from animals or from precipitation.
The technology used in disposing of liquid and dry manure varies greatly
from one feedlot to another and by size segment- Generally, all feedlots
follow similar practices for disposing of solid wastes while considerable
variation exists in handling liquid runoff.
Normally solid wastes are removed from lots and deposited on fields as
fertilizer. Disposal of liquids varies from collection systems using holding
basin on lagoons to allowing liquid effluent runoff to go directly into streams.
XII-3
-------
Estimates obtained from EPA indicate that 60-70 percent of all lots with
1,000 or more head capacity meet effluent guidelines of zero discharge.
Only 20-30 percent of all smaller lots have effluent control systems adequate
to meet proposed standards.
The impact of effluent guidelines will be analyzed assuming the preceding
percent of feedlots with effluent controls. All other feedlots are assumed
to require additional investment costs and, therefore, will be impacted.
Hog Industry
Three different types of management systems prevail in hog production:
(1) open-lot-pasture; (Z) hogs held on concrete with full or partial roofing;
and (3) full confinement. It is assumed that the type of management system
used is correlated with the number of hogs raised annually. Open lots
are assumed to be used extensively by small producers selling 100 to
300 head annually. It is also assumed that solid concrete floors with
roofs are being used by producers selling 900 head, and full confinement
systems are being used by all larger producers.
In open lot systems hogs are held on dirt, or perhaps pasture. Limited
shelter is provided with hogs being exposed to precipitation. Density
rates vary from 10 to over 100 hogs per acre. All excretions are normally
left on the land and subjected to effluent runoff. It is estimated by the EPA,
that only 5 to 10 percent of all producers with open lot systems meet proposed
effluent guidelines.
Producers feeding hogs on concrete with pens partially or fully protected,
use different levels of technology for manure disposal than do open lot
producers. Solid wastes may either be scraped from pens or "flushed out"
with water. Either method necessitates removal and spreading on fields or
use of holding basins or lagoons to prevent effluent runoff. Control of liquid
waste is accomplished through holding basins or lagoons. Holding basins
necessitate disposal of liquids on fields. It is estimated that 75-80 percent
of all producers using this management system meet effluent runoff standards.
Producing hogs in full confinement systems is a relatively new technology and
assumed to be a practice primarily employed by larger producers. These pro-
duction units are highly visible and are assumed to be fully regulated, meeting
effluent runoff standards.
The impact of effluent controls will be analyzed assuming that producers
marketing 2, 250 or more hogs per year meet effluent guidelines and will not
be impacted. The impacted segment will be smaller producers who have
inadequate effluent controls.
XII-4
-------
Dairy Industry
Management systems used in handling dairy cows involves two basic
technologies: (1) full confinement during winter months with cows on
pasture during grazing periods; and (Z) open lot systems with cows
held in confinement. The former practice prevails in the north and north-
east while the latter prevails in the south, southwest and west-
In using management systems involving full confinement with summer
pasture, the technology required for manure disposal requires methods
for removing and spreading solid wastes from barns and controlling effluent
runoff. Effluent runoff includes runoff from holding areas adjacent to barns
plus water used in cleaning milking equipment and parlors. It is estimated
by the EPA that 30 percent of all dairymen with fifty cows or less and 60-70
percent with 100 to ZOO cows presently meet effluent guidelines.
The technology required for manure disposal for open lots is similar to
confinement - pasture system with the exception of increased requirements
for controlling effluent discharges. In open lots, all excretions are exposed
to precipitation as little protection is provided for animals. An estimated
60-70 of all these production units meet effluent guidelines.
All size segments of dairy feedlots will be impacted by effluent controls.
The impact, however, will be greatest tor smaller dairymen.
Of the eight industry segments analyzed, it was the concensus of opinion
of staff members of EPA that five of these industries already meet existing
or proposed effluent guidelines. These industries included broilers, turkeys,
layers, sheep and ducks. The remaining three industry segments, beef,
hogs, and dairy, were assumed to need some degree of additional invest-
ment to control effluent runoff. (Table XII-1)
It was concluded, based upon available data, that there would be little or
no impact on the remaining segments, because the overwhelming portion of
these segments either already have systems capable of controlling effluent
or production techniques are such that there are no effluent problems.
XII-5
-------
Table XII- 1. Estimated current effluent control status, feedlot industry
Meet Proposed Percent Meeting
_ _ _ _ Effluent Guidelines Effluent Guidelines
Broilers Yes 100
Layers Yes -~100
Turkeys Yes 100
Sheep Yes 100
Ducks */ */
Beef
less than 1,000 head No 20-30
more than 1,000 head No
Swine
dirt/open lot No 5-10
concrete /open lot No 75-80
totally confined Yes ,-. 100
Dairy
Stanchion barns No 25-35
Loose barns No 60-70
Cow yards No 60-70
"
U Lack of available data necessitated eliminating ducks from impact analysis
XII-6
-------
B. Incremental Costs of Pollution Control
Investment costs for meeting pending effluent guidelines were estimated
for model production units under two assumptions:
1. Livestock producers at present have the required equipment
and land for the removal and disposal of solid manure. There-
fore, no additional costs for solid waste removal are required.
2. Investment costs required for effluent control consist of
lagoons and/or basin construction to curb runoff and equip-
ment for the removal and disposal of lagoon liquids. These
incremental costs are assumed to be the only investment
costs required of livestock producers to meet pending
effluent guidelines .
These incremental costs were computed for each size segment for beef
cattle, hog and dairy feedlots. Cost estimates used were provided by the
Environmental Protection Agency. These costs included costs for con-
structing lagoons and equipment for liquid lagoon removal and disposal.
Size of lagoons required were determined by using the following procedures:
Square feet of lot space per animal was estimated for each
type of feedlot and size segment.
Precipitation was estimated using 25 year, 24 hour
rainfall estimates. These estimates vary by area
of the U.S.
One hundred percent runoff was assumed.
Volume of runoff was then computed using the following
equation:
(Sq. ft. of space/head x 1 x liquid wt/cubic ft. x number head
12, , -
x runoff) J- (liquid wt. /ft x 27 ft^/yd^)
Lagoon costs were estimated from cost data showing the
relationship of construction cost for various size lagoons.
Next, investment costs for removal and disposal of lagoon
liquids were estimated assuming different levels of tech-
nology for va rious size segments. For example, investment
_' Use of the word lagoon in this report is considered synonymous with
the word holding pond. XII-7
-------
costs for a small cattle feeder consisted of a pump and liquid
spreader while larger feeders were assumed to be able to use
center pivot irrigation systems. The effluent control systems
assumed for each industry segment are summarized in Table
XII-2. It is realized that the use of a tank spreader for disposing
of liquid wastes may not always be possible due to wet, muddy fields,
However, the tank spreader was used for 100 cow dairy operation to
indicate the options available to the farmer. Additional investment
requirement and its percentage of the original investment for each
industry segment is shown in Table XII-3.
Annual operating expenses for each type and size of feedlot were estimated
using guidelines provided by EPA. Operating and maintenance costs were
assumed to equal five and ten percent of investment costs for lagoons and
equipment, respectively. Depreciation costs were determined by assuming
lagoon life of 20 years and equipment life of five years.
Incremental Costs for Beef Cattle Feedlots
The incremental costs for meeting effluent guidelines consists of invest-
ments in lagoons and liquid dispensing systems. These incremental costs
varied from $2,050 for a feeder ma rketing 100 head annually to $63,500 for
feeders marketing 40,000 head (Table XII-4). Minimum costs for lagoons of
$1,550 were assumed for feedlots marketing 500 head or less. Lagoon costs
beyond this point increased as size of feedlots increased but not at a propor-
tionate rate. Lagoon costs per head decreased as feedlot capacity increased
ranging from $15. 50 to $6. 50.
Economies of scale also exist in annual costs for effluent control. Annual
costs per head ma rketed va ried from $3. 04 for the smallest feede r to $0.35
for the largest feeder (Table XII-4).
Investment in effluent control systems as a percent of original investment
varied from 34.0 percent for feeders marketing 100 head to 6.6 percent
for feeders marketing 40,000 head (Table XII- 5). This ratio decreased
for all size segments as feedlot capacity increased.
Cash earnings for all beef feedlot decreased slightly after investments
in effluent controls were made (Table XII-6). Cash earnings before and
after effluent controls are as follows:
Cash Earnings Percent
Feedlot Capacity Before After Change Change
100 $ 2,565 $ 2,438 -$ 127 5.0
500 12,080 11,703 - 377 3.1
1,000 53,892 53,187 - 705 1.3
5,000 175,392 172,672 - 2,720 1.6
10,000 395,928 392,053 - 3,875 1.0
20,000 848,443 843,393 - 5,050 0.6
XII-8
-------
Table XII-Z. Effluent control systems by industry segments
Traveling Tank Center Hand Carry
Segment and Size Lagoon Pump Gun Spreader Pivot Sprinkler
Beef
100
500
1,000
5,000
10,000
20,000
Swine
100
300
900
Dai ry
25
50
100
200
500 (Southwest
& West)
500 (South)
1,000 (Southwest
& West)
1,000 (South)
X X
X X
X X
X X
X X
X X
X X
X X
X X
X X
X X
X X
X X
X X
X X
X X
X X
XII-9
-------
Table XII-3. Base feedlot investment and pollution control investment
Segment and Size
Beef
100
500
1,000
5,000
10,000
20,000
Swine
loo
300
900
Dairy
25
50
100
200
500 (Southwest
& West)
500 (South)
1,000 (Southwest
& West)
1,000 (South)
Base Feedlot
Investment
($)
6,000
43,092
76,780
427,000
610,000
960,000
1,500
7,500
25,000
30,000
48,000
96,000
182,000
374,000
374,000
710,000
710,000
Effluent
Control
Investment
($)
2,050
4,550
8, 100
30,400
45,500
63,500
2,050
3,550
5, 100
1,200
1,400
3,600
4,200
4,550
5, 100
4,550
6,000
Effluent Control
Investment as a
Percent of the
Base Investment
(%)
34.2
10.6
10.5
7. 1
7.4
6.6
136.7
47.3
20.4
4.0
2.9
3.7
2.3
1.2
1.4
0.6
0.8
XII-10
-------
Table XII-4.Investment costs required for effluent control and annual costs, by size of beef feedlot , U.S.
Capacity - Number of Head .£/
3/
Investment Costs
La goons _'
Dispensing System
Pump
Traveling gun
Center pivot
Total Investment
Annual Costs
Operating and Maintenance
La goons
Equipment
Depreciation _'
Lagoons
Equipment
Total annual cost
Estimated percent of production
units currently meeting present
effluent guidelines '
100
1,550
500
2,050
77
50
77
100
304
20-30
500
1,550
3,000
4,550
77
300
77
600
1,054
20-30
1,000
2, 100
6,000
8, 100
105
600
105
1,200
2,010
60-70
5,000
6,400
24,000
30,400
320
2,400
320
4,800
7,840
60-70
10,000
13,500
- 32,000
45,500
675
3,200
675
6,400
10,950
60-70
20,000
26,000
37, 500
63,500
1,300
3,750
1,300
7,500
13,850
60-70
' All production units were assumed to be open lots.
.f*/ Assume turnover rate of "one" for 100 and 500 head lots. For all other lots a turnover rate of 2. 16 was used.
~L' Costs for effluent control. All production units were assumed to have existing equipment and/or facilities
for removal of solid wastes.
-------
X
II
»t
I
I>
ts)
Footnotes for Table XII-4- (continued)
4/
Costs were estimated using the following assumptions:
lot density equalled one animal per 200 square feet
runoff of five inches for all lots
minimal cost of $1, 550 was used for smaller lots
costs for lots of 1,000 or more head were estimated using data provided by EPA
Costs for dispensing effluent wastes were estimated using data provided by EPA
Costs were estimated assuming five and ten percent O&M costs for lagoons and equipment, respectively.
_L' Lagoon life was estimated at twenty years. Life of equipment - five years.
g /
Percents obtained from EPA.
-------
Table XII-5. Total investment and annual cost for various sized cattle feedlots, including effluent
controls, Iowa and Arizona, 1971
Capacity -
Base replacement + investment
Investment for effluent control
Total Investment
Annual Fixed Costs
Insurance & Taxes
Interest on Investment
Mana gement
Depreciation:
^ Lagoon
K Effluent dispensing equipment
,L Facilities and equipment _'
00 Total Fixed Costs
Annual Variable Costs
Stee rs
Feed
Labor (hired)
Vet & Medical
Taxes (Cattle)
Interest (Cattle)
Other
Operating and maintenance:
La goon
Effluent dispensing equipment
Family labor
Total Variable Costs
100
$ 6,000
2,050
8,050
65
180
--
77
100
324
746
20, 100
7,400
--
255
100
500
260
77
50
864
29,606
500
$ 43,
4,
47,
1,
-
3,
5,
100,
37,
--
1,
2,
1,
1,
145,
092
550
642
670
293
-
77
600
078
718
500
000
000
500
513
975
77
300
463
328
1,
$ 76
8
84
1
2
1
5
10
434
159
-
4
2
10
8
3
624
000
,780
, 100
,880
,296
,303
--
105
,200
,400
,304
, 160
,840
-
, 104
, 160
,854
,640
105
600
,900
,363
Number Head
5,000
$ 427,
30,
457,
6,
12,
11,
4,
25,
60,
2, 170,
840,
58,
18,
10,
54,
28,
2,
-
3, 184,
000
400
400
264
810
016
320
800
596
806
800
456
320
792
800
270
620
320
400
-
788
10,000
$ 610
45
655
9
18
22
6
36
93
4,341
1,680
87
37
21
108
44
3
-
6, 326
,000
, 500
, 500
,288
,300
,032
675
,400
,504
, 199
,600
,912
,480
,584
,600
,540
,496
675
,200
-
,087
20,000
$ 960
63
1,023
14
28
32
1
7
57
142
8,683
3,361
150
75
43
217
72
1
3
-
12,608
,000
,500
,500
,261
,800
,832
,300
,500
,456
, 149
,200
,824
,336
, 168
,200
,080
,576
,300
,750
-
,434
-------
Table XII-5. (continued)
Total Costs
Total Costs Excluding Family Labor
100
$30,355
29,491
500
$151,046
149,583
Capacity -
1,000
$634,667
630,767
Number Head
5,000
$3,245,584
10,000
$6,419,286
20,000
$12,750,583
J.' Depreciation rate for feedlots under 5,000 head capacity was 7 percent, for those with capacity of 5,000 or over,
6 percent was used.
Assumptions:
-Costs were calculated for the 100, 500 and 1,000 head feedlots from various Farm Management Extension Bulletins
from Iowa State University
-Costs were calculated for the 5,000, 10,000 and 20,000 head feedlots from: "The Arizona Cattle Feeding Industry,"
Russell Gum and Elmer L. Menzie, Tech. Bull. 191, Univ. of Arizona, Jan. 1972.
-All Costs were inflated to present 1971 cost.
-Costs were calculated based on a 2. 16 capacity turnover rate for all feedlots except those with 100 and 500
head capacity which were assumed to feed only once a year.
X
-------
Table XII-6. Estimated cashflow for various sized cattle feedlots, including effluent controls.
Capacity
X
HH
1 1
1
t '
Ln
Utilization (Turns per year)
Annual Output (No. head marketed)
Sales ±1
Less Variable Expense:
Steers
Feed
Effluent Controls
Other
Less Fixed Expense
Cash Ea rnings
Less Depreciation
Less Interest
P re -Tax Income
Excluding Family Labor
Cash Earnings
Less Depreciation
Less Interest
P re -Tax Income
100
1.0
100
30,745
20, 100
7,400
127
1,479
65
1, 574
501
683
390
2,438
501
683
1,254
500
1.0
500
153,725
100, 500
37,000
377
4,938
670
10,240
3,755
3, 806
2,679
11,703
3,755
3,806
4, 142
1,000
2. 16
2,
664,
434,
159,
18,
1,
49,
6,
13,
29,
53,
6,
13,
33,
160
092
160
840
705
804
296
287
705
157
425
187
705
157
325
- Number Head
5,000
2. 16
10,
3,320,
2, 170,
840,
2,
116,
17,
172,
30,
67,
74,
800
460'
800
456 -
720
532
280
672
716
080
876
10,000
2. 16
21,
6, 640,
4,341,
1,680,
3,
191,
31,
392,
43,
126,
221,
600
920
600
912
875
160
320
053
579
840
634
20,000
2. 16
43,
13,281,
8,683,
3,361,
5,
341,
47,
843,
66,
245,
531,
200
840
200
824
050
280
093
393
256
880
257
$307. 45 per head = 10 cwt. x . 96 shrink adjustment x . 99 death loss adjustment x $32. 35/cwt.
-------
Incremental Costs for Hog Feedlots
To meet effluent guidelines, the incremental costs consist of investments
in lagoons and liquid dispensing equipment. These incremental costs
varied from $2,050 for the operator producing 100 hogs annually to
$5, 100 for the operator producing 900 hogs annually (Table XII -7). For
hog operations producing more than 900 hogs annually, it was assumed
these operations were meeting existing or pending effluent guidelines,
therefore they have no incremental costs for effluent controls. Minimum
lagoon cost of $ 1, 550 were .assumed for the two smaller hog operations
producing 300 hogs 'annually or less. Lagoon costs of $2, 100 were
assumed for the operation producing 900 hogs.
Economies of scale exist in annual costs for effluent control. Annual
costs per head produced varied from $3.05 for the smallest hog operation
to $1.23 for the operation producing 900 hogs annually (Table XII -7).
Investment in effluent control systems, as a percent of original investment
varied from 136.7 percent for the operator producing 100 hogs annually to
20.4 percent for the operator producing 900 hogs (Table XII -8). For the
three operations being considered, this percentage decreased as the size
of the operation increased. The high of 136.7 percent is explained by
the fact that the operator will be required to have an investment double his
original investment.
Cash earnings for all three examined hog operations decreased after
investment for effluent controls were made (Table XII -9). Decreases
in cash earnings for all hog operations were slightly higher than those
resulting from investment in effluent controls in the dairy and fed beef
industries. Cash earnings for hog operations, before and after effluent
controls are as follows:
Number of Hogs Cash Earnings Percent
Marketed Before After Change Change
100 $ 1,522 $ 1,395 -$127 8.3
300 3,334 3,057 - 227 6.8
900 7,171 6,766 - 405 5.6
2,250 14,018 14,018 0
7,500 43,999 43,999 0
XII-16
-------
Table XII-7 .Investment costs required for effluent controls and annual costs, by number of hogs marketed annually'
I/
Investment Costs
Lagoons '
4/
Dispensing System
Pump
Tank Spreader
Traveling Gun
Total Investment
Annual Costs
Operating and Maintenance
Lagoons
Equipment
Depreciation _'
Lagoons
Equipment
Total annual costs
Estimated percent of operations
currently meeting present ef-
fluent guidelines
100
1,550
500
2,050
77
50
77
100
304
5-10
Numbe r
300
1,550
2,000
3,550
77
200
77
400
754
5-10
of Hogs Marketed
900
2, 100
3,000
5, 100
105
300
105
600
1, 110
75-80
Annually
2,250 7,500
These operations are assumed
to meet existing and pending
effluent guidelines.
100 100
' All enternrises were as sumed to be farrow-to-finish ho a one rations . Thosp mop. raHnns ma rlrpHno inn anrl ^nn
hogs annually were assumed to be open dirt lots, those with 900 hog marketings were assumed to be concrete
lots, partially or fully roofed, those marketing 2,250 and 7,500 hogs annually were assumed to be confinement
operations.
_' Costs for effluent control. All production units were assumed to have existing equipment and/or facilities
for removal of solid wastes.
-------
Footnotes for Table XII-7.(continued)
~ Costs were estimated using the following assumptions:
lagoon requirement equalled 150 cubic feet per hog
minimal costs of $1,550 were used for smaller operations
cost for the 900 marketing operation was estimated using data provided by EPA
4/
Costs for dispersing effluent wastes were estimated using data provided by EPA
Costs were estimated assuming five and ten percent O&M costs for lagoons and equipment respectively.
Lagoon life was estimated at twenty years. Life of equipment was estimated at five years.
Percentages obtained from EPA.
X
*I
h"'
I
h
00
-------
Table XII-8. Total investment and annual cost in producing hogs (farrow to finisn operation),
including effluent controls
X
Replacement investment for
facilities &c equipment
Investment for effluent controls
Investment costs
Annual fixed cost
Insurance fk Taxes
Interest on investment
Depreciation:
Lagoon
Effluent dispensing equipment
Facilities and equipment
Total fixed cost
Annual variable cost
Feed
Veterinary
Utilities
Marketing
Interest on Breeding Stock
Operating and Maintenance:
Lagoon
Effluent dispensing equipment
Labor (hired)
Labor family (includes mgt. )
Total variable cost
Total Costs
Total Cost Excluding Family Labor
100
1,500
2,050
3,550
55
45
77
100
150
427
2,300
100
25
150
23
77
50
-
972
3,697
4,124
3,152
300
7,500
3,550
11,050
165
225
77
400
750
1,617
8, 115
300
90
450
69
77
200
-
2,916
12,217
13,834
10,918
Number of Hogs
900
25,000
5,100
30,100
495
750
105
600
2,500
4,450
24,245
900
900
1,350
207
105
300
2, 300
5,346
35,653
40,103
34,757
Marketed
2,250
84,000
I/
84,000
1,800
2,5-20
-
-
8,400
12,720
63,450
2,250
3, 800
3,375
525
-
-
4,700
4,632
82,732
94,452
89,820
Annually
7,500
186,500
I/
186,500
5,970
5,590
-
-
18,650
30,210
210,375
11,250
14,500
11,250
1,725
-
-
14,000
15,440
278,540
308,750
293, 310
continued--
-------
Table XII-8. (continued)
X
hH
t-H
I
to
O
These operations are assumed to meet existing and pending effluent guidelines.
Assumptions:
- Assume a sow farrows twice a year with an average of 1 5 pigs per year.
- Small operations (5-8 sows) have little investment for swine production, existing facilities are used by
many of these enterprises.
- Assume 450 pounds of feed will produce 100 pounds of market hogs. Small operations reduce feed cost
by using more pasture. Hogs will be marketed at 225 pounds.
- Marketing cost includes trucking or transportation and commissions.
-------
Table XII-9. Estimated cash flow for various sized hog operations, Including effluent controls
Annual output (cwtproduced)
Sale si/
Less variable expenses
Feed
Effluent controls!/
Other I/
Less fixed expenses
Cash Earnings
Less depreciation
Less interest
Pre-tax income
Excluding family labor
Cash earnings
Less depreciation
Less interest
Pre-tax income
100
225.0
$4,152
2,300
127
1,247
55
423
327
68
28
1,395
327
68
1,000
300
675. 0
$12,454
8, 115
277
3,756
165
141
1,227
294
-1,380
3,057
1,227
294
1,536
Number of I
900
2,025. 0
$37,361
24,245
405
10,796
495
1,420
3,205
957
-2,742
6,766
3,205
957
2,60*
logs
2,250
5,062. 5
$93,393
63,450
18,757
1,800
9,386
8,400
3,045
-2,059
14,018
8,400
3,045
2,573
7,500
16,875.0
$311,344
210,375
66,440
5,970
28,559
18,650
7,315
2,594
43,999
18,650
7,315
18,034
]J Price of $18.45/cwt. was used.
^JAssume hogs are sold weighing 225 pounds.
3/Hog operations handling greater than 1,000 head are assumed to meet existing or pending effluent guidelines.
^/Includes a charge for family labor.
-------
Incremental Costs for Dairy Feedlots
Incremental costs for effluent control for dairymen included investment
costs for lagoons and various dispensing systems. Total incremental
costs - lagoons and dispensing systems - varied from $1,200 for a
25 cow herd to $6,000 for a 1,000 cow herd located in the South (Table
XII - 10.Minimum costs for lagoons of $1,000 were assumed with costs
increasing as herd sizes and lagoon requirements increased.
Total investments per cow in. effluent control decreased as size of herds
increased. Investment costs per cow varied from $44 for 25 cow herds
to $4.85 per cow for 1,000 cow herds located in the southwest and/or
west (Table XII - 10).
Investment in effluent control systems represents an insignificant portion
of total investment in dairy operations. A $1,200 investment for a 25
cow herd represents a 4. 0 percent increase in investment. A $6,000 in-
vestment for a 1,000 cow herd in the south represent less than a one percent
increase in investment (Table XII-11.)
Cash earnings for all sizes decreased slightly (Table XII - 12). Decreases
in cash earnings averaged about 1. 5 percent for small dairymen and less
than one percent for large dairymen.
Cash Earnings Percent
Size of Herd Before After Change Change
25 $ 4,503 $ 4,433 _$70 1.5
50 5,643 5,563 . go 1.4
100 13,883 13,603 _280 2.0
200 22,983 22,663 -320 1.4
500 52,684 52,307 -377 0.7
1,000 103,900 103,523 -377 0.4
XII-22
-------
Table XH-lOInvestment costs required for effluent control and annual operating costs, by size of dairy herds, U.S.
Number of Dairy Cows _!'
Investment Costs
Lagoons --
Dispensing Systems
Pump -1
Tank Spreader '
Traveling Gun,
Hand Carry Sprinklers
Total investment costs
Annual Costs
Operating & Maintenance
Lagoons
Equipment
Depreciation
Lagoons
Equipment
Total annual costs
25
$1,000
200
A /
t>/
1,200
50
20
50
40
160
50
$1,200
200
1,400
60
20
60
40
180
100
$1,600
2,000
3,600
80
200
80
400
760
200
$2,000
2,200
4,200
100
220
100
440
860
500
Southwest
& West
$1,550
3,000
4,550
77
300
77
600
1,054
South
$2, 100
3,000
5, 100
105
300
105
600
1, 110
1,
Southwest
& West
$1,550
3,000
4,550
77
300
77
600
1,054
000
South
$3,000
3,000
6,000
150
300
150
600
1,200
Estimated percent of production
units currently meeting present
effluent guidelines
30
30
60-70
60-70
60-70
60-70 60-70
60-70
-------
Footnotes for Table XII-10
Management systems used varied by number of milk cows.
Herds of 25 and 50 cows were assumed to be housed in stanchion barns. Cows are confined in
winter and held on pasture during grazing periods.
Herds of 100 and 200 cows were assumed to be housed in loose barns during winter and held on
pasture during grazing periods. Milk parlors we re assumed to be used for milking.
Herds of 500 and 1,000 cows were assumed to be confined throughout the year in open lots.
Lot density of one cow per 400 square feet. Milk parlors were assumed to be used for milking.
' Costs for effluent control. All production units were assumed to have existing equipment and facilities for
removal of solid wastes.
_' Cost estimates obtained from EPA. Investment costs for lagoons sufficient in size to contain milk house
liquid wastes and runoff from barnyard holding areas and open lot yards. Assumptions used for animal
density rates, runoff, and water requirements for cleaning milking facilities are as follows:
(a) Herds of 25 and 50 cows
Holding area of 200 square feet per cow
Runoff of six inches of rainfall
- Two gallons of water per cow required daily for cleaning milking equipment
(b) Herds of 100 and 200 cows
- Holding area of 200 square feet per cow
Runoff of six inches of rainfall
Four gallons of water required daily per cow for cleaning milking parlor and milking
equipment
(c) Herds of 500 and 1,000 cows
Lot density of one cow per 400 square feet
Runoff of six inches in the south and two inches in the southwest and west.
Ten gallons of water required daily per cow to clean milking parlor and milking equipment
' Cost of pump and limited pipe to dispense lagoon liquids on dryland,
$.' Tank spreader costs range from $1,000 to $3,200 depending on size.
&./ Costs would vary depending on feet of sprinkler pipe required.
U Costs were estimated from data provided by EPA. The following assumptions were used
Operating and maintenance costs equal five percent on lagoon costs and ten percent on equipment
Depreciation. Lagoon life of 20 years and equipment life of five years.
-------
Table XII- 11. Total investment and annual costs for dairy herds by number of cows, including effluent
controls, 1971
25i/
sol/
iooi/
Size
200l/
Investment
Buildings (Replacement)
Equipment (Replacement)
Effluent Controls
Cattle
Total Investment
9,000
8,500
1,200
12,500
31,200
13,000
10,000
1,400
25,000
49,400
18,000
28,000
3,600
50,000
99,600
32,000
50,000
4,200
100,000
186,200
of Herd
500l/
Southwest
& West
78,000
46,000
4,550
250,000
378,550
500l/
South
78,000
46,000
5,100
250,000
379,100
i.oool/
Southwest
& West
144,000
66,000
4,550
500,000
714,550
1 , OOOl/
South
144,000
66,000
6,000
500,000
716,000
Annual Fixed Cost
X
i i
i
IN!
Depreciation
Buildings
Equipment
Cows
Lagoon
Effluent dispensing equip.
Insurance
Taxes
Interest (Bldg. Ik Equip.)
Total Fixed Cost
540
637
575
50
40
117
175
525
4, 128
780
750
1,150
60
40
157
230
690
3,857
1,080
2,100
2,300
80
400
307
460
1,380
7,807
1,920
3,750
4,600
100
440
547
820
2,460
14,637
4,680
3,450
11, 500
77
600
826
1,240
3,720
26,093
4,680
3,450
11,500
105
600
826
1,240
3,720
26,121
8,640
4,950
23,000
77
600
1,340
2,010
6,300
46,917
8,640
4,950
23,000
150
600
1,340
2,010
6,300
46,990
Annual Variable Cost
Feed
Bedding
Breeding
Veterinary
Supplies
Power -fuel
Auto & Tractor
Insurance & Tax
Milk Hauling
Miscellaneous
11,000
1,000
250
450
250
200
175
50
1,200
250
22,000
2,000
500
900
500
400
350
iod
2,400
500
44,000
4,000
1,000
1,800
1,000
800
800
200
4,800
1,000
88,000
8,000
2,000
3,600
2,000
1,600
1,000
400
9,600
2,000
235,500
-
5,000
9,000
5,000
4,000
4,000
1,000
24,500
5,000
235,500
-
5,000
9,000
5,000
4,000
4,000
1,000
24,500
5,000
471,000
-
10,000
18,000
10,000
8,000
8,000
2,000
45,000
10,000
471,000
-
10,000
18,000
10,000
8,000
8,000
2,000
45,000
10,000
continued--
-------
Table XII-11 (continued)
Z5l/ 50l/
Annual Variable Cost (con't)
Operating and Maintenance
Lagoon 50 60
Effluent dispensing equip- 20 20
Interest (cattle)
Labor4/
Total Variable Cost
Total Cost
Total Cost (excludes family
labor)
375 750
6,250 9,750
21,520 40,230
25,648 44,087
19,398 37,837
Size of Herd
iool/ zooJL/ sool/ soo!/
Southwest South
& West
80 100 77 105
200 2ZO 300 30-0
1,500 3,000 7,500 7,500
10,500 19,750 50,000 50,000
71,680 141,870 350,377 350,405
79,487 156,507 376,470 376,526
73,237 150,257 370,220 370,276
1 , OOOl/
Southwest
& West
77
300
15,000
100,000
697,377
744,294
738,044
1 , OOOl/
South
150
300
15,000
100,000
697,450
743,990
737,740
_ Cows are housed in stanchion barns.
^J Cows are housed in loose
£/ Open lots.
housing.
_' Includes $6,250 family labor charge.
X
I
ro
-------
Table XII-12. Estimated cash flow for dairy herds by number of cows, including effluent controls, 1971
25i
/ so!'
Size of Herd
100^7
200^7
sool/
50017
Southwest South
& West
Utilization
Annual Output (100 Ibs)
Sales
Milk ($6. 20 /100 Ibs)
Calves
Total
Fixed Expenses
Variable Expenses:
Effluent controls
£< Production Related
i
-J Cash Earnings
Depreciation
Interest
Pre-tax Income
Excluding Family Labor
Cash Earnings
Less Depreciation
Less Interest
Pre-tax Income
100%
3,000
18,600
1,020
19,620
292
70
21,075
-1,817
1,842
900
-4,559-
4,433
1,842
900
1,691
100%
6,000
37,200
1,980
39,180
387
80
39,400
-687
2,780
1,440
-4,907
5,563
2,780
1,440
1,343
100%
12,000
74,000
3,900
78,300
767
280
69,900
7,353
5,960
2,880
-1,487
13,603
5,960
2,880
4,763
100%
24,000
148,800
7,800
156,600
1,367
320
138,500
16,413
10,810
5,460
143
22,663
10,810
5,460
6,393
100%
60,000
372,000
19, 500
291, 500
2,066
7 ~* -7
343,000
46,057
20,307
11, 220
14,530
52,307
20,307
11,220
20,780
100%
60,000
372,000-
19, 500
391, 500
2,066
405
343,000
46,029
20,335
11,220
14,474
52,279
20,335
1 1 , 2.<,0
20,724
1 , OOOl7
Southwest
& West
100%
120,000
744,000
39,000
783,000
3,350
377
682,000
97,273
37,567
21,300
38,406
103,523
37,567
21,300
44,656
1,000 I/
South
100%
120,000
744,000
39,000
783,000
3,350
450
682,000
97,200
37,340
21,300
38,560
103,450
37,340
21,300
44,810
_' Cows are housed in stanchion barns.
_' Cows are housed in loose housing.
3/ Open lots.
^1 Includes $6,250 family labor charge.
-------
-------
PART XIII: IMPACT ANALYSIS
Imposition of zero discharge effluent requirements on the feedlot in-
dustry will likely cause adjustments within the feedlot industry, but
as will be discussed below, these will largely be structural shifts.
The impact on each of the eight feedlot segments will vary. As discussed
in Chapter XII, five of the eight feedlot segments were eliminated from
the impact analysis because these five segments either do not have effluent
discharge problems or, for the most part, currently meet proposed effluent
guidelines with inplace control facilities or management practices. Thus
imposition of these control standards would not represent an incremental
impact on these segments.
Those industry segments eliminated from impact analysis included:
1. Broiler
2. Eggs
3. Turkey
4. Duck
5. Sheep
The remaining industry segments, and therefore potentially impacted
segments from the establishment of effluent control guidelines are:
1. Be^f
2. Swine
3. Dairy
Even within these three segments, some producers currently are con-
sidered to either meet pending effluent guidelines or do not have effluent
control problems. Table XIII-1 shows estimates of the percent of seg-
ments that currently do not meet effluent guidelines. For beef feedlots,
this percent ranged from 30 to 40 percent for feedlots with capacities
greater than 1,000 head to 70 to 80 percent for those feedlots with less
than 1,000 head. For swine, percentages ranged zero for total con-
finement operations to 90 to 95 percent for the small open lot hog oper-
ations. Dairy operations not meeting pending effluent guidelines ranged
from 30 to 40 percent for loose house and cow yard systems to 70 percent
for the stanchion barn systems. Thus, the impact of the proposed pollu-
tion control standards on these segments will be reduced by consideration
of inplace control facilities and waste management.
XIII- 1
-------
Table XIII-1. Estimated percentages of those feedlots which do not
meet pending effluent guidelines
Segment & Size
Technology
Percent Not Meeting
Proposed Guidelines
Beef
100 capacity
500 "
1,000 "
5,000 "
10,000 "
20,000 "
Open/dirt lot
u
'"
1 1
1 1
"
70-80
70-80
30-40
20-30
20-30
< 10
Swine
100 marketed
300 "
900 '
2,250 "
7,500 "
Open/dirt lot 90-95
90-95
Open/concrete/partial shelter 20-25
Total confinement 0
" 0
1,
25 on hand
50
100 "
200 "
500
000
Stall Barn
Stall Barn
Free Barn
Free Barn
Cow Yard
Cow Yard
>)
f
}
65-75
65-75
30-40
30-40
Source: Communications from the Environmental Protection A gency
XIII-2
-------
The impacts on these three industries are analyzed by industry and by
size segment where appropriate. The impacts considered in this analysis
include the following:
A. Price effects
B. Financial effects
C. Production effects
D. Employment effects
E. Community effects
A comprehensive and quantitative impact analysis was concluded to be
beyond the scope of this study and perhaps technically not feasible due
to data limitations. Consequently the impact analysis was based on a
qualitative analysis using broader data and general theoretical concepts
of the economies of agriculture. The objective of the analyses was to
obtain qualitative inferences regarding the direction and degree of im-
pacts .
A. Price Effects
Assessing the price effects emanating from mandatory pollution abatement
standards inevitably involves exploring both long run and short run demand
and supply considerations that determine the competitive solution or
market clearing equilibrium price and quantity.
The difficulties associated with estimating long run demand and supply
implications are such that a quantitative assessment of the long run and short run
equilibrium price and quantity is beyond the scope of this analysis.
The alternative that has been selected is to present a qualitative assessment
of the probable price effects resulting from the imposition of pollution
abatement standards. This is accomplished by discussing, one, the price
changes required to maintain existing profit levels for various segments of
the industry, two, probable short run price effects and, three, expected
long run price movements.
1. Required Price Changes
Price increases required to compensate feedlot producers for the additional
expenses incurred by mandatory pollution abatement standards are expected
to be relatively small for the three feedlot industries. It should be noted,
however, that there is a considerable va riation between industries and within
industry segments. Certain size segments will require much higher price
XIII-3
-------
increases than others. Table XIII-2 shows the price increases necessary
to maintain current profit levels. These estimates are based on the model
feedlot analysis discussed earlier. Table XIII-2 shows that the required
price increases range from 0.9 cents per hundred weight of fluid milk
to $1.35 per hundred weight of hogs.
Swine producers show the highest price increase requirement, ranging from
$1.35 for open dirt operations marketing 100 head per year to $,55 for
open concrete lots marketing 900 hogs annually. Beef follows with a
required price increase ranging from $.30 for the small open lots marketing
100 cattle per year'to $.03 for the largest feedlot modeled (20, 000 head
capacity and marketing 43,200 head annually). Dairy requires the smallest
price increase, i.e., $.01 for cowyarrl operations with 1,000 head capacity
to $.06 for free barn operations with a capacity of 100 head.
It must be remembered that the above price increases are those required
to maintain existing profit levels from a micro economic viewpoint. Nothing
is inferred at this point regarding the ability of various industry segments
to extract or realize such price increases even though they may seem small
and insignificant. In addition, nothing is inferred in reference to the ultimate
burden of such price increases.
Z. Short Run Price Impacts
Short run price effects will predominately be determined by the impact
of the pollution abatement standards on industry capacity and by the
ability of producers to influence prices (market power).
Prices will be sensitive to the time period in which the proposed pollu-
tion abatement standards are applied. The immediate imposition of ef-
fluent controls could result in a rapid, temporary contraction of industry
capacity and, hence, increased prices. However, it will be assumed
throughout this analysis, that effluent controls will be applied gradually
over the next four years. This period of adjustment should be adequate
to reduce this price effect to a relatively insignificant level.
In general, individual production units within the industry are price takers
with very limited market power. In the case of effluent control costs, this
condition would be reinforced by the existence of major producers within
the industry which currently meet the proposed effluent guidelines. The
impacted portion of the industry would most likely be forced to absorb
much of the pollution control induced expenses in the form of reduced profits.
It should be noted, however, that the current supply/demand situation may
cause prices to rise sufficiently high and to maintain that increase sufficiently
^ that, in the short run, these increases may cover pollution control costs.
XIII-4
-------
Table XIII-2. Estimated price increases to maintain profitability
levels after imposition of effluent guidelines
Segment &
Size
Technology
Price
Increase
Percent of
Base Price
($/cwt)
BEEF
1,
5,
10,
20,
100
500
000
000
000
000
Open/dirt lot
1 1
1 1
1 1
ii
f i
$0.
0.
0.
0.
0.
0.
30
21
09
07
05
03
0.
0.
0.
0.
0.
0.
9
6
3
2
1
1
SWINE
100
300
900
Open/dirt lot
1 1
Open /concrete/
partial shelter
1.
1.
0.
35
11
54
7.
6.
2.
3
0
9
DAIRY
1,
1,
25
50
100
200
500 (Southwest & West)
500 (South)
000 (Southwest & West)
000 (South)
Stall barn
ii
Free barn
M
Cow Ya rd
1 1
ii
1 1
o.
o.
0.
o.
0.
0.
0.
0.
05
03
06
03
01
01
00
01
0.
0.
1.
0.
0.
0.
0.
0.
8
5
0
5
2
2
0
2
XIII-5
-------
The net effect of pollution control cost absorption or reduced profit levels
will be reflected in accelerated industry trends such as the annual exodus
of small, inefficient producers. Pollution controls will, however, only
accelerate existing trends in the short run. The long run equilibrium
number of firms is not believed to be significantly altered by pollution
controls.
While this is the general industry situation, it is expected to vary by
industry segment. A brief assessment of expected short run price im-
pacts and market power by industry is presented below which tends to
support the above summary.
Beef producers in the past have had very little marketing power. They
have no marketing cooperatives like dairy producers, and basically are
in a free market situation. Also, only 30 to 40 percent of the commercial
feeders (those with 1, 000 head capacity or more) and 70 to 80 percent of
the farmer feeders (those with capacities of less than 1,000 head) need to
make pollution control expenditures. This means that of the cattle fed in
197Z, only an estimated 50 percent of them were fed on lots that would
require additional investment in pollution control and therefore price
inc reases.
Like the beef feedlot operator, hog producrs are price-takers. Also,
they do not have any strong marketing cooperatives by which they can
influence the hog market. However, it is estimated that over 75 percent
of the hogs marketed come from hog operations requiring effluent controls.
This coupled with the higher required price increases shown in Table XIII-Z,
tends to suggest that the hog producing segment is one segment of the industry
that may not be able to pass on the added costs of effluent control.
The dairy producer, on the other hand, is in the most favorable position
in reference to the ability to pass on the additional costs of effluent controls.
This is predominately due to the strong representation of producers by
marketing cooperatives which have the ability to negotiate milk prices with
the milk processors. The amount of this price increase that may be passed
on will be reasonably small as indicated in Table X1II-2 and is subject to
bargaining power or relative negotiating strength. It is estimated that
between four and six cents per cwt. of milk can be passed on to other
processors.
The secondary price effects of effluent controls, in the short run, are
therefore expected to be insignificant. It is anticipated that only a very
small increase in the retail price of beef, swine, or milk will occur as a
result of pollution controls. This is primarily attributed to two factors.
XIII-6
-------
First, not all feedlots will be affected by effluent controls as was indicated
in Table XIII-1. Thus, the price increases are not necessary for all feed-
lots. Second, when considering the small units in which the consumer buys
(pounds and half gallons), the amount of price increase (as indicated in
Table XIII-2) per consumer unit would be very small.
3. Long Run Price Effects
While the above section concluded that the short run price effects of
pollution control are .relatively small when compared to price effects
due to other exogenous forces, there are several long run trends that
should be discussed. Some of these trends are expected to completely
mitigate any adverse pollution control induced effects and other trends
could accentuate unfavorably industry trends. The difficulties associ-
ated with predicting long run trends are such that the following discussion
will present only a selected portion of the salient industry trends in very
general terms.
The continual exodus of small inefficient producers, the increased market
share supplied by low cost producers, technology advances in the area of
animal health, breeding and feeding environments all have a tendency to
result in a greater supply at a lower price. On the other hand, rising farm
labor costs and higher prices for feed grain have an off-setting influence
The net effect of such forces can not be accurately assessed at the present
time.
It does appear, however, that the demand sufficiently strong is likely
to increase in the future. This force, ceteris paribus, will result in
increased quantities sold at higher prices. These factors, i.e., long
run demand and supply changes, are not the direct results of pollution abate-
ment standards on the feedlot industry but are rather the effects of exogenous
forces. Relative to the expected influence of these uncertainties or factors,
the likely long run impacts of pollution abatement standards are quite insigni-
ficant for this particular industry.
In general, it can be said that the competitive structure of the industry
is such that the long run pollution abatement costs even though they are
quite insignificant can not be absorbed in the long run and as a result will
be passed on to other processors and quite likely to the final consumer.
XIII-7
-------
B. Financial Effects
1. Profitability
As pointed out in Chapter XI on methodology, ordinary profitability esti-
mates are not extremely valid measures for much of the U.S. farming
sector. However, to provide some insights into the impact of pollution
control on profitability, two measures of profitability are presented be-
low -- return on invested capital at current value and cash earnings.
Because of the paucity of industry financial data, the model livestock
enterprise budgets developed in Chapters II, III and IV were used as a
basis for these estimates. In evaluating these estimates the reader is
urged to view these estimates as orders of magnitude and directions and
not as precise estimates.
As shown in Chapters II, III, and IV, the beef, hog and dairy industries
have varying returns on invested capital based on the model enterprise
budgets ranging from less than five percent to well over one hundred and
twenty percent. The wide variation of after-tax ROI is primarily due to
the differing investment requirements. (Book value of assets, on which rates
of return were calculated, were derived by dividing replacement costs by
two plus networking capital (current assets less current liabilities). The
average fixed investment value is intended to approximate invested capital.)
For example, many of the small sized industry segments have very little
investment requirement, thus the return on investment is very large. Con-
versely, large feedlots have high investment requirements and a much
smaller ROI. Thus, investment increases will have varying results on the
profitability of the feedlot industry. _i'
As shown in Table XIII-3, the book rate of return, after imposition of
zero discharge, is reduced, but the change declines moving from the
less intensive capital operations to the more highly capital intensive
operations. The largest declines in ROI occurred in the hog industry
where a reduction of nearly eighty points occurred for the smallest
model hog operations. This is primarily due to the more than doubling
of investment requirements for the operations existence. Beef exhibited
declines over seven percent for the small beef feedlot operations. As the
amount of investment increased, the spread between ROI1 s before and
after the imposition of effluent guidelines decreased and the difference
between the ROI's for the Z0,000 head feedlot was less than one percentage
I/
Wide variations should be expected in observed industry results due to
the many factors affecting costs -- weather, feed costs, animal per-
formance, management skills, etc.
XIII-8
-------
Table XIII-3.
Feedlot book rate of return before and after meeting
effluent guidelines
After -tax ROI
Segment &c Technological
Size Level
Before
Controls
After
Controls
percent
BEEF
100 Open/dirt lot
500
1,000 "
5,000
10,000 "
20,000 "
SWINE
100 Open/dirt lot
300 "
900 Open/concrete/
partial shelter
DAIRY
25 Stall barn
50
100 Free barn
200
500 (Southwest & west) Cow yard
500 (South)
1.000 (Southwest & west) "
1,000 (South) "
22.
12.
27.
10.
15.
19-
121.
44.
19-
9-
4.
8.
5.
8.
8.
8.
8.
5
1
6
4
4
0
1
4
6
0
6
5
9
6
6
1
1
15. 3
9-0
25. 3
9- 2
14. 3
18. 2
41. 8
20. 6
11. 7
7. 7
3.9
7. 1
5. 1
8. 1
8. 0
8. 1
7. 8
Represents total return to labor and capital.
XIII-9
-------
point. Dairy operations indicated the most constant change in ROI. Declines
in model dairy operations ranged froml. 3 percent to 0. 3 percentage points.
This is explained by the high investment requirement for all sized dairy
operations.
The above book rate of return analysis, although indicative, has a number
of weaknesses centered around the size of investment required both before
and after pollution control. Especially for the smaller operations, the
additional required investment was either greater than the original invest-
ment or a substantial portion of it. This greatly affects the outcome of the
ROI; the operations doubling their investment drastically reducing ROI.
Consequently, another me asure -- cash earnings-- was examined. This
measure is considered to be more indicative of change and therefore
impacts.
The change in cash earnings due to imposition of effluent controls on the
feedlot industry in general will be relatively slight as shown in Table
XIII-4.
The greatest percentage reductions in cash earnings will occur for hog
producers marketing 900 or less hogs and beef producers selling 500 or
less head. Cash earnings of larger hog, larger beef producers and
dairymen will be affected very little, less than 2.0 percent.
It is likely that the response of smaller beef and hog producers to
reductions in cash earnings will not be significant. These producers
normally do not maintain farm budgets and have little knowledge of
costs of production and the profitability of there various farm enter-
prises. Their primary means of determining net income is to deduct
out-of-pocket expenses from gross receipts. Generally, depreciation,
costs of home grown feeds and costs of equipment are not considered
as production expenses. As a result, the decline in earnings would
be compared to a higher cash earnings basis and the financial impact
of effluent controls would be less than using the format used to determine
cash earnings in this report.
XIII-10
-------
Table XIII-4.
Feedlot cash earnings before and after meeting
effluent guidelines
Cash Earnings
Segment &
Size
BEEF
100
500
1,000
5,000
10,000
20,000
SWINE
100
300
900
DAIRY
25
50
100
200
500 (SW. & West)
500 {South)
1,000 (SW & West)
1,000 (South)
Technological
Level
Open/dirt lot
I 1
f I
1 1
11
1 1
Open/dirt lot
1 1
Open/ concrete/
partial shelter
Stall barn
1 1
Free barn
r r
Cow yc. rd
it
it
1 1
Before
Controls
$ 2,565
12,083
53,892
175,392
395,928
848,443
1,522
3,334
7,171
4,503
5,643
13,883
22,983
52,684
52,684
103,900
103,900
After
Controls
$ 2,438
11,703
53,187
172,672
392,053
843,393
1,395
3,057
6,766
4,433
5,563
13,603
22,663
52,307
52,279
103,523
103,450
Percent
Change
-4.9
-3.1
-1.3
-1. 5
-1.0
-0.6
-8. 3
-6.8
-5.6
-1.6
-1.4
-2.0
-1.4
-0.7
-0. 8
-0.4
-0.4
XIII-U
-------
2 Capital Availability
Agriculture as a whole is not highly leveraged, with an 80 percent
equity position in 1972.J/ Although farmers are using increasing
quantities of debt financing, they typically use equity financing
insofar as possible. Thus, from a debt-equity viewpoint, agriculture
in the main possesses a good credit rating. Comprehensive data on
equity-debt ratios by type of farm and farm size are unavailable. In
general, larger farms are more leveraged than smaller farms.£.'
Also , specialized feedlot operations tend to be more leveraged than
general crop-livestock farms. However, it should be noted that the
number of farms selling only animals are limited.
Beef, hog, and dairy producers, in the past, have relied upon the
Production Credit A ssociatioa, Farmers Home Administration, and
particularly private financial institutions, or banks and life insurance
companies for additional capital. Cash flows in these operations have
generally been attractive. This plus the high equity positions have
caused private financial insitutions to be particularly active in
financing new investments in facilities. Private institutions have been
ably complemented by quasi government credit agencies such as the
Farmers Home Administration, Federal Mortgage Corporation and
the Production Credit As sociations. The USDA, through its Agricultural
Stabilization and Conservation Service, has developed programs aimed
at preventing or abating pollution from livestock wastes. Programs
help share costs on such waste management facilities as lagoons, liquid
manure storage, collecting basins , diversion terraces or similar facil-
ities needed by farmers for approved wastes management systems. Thus
due to the small siz,e of investment required for effluent controls when
compared to the total farm investment and the lack of difficulty in the
past of farmers obtaining financing for new facilities, good cash earnings
and governmental help programs, capital is believed to be available for
financing effluent control facilities.
C. Production Effects
Fundamental to the impact analysis of effluent control standards on the
feedlot industry is its effects on production. These production effects will
be considered in two ways. First, the effects on individual production units
is analyzed and then the effects on the total production of feedlots is considered.
Agricultural Finance Statistics, ERS, USDA, AFS-1, May, 1973, Washington,
B.C.
^_> Garlock, Fred L. , Farmers and their Debts, the Role of Debt in the
Farm Economy, USDA, Agric. Econ. Report 93, June, 1966.
XIII- 12
-------
Inferences concerning feedlot impacts due to the imposition of effluent
controls were developed by making judgments supported by recent
trends and characteristics of the feedlot industry. Due to the lack of
data, estimates derived by quantitative analyses were considered to
be unfeasible. Therefore, qualitative analysis was used to indicate the
impact on the various feedlot segments and sizes. In the development
of impact judgments, several factors were considered; they are as
follows:
-The number of feedlot operators has been decreasing in recent years.
This decline'has been predominately noticeable for the smaller
operations. Operators of these existing feedlots either quit farm-
ing by retiring or working off-farm or they concentrate on other
farm enterprises. Estimates of the number of feedlots in 1977
are shown in Table XIII-5. These estimate were derived using
recent trends as shown in Figures XIII-1 ,2, 3, and judgments
concerning the continuation of these trends. It should be noted
that the seemingly large decline in the number of smaller dairy
and hog producers is due, in part, to the elimination of farms with
less than $2, 500 gross sales from the 1969 Agricultural Census.
It is recognized that many of these small operators still exist,
however, it was assumed that due to the small number of animals
per farm, they would exist in such a sparse density that the
operators would not be required to control effluent runoff.
-The size of additional investment required to control effluent runoff
would also be a factor in determining whether or not to continue the
feedlot industry. As was shown in Chapter XII, Table XII-3, the
additional investment as a percent of the base feedlot investment was
highest for all the smaller sized model feedlots. Faced with an
additional investment requirement, nearly as large or in one case
larger than the original investment, the smaller feedlot operator may
do one of three things. He may decide to close the feedlot enterprise _/
and concentrate on his farm resources in other f a rrn enterprises or
leave agriculture efforts elsewhere. Secondly, he may keep his
livestock but locate them such that they exist in sparse densities
which do not require investment in effluent control facilities. For
example, a small beef feeder may relocate his cattle in fields at
densities such that runoff into surface waters does not exist.
The word enterprise is used to identify one farm activity contracted to
the farm which is a collection of one or more enterprises.
XIII-13
-------
Table XIII-5. Number of feedlots and estimated 1977 number of
feedlots, without the pollution control requirements
BEEF
Capacity (Head)
<1,000
1,000-1,999
2,000-3,999
4,000-7,999
8,000-15,999
16,000-31,999
32, 000 or more
SWINE
Number of
Hogs on Hand
CIO
10-24
25-99
100-199
200-499
500-999
1,000 or more
DAIRY
Number of
Cows in Herd
1-19
20-50
51-99
100 or more
1967
199,290
904
479
293
139
56
12
1964
448,942
186,778
276,099
106,449
54,550
6,421
1,132
1964
871,987
215,155
37,601
8,846
Number of Feedlots
1972
152,429
912
484
311
216
125
59
Number of Producers
1969
89,789-/
85,306
187,682
92,939
63,014
11,119
2,443
Number of Producers
1969
247, 267^
157,309
38,457
9,819
1977
Estimate
93,000
1,000
540
450
270
170
80
1977
Estimate
50,000
50,000
92,000
74,000
79,000
24,000
7,000
1977
Estimate
100,000
90,000
40,000
11,500
Some of this reduction since 1964 is explained by the fact that the 1969 Census
counted only those animals on farms with gross sales of $2, 500 or more.
XIII-14
-------
Lastly, if faced with additional investment requirement, the
operator may choose to make that investment plus additional
investments to expand his feeding operation to a more desriable
size. Estimates of specific actions are difficult, if not impossible
to predict as pointed up in Chapter XI.
-Cash earnings for all model feedlot operations declined with the
imposition of effluent controls (Table XIII-4). However, the
amounts of the decline were slight and it was assumed that reduction
in cash earnings would not be a major deciding factor in feedlot
operations decision to quit feeding. The majority of the small
feeders do not have precise costs for the operation of their feedlot.
Often the feedlot is used to supplement or complement other farm
enterprises and allocation of costs between the various enterprises
often is not accurate. Farmers also do not tend to include full
capital costs to their farm enterprises and they often shadow price
their own labor at less than market value wage rates. These factors
tend to support .the assumption that most small feedlot operators tend
to base their decision to continue feedlot operations on a variety of
individual preferences and perceptions rather than ordinary costing
procedures.
-The smaller feedlots tend to be located on family farms in which
the eedlot is just one of several farm enterprises. The larger feed-
lots often are incorporated and usually represent the primary
operation enterprise.
-In each industry segment, some operations currently meet pending
effluent guidelines as was shown in Table XIII-1. The number
of feedlots existing due to effluent controls will vary for feedlot
sizes according to the degree to which feedlots in that size segment
currently meet the pending guidelines.
As previously indicated, the effluent control impact must be qualitatively
assessed using the procedures outlined in Chapter XI, as it is not possible
to develop in model feedlots all the big cost and judgment factors. The
factors listed in Tables XIII-6, 7, 8, represent key considerations used
in evaluating the segmental impact. Examination of these factors by
segments indicate that the hog industry is the feedlot segment that will
be most likely impacted.
It should be noted that in the short run - that is immediate imposition of
control standards - that a number of enterprise closures attributed to
pollution control would be expected, since producers would be unable to
pass on the increased prices due to the highly inelastic supply curve.
XIII-15
-------
Table XIII-6. Factors used in beef feedlot impact analysis
Technology
^-1,
1.
2,
4,
8,
16,
32,
100
500
000
000-
000-
000-
000-
000-
1,
3,
7,
15
31
000 or
999 I/
999
21
999-
,999^
.999^
more
Open
Open
Open
Open
Open
Open
Open
Open
Open
lot
lot
lot
lot
lot
lot
lot
lot
lot
No. of
feedlot s
--
152, 429
912
484
311
216
125
59
% price
Estimated increase Cash earn- Investment
% of change in to main- ings change for controls
% of fed beef feedlot no. tain equal % feed- w/o price as a percent
total market- by 1977 w/o cash lots change of original
feedlots ings controls earnings controlled (percent) investment
--
98.6
.6
.3
.2
.1
.08
.04
38.
4.
5.
8.
12.
15.
16.
-
4
8
0
1
1
6
0
--
-59,429
+88
+56
+ 139
+54
+45
+21
0.9 20-30 -4.9 34
0.6 20-30 -3.1 11
20-30
0.3 60-70 -1.3 10
60-70
0.2 70-80 -1.5 7
0.2 70-80 -1.0 'i
0.1 ;> 90 -0.6 7
>90
JL' Effluent costs were derived
_' Effluent costs were derived
_' Effluent costs were derived
Z' Effluent costs were derived
for a 1, 000 head feedlot
for a 5, 000 head feedlot
for a 10, 000 head feedlot
for a 20, 000 head feedlot
X
-------
Table XIII-7. Factors used in swine impact analysis
No. of
pro-
Hogs sold
t
1,
2,
7,
: 10
10-24
25-99
100-199 -
200-499 -
500-999 -
000 or more
250
500
Technology ducers
89,
85,
187,
Open/dirt 92,
lot
Open/dirt 63,
lot
Open/ cone ret el 1 ,
partial housed
2,
Confinement
C onf inem e nt
789
306
682
939
014
119
443
-
-
% of
total
pro-
duc e r s
16.9
16. 0
35.2
17.5
11.8
2. 1
0.5
--
--
1977 esti- % price
mated change increase Cash earn- Investment
in producer to main- % pro- ings change for control
% of no. w/o tain ducers w/o price as a percent
hogs on effluent cash meeting change of original
hand controls earnings controls (percent)
0.8 -49
2.6 -35
19.0 -95
23.7 -18
33.7 +15
13.2 +12
7. 0 +4
-_
--
,789
,306
,682
,939 7.3 5-10 -8.3
,986 6.1 5-10 -6.8
,881 3.0 75-80 -5.6
,557
100
100
investment
--
--
--
136.7
47. 3
20.4
--
--
' Effluent costs
' Effluent costs
I/ Effluent costs
were derived for a hog operation marketing 100 head
were derived for a hog operation marketing 300 head
were derived for a hog operation marketing 900 head
8
-------
Table XIII-8. Factors used in dairy impact analysis
1977 esti- % price
mated change increase
% of in producer to main-
No, of total % of no. w/o tain equal
pro- pro- cows on effluent cash
Size of Herd Technology ducers ducers hand controls earnings
1-19 -- 247,267 54.6 15.2 -147,267
25 Stall barn -- -- -- -- 0.9
20-50- Stall barn 157,809 34.7 44.9 - 67,309 0.5
51-99 -- 38,457 8.5 22.6 + 1,543
100 or more- Free barn 9,819 2.2 17.3 + 1,681 1.0
200 Free barn -- -- -- -- 0.5 "\
500 (Southwest Cow Yard -- -- -- -- 0.3
& West)
500 (South) Cow Yard -- -- -- -- 0.3
1, 000 (Southwest Cow Yard -- -- -- -- Q. 1
& West) ,
1,000 (South) Cow Yard -- -- -- -- 0.2 _J
Effluent costs were dervied for a 50 cow dairy
Effluent costs were derived for a 100 cow dairy
X
t i
1 4
1
00
Cash earn- Investment
% pro- ings change for controls
ducers w/o price as a percent
meeting change or original
controls (percent) investment
30 -1.6 4.0
30 -1.4 2.9
--
60-70 -2.0 3.7
- -1.4 2.3
-0.7 1.2
60-70 -0.8 1.4
-0.4 0.6
-0.4 -.8
-------
However, with an appropriate lead time and in the longer run, the
expected closures of feedlot enterprises attributed to pollution control
alone is anticipated to relatively small since the significant structural
shifts are expected to overshadow pollution control impacts. In the
case of the beef, expected demand growth will also likely create a
favorable price situation.
The following represents our estimates, of the impact of effluent controls
on the prospective impacted segments.
Beef
It is our opinion that most all of the impacted feedlots will be those with
capacities of less than 1,000 head and that imposition of the effluent con-
trols will probably increase the shift to feedlots with 1,000 to 1,999 head
capacity.
In the past ten years, the number of feedlots with less than 1,000 head
capacity have been steadily declining as can be seen in Figure XIII-1.
The imposition of effluent controls, in our opinion, will accelerate this
trend. This acceleration of the reduction of small feedlots is explained
in part, by two factors. First, it is important to note tnat a large
percent of the feedlots with less than 1 , 000 head capacity will need to invest
in effluent control facilities. Table XIII-6 indicated 70 to 80 percent of
feedlots under 1,000 head were in need of effluent control.
Second, the investment expressed as a. percent of the original facility
investment tends to be reasonably large for the smaller feedlots. Table
XII-3 in Chapter XII, indicated that this percent was 34. 2, 10. 6 and 10. 5
for model operations with 100, 500, aid 1 , 000 head capacitie s, respectively.
This tends to suggest that the smaller feedlots will have to make a sub-
stantial investment for effluent control when compared to their original
inve stment.
The reduction of the number of feedlots under 1,000 head between 1962
and 1972 by about 77 , 000 was encompassed by a decrease in the number
of cattle marketed of 64 percent of the total to 38 percent of the total,
(TabXe XIII-6).' Further reduction by 1977 of another 59,999 operators
and expansion of the lots of over 1,000 head will further reduce the
percentage of cattle marketed by these lots -to perhaps something in the
order of 20 percent. While the remaining producers will face in relative
terms, significant costs for pollution control, it is difficult to conceive
all of these operators closing these feedlot operations. It seems
likely that with the demand pull influence on prices, some of these
operators will at least partially offset these increased costs with favorable
prices. Further, with presence of the fixed asset concept, the producers
will continue to produce even at what appears to be uneconomic returns.
XIII- 19
-------
225,000
200,000
175,000
150,000 '
125,000
100,000
1000
900
500
400
300
200
100
BEEF
1962
1,000 - 1.999
2,000 - 3,999
1967
1972
1977
Figure XIII-1. Previous trends and projected trends for the number of
cattle feedlots without imposition of effluent controls,
by capacity.
XIII-20
-------
Those feedlots with 1,000 to 1,999 head capacities will likely increase
in number. This is primarily explained by smaller feeders expanding their
operations. When faced with additional investment requirements, some small
feeders with capacities less than 1,000 head, may choose to also expand
their feedlot facilities. The reason for this is that these feeders may feel
that as long as they have to make investments for effluent controls, they
may as well spend a little more and expand their feeding operation. Thus,
while the imposition of effluent controls will accelerate the exodus of some
feedlot enterprises it will also accelerate the expansion of other feedlots.
The imposition of effluent controls is expected to have very little effect
on the larger feedlots with capacitites of 2,000 head or more. This is
assumed because these sized operations have reasonably large investments in
facilities and the additional investment required which was estimated to be
less than eight percent of the original investment (Table XIII-3), will be
accepted as "just another necessary expense". Also, as indicated in Table
XIII-1 , less than 30 percent ol these larger feedlots are estimated to need
effluent control investments. No doubt some unique topographical situations
will be found on large lots that will require high control costs that closure
will occur.
Overall, a "new supply" relationship is seen to be emerging. Although
pollution controls will perhaps dampen its shift to the right , the
associated pollution control costs are immaterial relative to the
economies of scale and technology creating the new supply relationships.
Swine
As previously indicated, the swine segment is likely to be impacted
hardest of all the feedlot segments. The primary impact of effluent
control among hog producers will be among the small producers as
was the case for beef feedlots.
Recent trends among the smaller producers (those with less than 200 head)
have indicated that the number of producers has steadily and rapidly been
declining (Figure XIII-2). The imposition of effluent controls will likely
accelerate this tendency. However, it is felt, the size segments with
100 to 200 hogs marketed will be impacted hardest due to effluent controls.
This is in part explained by the relationship of the required effluent control
investment to the producers original facility investment. As
shown in Table XIII-7, investment costs for effluent controls were 136
and 47 percent of the original facility investment for hog feedlots marketing
100 and 300 head respectively. This tends to indicate that th.3se sized
operations will have to make a substantial investment, as compared to their
original investment, to curb effluent runoff.
XIII-21
-------
** 2
0 XJ~
V. U O
V 3 O
ja -o o
HOGS
280
260
240
220
200
180
160
140
120
100
80
60
40
20
64 65 66 67 68 69 70 71 72
(Year)
73 74 75 76 77
Figure XII1-2. Recent trends and projected trends for the number of hog producers
without imposition of effluent controls by number of hogs marketed
annually per producer.
XIII-22
-------
Hog producers with less than 100 head on hand will not be as heavily impacted
for two reasons: first, these sized operations have shown very significant
declines even without effluent controls and; second, in many cases, producers
can relocate their hogs in areas and/or density where effluent controls will
not be required. Further, these operations are believed to be supplemental
operations that augment outside income.
The 100 to 200 head category is believed to be impacted greatest since they
probably will not have the opportunity to seek different management systems
and thereby avoid investments in polluti n control facilities. Thus, rather
than making the high investment pollution control facilities relative to
existing investment, these operators are more likely to cease the produc-
tion of hogs.'
Finally, it was estimated that operations over 500 head will not be greatly
impacted because they have substantial m-place control facilities. Thus,
while the imposition of effluent controls on the hog industry will eliminate
some producers, it will also encourage producers to expand their hog facil-
ities and become more specialized in hog production, so that overall pro-
duction will not be greatly altered by pollution controls. Also, it should be
noted that announcement of effluent guidelines in the near future should allow
producers to make the necessary adjustments.
The small dairymen will be the _nost likely impacted segment of the dairy
industry due to effluent controls. We estimate that nearly all exits occurring
will be from dairies with less than 50 cows. Operations with 50 to 100 cow
herds should increase as some of the smaller operations expand their operation
and remain in milk production.
In support of these conclusions, it is noted that in recent years, there has
been a rapid decline in the number of 1 to 19 dairy herds (Figure XIII-3).
As was stated, both for the small beef and hog operations, we assume the
imposition of effluent controls on the dairy producer will accelerate this
decline in the smaller operations. Remaining small dairies will either
make the necessary effluent control investment or else they will locate
their cows such that they do not require effluent control.
As indicated in Figure XIII-3, the number of dairy operations with herds
between ZO and 50 cows will probably decline -without the imposition of
effluent controls. However, with effluent controls, it is expected that the
number of dairies in this size group will increase. This will result, because
T7 The 200 to 500 herd category may fall into this s.»me situation since they
too will probably utilize open dirt lot technology. However, we suspect
they may likely continue this type of operation with pollution controls
marketing a portion of these grains through hogs rather than making
significant investments in concrete and housing facilities.
XIII-2 3
-------
DRAFT
o
o
o
TJ
O
1500
1400
1300
1200
1100
1000
500
400
300
200
100
50 -
40
30
20
10 -
0
DAIRY
59
51-99
100 or more
64
69
77
Figure XIII-3. Previous trends and projected trends for the number of
dairy producers, without imposition of effluent controls,
by size of herd.
XIII-24
-------
of a natural attrition of herds under 20 cows due to a trend toward Grade A
milk production and increased use of labor saving technologies by dairymen .
Both of these factors plus the additional investment required for effluent
controls will most likely necessitate the increasing of her-J. size to achieve
economies of scale. Thus, effluent controls will result in a movement of
smaller dairies either out of the dairy business or else into larger operations,
with little impact on total production.
D. Employment Effects
Basically, employment effects of effluent controls on the feedlot industry
can follow two patterns. First, those feedlots curtailing feedlot operation
can concentrate their resources in other farm enterprises or as has been
the trend recently, obtain off-farm jobs to supplement their farm income.
Second, those operators leaving the feedlot industry can retire. It is assumed
that virtually no exiting feedlot operators will join the ranks of the unemployed.
This is justified in that most of the exiting feedlots will be small feedlots
in which the feedlot is a supplemental farm enterprise, thus the operator
has other employment opportunities.
One study of the patterns of Connecticut dairy farms exits indicated that half
of those operators going out of the dairy business "transferred-out", con-
centrating their resources on other employment alternatives, while the other
half "retired-out" and either sold or rented their farm resources. _
For purposes of this study, it is assumed that one-half to two-thirds of the
producers leaving the feedlot industry will remain on the farm and concentrate
their resources in other farm enterprises. The remainder, it is assumed,
will retire. These estimates are based on the study cited above plus con-
siderations for the fact that on most of the feedlot operations exiting, the
feedlot will represent only a portion of these operators enterprises thus they
have employment alternatives on the farm.
E. Resultant Community Effects
It is our conclusion that effluent controls will have little, if any, economic
impact upon local communities. Resources used by feeders discontinuing
feedlot operation will usually be diverted to other farm alternatives. In
the case of the exiting operator, redirecting his resources into other farm
enterprises, capital and hired labor once used in the feedlot operation will
most likely be utilized in the alternative enterprise. Those operators retiring
I/ Kottke, Marvin W. , "Patterns of Dairy Farm Exit and Growth," College
of Agriculture Experiment Station, University of Connecticut, Storrs,
Connecticut, Bulletin 382, August, 1964, Page 8-9-
XIII-25
-------
from farming (or feedlot operation) because of effluent control requirements,
will often rent or sell their resources such that the resources will, in all
probability, become part of larger, more efficient operations. Thus, the
exodus of feedlot operations, will generally tend to redistribute community
resources from the feedlot enterprise to other .agricultural enterprises
which will cause very little impact of local communities.
XIII-26
-------
PART XIV: LIMITS OF THE ANALYSIS
The foregoing impact analysis was based upon data and information from
industry sources, from published secondary data sources, and from sub-
jective judgment. At various stages, the data utilized are subject to
error.
The nature and scope of possible errors should be identified and limits
placed on the analysis accordingly. The purpose of this final section is
to present limits of the analysis in terms of accuracy, range of error,
critical assumptions and questions remaining to be answered.
A. General Accuracy
Financial information concerned with investments, operating costs and
revenues was in general not available for individual producers or operators
in the feedlot industry. Consequently, the financial aspects of the impact
analysis were, of necessity, based upon synthesized costs and returns for
"representative" model feedlots within each segment studied. The ac-
curacy of the financial data used is difficult to measure, however, it is
believed that the data used are representative. Various checks were made
to establish the reasonableness of the data used.
The requisite data were developed by DPRA from a variety of sources
including published materials from universities and government agencies,
previous studies done by DPRA, information obtained from industry
sources including trade associations, published financial performance
data sources, and from private individuals knowledgeable of the industry.
It is noted that in the recent past the livestock and grain commodity markets
in general have been exceptionally volatile and record high prices have been
established. These prices directly affect the feedlot industry and the full
repercussions on the industry are not yet known. Therefore, in order to
best reflect normal feeding conditions, DPRA elected to base the impact
analysis on 1971 average price conditions.
Water pollution control costs were provided by EPA (and Hamilton
Standard). These data were developed for typical feedlot operations
within each industry segment. It was necessary to adapt these data to
correspond with alternative sized feedlots. DPRA adjusted or scaled
these data as described above to reflect the general type of change re-
quired, but there may be considerable inaccuracy involved.
XIV-1
-------
Another concern involving effluent control costs is that it was assumed
all investments for effluent controls are made at market prices, and that
a typical pollution abatement system would be adopted. These assumptions
were necessary to provide a common norm for analysis. Difficulties in
estimating the financial impact of effluent controls on farmers is com-
pounded by the different levels of technologies used on farms and that
numerous pollution abatement systems may be used to accomplish the
desired end results. Also, rather than purchase effluent disposal systems
many farmers may build their own systems using existing farm equipment.
Farmers are characterized as being highly innovative and assumed to have
the ability to modify present management systems to meet effluent guide-
lines at minimal costs. This may result in a wide variation in actual
control costs for different operators with the same sized feedlot.
B. Range of Error
All cost of production and financial data are assumed to reflect model
production units. Variations in costs and profitability for individual units
could result in an error ranging from _+ 20 percent, particularly for smaller
units. Error for larger feedlots is estimated to range from + ten percent.
Pollution control costs used were supplied by the Environmental Protection
Agency and assumed to reflect representative costs for production units
throughout the U.S. However, different technologies for effluent control
are available with systems varying throughout the nation. Pollution costs
could involve an error ranging from + 30 percent for small producers
with this percent decreasing for larger feedlots.
Even if estimated costs of effluent control systems involve 30 percent error,
this error would have little effect on the conclusions drawn in this report.
The reason is that investments in pollution abatement system represent a
small percent of investments in feedlots, excepting the smallest feedlots.
C. Critical Assumptions
In order to complete this analysis of the feedlot industry within the scope
of study established, a variety of assumptions were required. Some
critical assumptions were applicable to all segments studied, while
others were specific to a given subindustry. The main assumptions
deserving further comment are described below.
XIV-2
-------
Representativeness of Model Feedlots. It is difficult to represent an
industry or subindustry with models when there are actually many types
and sizes of feedlots in the industry. In the three subindustries studied,
the most difficult to represent was the hog industry. Variations in manage-
ment practices and differences in facilities indicate that it is most likely
that no two operations are alike.
The hog model operations were assumed to represent overall "typical"
feedlot operations. This approach seemed reasonable within the limits
of this study, but additional data would be required to simulate the various
other operations.
The other feedlot segments are less subject to wide variation although
management practices can differ from the assumed conditions.
Model Plant Cost Data. Cost budgets were based on published reports
covering periods ranging from the mid to late sixties. These budgets
were then updated to reflect 1971 conditions assuming past relationships,
as in cost of inputs, remained constant. The resulting model feedlot data
are believed reasonable and representative, but it remains that the lack
of recent data necessitated that synthesis techniques had to be relied upon.
However, even if the data were available, it is questionable that it would
provide more accurate model represntatives. This is predominately due
to the fact that it is our opinion that economic and accounting analyses do
not sufficiently explain farmer's responses.
Prices and Inflation. Current prices in the livestock and feed grains markets
are presently distorted and not believed representative of future expectations.
Prices and costs used in the model feedlot cases are typically averages for
1971. This price data is assumed to better represent the feedlot industry.
Regarding the impact of inflation on the model plant analyses, it is
commonly assumed that both costs and returns will be proportionately
affected by inflation such that the impact is offsetting. However, it is
noted that pollution control costs are increasing relatively faster than
other segments of the economy. Thus, one might question the accuracy
of the estimated 1977 and 1983 waste treatment costs relative to other
costs and prices.
Status of Current Effluent Controls. Within the feedlot industry, the status
of current effluent controls varies both with the segment and the sizes of
operations within that segment. Estimates of the current status were ob-
tained from EPA (and Hamilton Standard) and are assumed to be reflective
of the feedlot industry.
XIV-3
-------
Water Pollution Controls. In assessing the impacts of the effluent
control costs provided, no allowance was assumed for farmers constructing
effluent controls themselves. Also a standard control system was assumed
for each sized industry segment, which in actuality will probably not be the
case.
Most of these anr1 h.her less critical assumptions have been discussed
previously in this report. Such assumptions are based upon best judgments
given prevailing conditions in the feedlot industry.
D. Questions Remaining
Primarily questions remaining concern a more precise knowledge of data
pertaining to feedlots and the effluent controls required. Some of the key
additional data needed for a more thorough analysis of the effluent control
impact would include:
-Accurate estimates of the management systems used by different
types of feedlots. Management systems used partially determine
the level of technology required for effluent control.
-The age of production facilities. Data needed in order to more
accurately predict salvage value of assets.
-Percent of feedlots which could construct effluent control systems
adjacent to present feedlots. This site data would facilitate
analysis of relocations of feedlots and predicting the exodus of
feedlots.
XIV-4
-------
APPENDIX III-l
-------
Appendix III-l. Number of farms selling market hogs and feeders,
percent of hogs sold, by size, twenty leading states, 1969
and
Number of
IOWA
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
ILLINOIS
Market HOJJS
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
1-9
993
1.4
. 1
67
0.5
0. 1
1,060
1.2
1, 147
3.0
0. 1
83
1.0
0. 1
1,230
2.6
10-49
7., 760
10.9
1.3
1, 132
8.3
1. 1
8,892
10.5
6,977
18.2
2.2
1, 158
14. 1
2. 1
8, 135
17.5
50-99
11,641
16.3
4.8
1,904
13.9
4. 1
13,545
15.9
7, 161
18.6
5.7
1,594
19.5
6.3
8,755
18.8
100-
199
18,691
26.3
15.5
3,423
25.0
12.9
22, 114
26.0
8,654
22.6
13.7
2, 168
26.5
16.2
10,822
23.2
Hogs Sold
200-
499
24,912
35.0
44.9
5,001
36,5
36. 1
29,913
35.2
9,946
25.9
34.7
2, 183
26.7
32.4
12,129
26. 1
500-
999
6,250
8.8
24.6
1,710
12.5
27.0
7,960
9.4
3,432
8.9
25.8
746
9. 1
24. 1
4, 178
9.0
1,000+
995
1.4
8.8
458
3.3
18.7
1,453
1.8
1,048
2.8
17.8
251
3. 1
18.8
1,299
2.8
Total
71,242
100
100
13,695
100
100
84,937
100
38,365
100
100
8, 183
100
100
46,548
100
-------
Appendix III-1 (continued)
Number of
OHIO
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
KANSAS
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
1-9
1, 123
5.6
0.2
87
1.8
0. 1
1,210
4.9
1,085
7.5
0.2
87
1.9
0. 1
1, 172
6. 1
10-49
5,459.
27. 1
4.7
1,058
22.6
4.2
6,517
26.3
4,309
29.8
5.4
938
20.2
3.7
5,247
27.5
50-99
4,498
22.4
10. 1
1,077
23.0
9.2
5, 575
22. 5
3,239
22.4
10.8
1,076
23. 1
9.6
4,315
22.6
100-
199
4,243
21. 1
18.7
1, 155
24.7
19.6
5,398
21.8
2,938
20.3
19.8
1, 177
25.3
19.3
4, 115
21.5
Hogs Sold
200-
499
3,638
18. 1
34.9
944
20.2
31.7
4,582
18.5
2,249
15.6
33.3
1,059
22.7
35.7
3,308
17.3
500-
999
903
4. 5
19.5
271
5.8
20.2
1, 174
4.7
478
3.3
15.8
240
5. 1
18.7
718
3.8
1,000-f
244
1.2
11.9
89
1.9
15.0
333
1.3
148
1. 1
14.7
77
1.7
12.9
225
1.2
Total
20, 108
100
100
4,681
100
100
24,789
100
14,446
100
100
4,654
100
100
19, 100
100
-------
Appendix III-1 (continued)
Number of Hogs Sold
1-9
10-49
50-99
100-
199
200-
499
500-
999
1,000+
Total
NORTH CAROLINA
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% fa rm s
% pigs sold
Total Farms
% farms
SOUTH DAKOTA
Market Hogs
Farms
% fa rm s
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Fa rms
% fa rm s
2,323
15.9
0.7
369
7. 5
0.4
2,692
13.8
613
3.9
0. 1
65
2.2
0. 1
678
3.6
6, 526
44.7
10. 1
2,029
41.3
8.7
8,555
43.8
3,495
22. 1
4. 5
522
17.4
3.3
4,017
21.3
2,565
17.5
11.6
988
20. 1
10. 1
3, 553
18.2
4,094
25.8
13.3
674
22. 5
9.0
4,768
25.3
1,687
11.5
15.0
789
16. 1
16. 1
2,476
12.7
4,374
27.6
28.0
848
28.3
20. 5
5,222
27.8
1,051
7.2
20.4
511
10.4
23. 1
1,562
8.0
2,833
17.9
37.5
700
23.3
37.0
3,533
18.8
277
1. 9
12.7
136
2.8
13.4
413
2. 1
353
2.2
10.9
145
4.8
17.2
498
2.6
180
1.3
29.5
90
1.8
28.2
270
1.4
72
0.5
5.7
44
1.5
12.9
116
0.6
14,609
100
100
4, 912
100
100
19,521
100
15,834
100
100
2,998
100
100
18,832
100
-------
Appendix III-1. (continued)
Number of Hogs Sold
1-9
10-49 50-99
100-
199
200-
499
500-
999
1,000+ Total
MISSOURI
Market Hogs
Farms 1,272
% farms 4.0
% hogs sold 0. 1
Feeder Pigs
Farms 158
% farms 1.5
% pigs sold 0. 1
Total Farms 1,430
% farms 3. 4
INDIANA
Market Hogs
Farms 786
% farms 3.0
% hogs sold 0. 1
Feeder Pigs
Farms 46
% farms 0.8
% pigs sold 0. 1
Total Farms 832
% farms 2. 6
7,560 7,003 7,344 6,558 1,452 369
24.0 22.2 23.3 20.8 4.6 1.1
4.0
2, 172
21. 1
4.2
9,732
23.3
2.5
861
14.5
2.2
6,007
18.7
9.4
19.5
2,420 2,833
23.6 27.6
10.5
23.7
9,423 10,177
22.5 24.3
6.5
1,264
21.3
6.9
6,442
20. 1
14.4
1,585
26.7
16.6
7,514
23.5
37. 1
2,081
20.3
34.0
8,639
20.7
5,146 5,178 5,929 6,377
19.7 19.9 22.8 24.5
34.0
1,514
25.4
31.8
7,891
24.7
18.3
484
4.7
17.5
1,939
4.6
2,074
7.9
24.2
499
8.4
23.8
2,573
8.0
11.6
122
1.3
10.0
491
1.2
633
2.2
18.3
171
2.9
18.6
804
2.4
31,558
100
100
10,270
100
100
41,828
100
26,063
100
100
5,940
100
100
32,003
100
-------
Appendix III-1 (continued)
Number of
MINNESOTA
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
NEBRASKA
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
1-9
1,582
5.6
0.2
169
1.9
0. 1
1,751
4.8
882
3.6
0. 1
51
1.0
0. 1
933
3. 1
10-49
6,832
24.4
4.8
1,999
22.9
4.3
8,831
24. 1
5,672
23.0
4.2
768
15.2
2.6
6,440
21.7
50-99
6,677
23.9
11.8
1,925
22. 1
9.6
8,602
23.4
5,709
23. 1
10.6
1,043
20.6
7. 5
6,752
22.7
100-
199
6,764
24.2
23.8
2, 195
25.2
20.0
8,959
24.4
6,451
26. 1
23.9
1,373
27.2
17.7
7,824
26.3
Hogs Sold
200-
499
5,061
18. 1
37.3
1,857
21.3
35.2
6,918
18.9
5,035
20.4
40.2
1,388
27.5
35. 1
6,423
J1.6
500-
999
901
3.2
15.7
469
5.4
19.8
1,370
3.7
806
3.3
14.7
318
6.3
19.2
1, 124
3.8
1,000+
165
0.6
6.4
104
1.2
11.0
269
0.7
133
0.5
6.3
111
2.2
17.8
244
0.8
Total
27,982
100
100
8,718
100
100
36,700
100
24,688
100
100
5,052
100
100
29,740
100
-------
Appendix III-1 (continued)
Number of
TENNESSEE
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
ALABAMA
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
1-9
1,278
11.5
0.5
307
4.8
0.4
1,585
9.0
715
9.0
0.4
109
4.7
0.3
824
8.0
10-49
4,432
39.8
11.2
2,359
37.0
11.8
6,791
38.8
3,034
38. 1
9.1
801
34.8
9. 1
3,835
37.4
50-99
2,549
22.9
17.6
1,741
27.3
20.7
4,290
24.5
1,862
23.4
14.5
563
24.5
14.2
2,425
23.6
100-
199
1,721
15.4
23. 1
1,286
20.2
30. 1
3,007
17.2
1,383
17.4
21.2
472
20.5
23. 1
1,855
18. 1
Hogs Sold
200-
499
914
8.2
25.9
603
9.5
27.9
1,517
8.7
728
9.2
23.9
284
12.4
31.8
1,012
9.9
500-
99
178
1.6
11.3
73
1. 1
7.2
251
1.4
147
1.8
11.4
60
2.6
15.3
207
2.0
1,000+
68
0.6
10.4
8
0. 1
1.9
76
0.4
85
1. 1
19.5
13
0.5
6.2
98
1.0
Total
11, 140
100
100
6,377
100
100
17,517
100
7,954
100
100
2,302
100
100
10,256
100
-------
Appendix III-l (continued)
Number of
MICHIGAN
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total farms
% farms
SOUTH CAROLINA
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
1-9
753
1Z.3
0.5
76
3.9
0.2
829
10.3
706
15.0
0.9
81
7.6
0.7
787
13.7
10-49
2,223
36.3
7.7
545
28.0
4.9
2,768
34.3
2,252
47.9
14.2
513
48.4
16.3
2,765
48.0
50-99
1,241
20.3
11.7
438
22.6
9.4
1,679
20.8
814
17.3
14.8
224
21. 1
17.3
1,038
18.0
100-
199
965
15.8
18.2
410
21. 1
17.2
1,375
17. 1
522
11. 1
18.5
133
12.5
17.9
655
11.3
Hogs Sold
200-
499
684
11.2
28.3
337
17.4
30. 1
1,021
12.7
300
6.4
22.8
76
7.2
23.8
376
6.5
500-
999
195
3.2
17.8
93
4.8
18.4
288
3.6
73
1.6
12.9
23
2.2
14.2
96
1.7
1,000 +
61
0.9
15.8
43
2.2
19.8
104
1.2
34
0.7
15.9
11
1.0
9.8
45
0.8
Total
6, 122
100
100
1,942
100
100
8,064
100
4,701
100
100
1,061
100
100
5,762
100
-------
Appendix III-l (continued)
'1-9
Number of Hogs Sold
10-49 50-99
100-
199
200-
499
500-
999
1,000+ Total
WISCONSIN
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
GEORGIA
Market Hogs
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
1,544
10.3
0.3
273
3.2
0.2
1,817
7.7
741
5.5
0.2
101
3.8
0.3
842
5.3
4,525 3,199 3,014 2,203
30.3 21.4 20.2 14.8
6.6
2,548
29.8
6.4
7,073
30. 1
6.2
947
35.2
10.3
5,088
31.7
12.5
1,967
23.0
12.2
5, 166
22.0
12.5
703
26.2
15.3
3,982
24.8
23.3
1,995
23.3
24. 1
5,009
21.3
4,141 3,279 2,723
31.0 24.6 20.4
20.3
544
20.3
21.1
3,267
20.4
36.5
1,439
16.8
35. 1
3,642
15.5
1,885
14. 1
29.5
282
10.5
23.7
2,167
13.5
392
2.6
14.7
280
3. 3
15.3
672
2.9
408
3. 1
14.6
66
2.5
10.9
474
3.0
63
0.4
6. 1
53
0.6
6.7
116
0.5
175
1.3
16.7
39
1.5
18.4
214
1.3
14,940
100
100
8,555
100
100
28,495
100
13,352
100
100
2,682
100
100
16,034
100
-------
Appendix III-1 (continued)
Number of
KENTUCKY
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
TEXAS
Market hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
1-9
1,659
1Z.6
0.5
338
5.5
0.5
1,997
10.3
2,080
21. 1
0.7
298
8.3
0.5
2,378
17.7
10-49
5,257
39.8
10.0
2,378
38.8
11.2
7,635
39.6
3,641
36.9
8.2
1,295
36.1
8.0
4,936
36.7
50-99
2,753
20,8
14.6
1,508
24.6
16.8
4,261
22.0
1,691
17.2
10.8
794
22. 1
12.7
2,485
18.5
100-
199
1,950
14.8
20.5
1, 121
18.3
23.8
3,071
15.9
1,216
12.3
15.7
600
16.7
17.9
1,816
13.5
Hogs Sold
200-
499
1, 180
8.9
26.7
642
10.5
29.2
1,822
9.4
875
8.7
23.9
425
11.8
27.6
1,300
9.6
500-
999
273
2. 1
13.8
118
1.9
11.9
391
2.0
232
2.4
15.3
117
3.3
15. 1
349
2.6
1,000+
130
1.0
13.9
26
0.4
6.6
156
0.8
134
1.4
25.4
58
1.7
18.2
192
1.4
Total
13,202
100
100
6, 131
100
100
19,333
100
9,869
100
100
3,587
100
100
13,456
100
-------
Appendix III-1 (continued)
Numb e r of
VIRGINIA
Market Hogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total farms
% farms
MISSISSIPPI
Market Kogs
Farms
% farms
% hogs sold
Feeder Pigs
Farms
% farms
% pigs sold
Total Farms
% farms
1-9
1,241
18. 1
0.8
178
8.9
0.8
1,419
16.0
800
21.3
0.9
132
11.6
0.9
932
19.0
10-49
2,963
43.2
12.3
876
43.8
12.3
3,839
43.3
1,643
43.6
10.9
502
44. 1
12.6
2, 145
43.7
50-99
1, 169
17.0
15.4
447
22.4
15.4
1,616
18.3
574
15.2
11.4
210
18.4
13.6
784
16.0
100-
199
836
12.2
19.0
272
13.6
19.0
1, 108-
12.5
416
11. 1
16.2
160
14.0
20.2
576
11.7
Hogs Sold
200-
499
485
7. 1
28. 1
181
9.0
28. 1
666
7. 5
223
5.9
17.9
95
8.3
28.4
318
6.5
500-
999
125
1.8
10. 1
34
1.7
10. 1
159
1.8
62
1.6
12.9
27
2.4
11.2
89
1.8
1,000+
39
0.6
14.3
13
0.6
14.3
52
0.6
47
1.3
29.8
13
1.2
13. 1
60
1.3
Total
6,858
100
100
2,001
100
100
8,859
100
3,765
100
100
1,139
100
100
4, 904
100
Source: 1969 Agricultural Census. Farms -with gross sales of $2, 500 or more.
-------
BIBLIOGRAPHIC DATA
SHEET
1. Report No.
EPA 230/1-73-008
3* Recipient's Accession No.
4. Tulc and Subtitle
Economic Analysis of Proposed Effluent Guidelines -
Feedlots Industry
5. Report Date August, 1973
(Date of completion)
6.
7. Author(s)
Milton L. David, Richard E. Seltzer, William D. Eickhoff
8. Performing Organization Kept.
No- 116
?. Performing Organization, Name and Address
Development Planning and Research Associates, Inc.
P. O. Box 727
Manhattan, Kansas 66502
10. Project/Task, Work L'pn No.
Task Order No. 2
11. Contract/Grant No.
Contract No.
68-01-1533
12. Sponsoring Organization Name and Address
Environmental Protection Agency
Waterside Mall
4th and M Street, S. W.
Washington, D. C. 20460
13. Type ot Report & Period
Covered
Final Report
14.
15. Supplementary Notes
16. Abstracts
The feedlots industry is composed of beef, hog, dairy, sheep, layer, broiler,
turkey, and duck operations. Numbers of feedlots within each segment range from
150 for ducks to over 800, 000 for hogs. Estimated after-tax return on sales range
from zero percent for small turkey operations to 28 percent for small hog operations,
with the. majority of feedlot operations ranging between 5 and 15 percent. All oper-
ators, except dairymen, are price-taker s ; dairymen do have some collective
bargaining power.
Imposition of effluent limitations is expected to impact primarily the beef, hog
and dairy operations. Beef and hog prices are not immediately expected to increase
because of lack of bargaining power; milk prices may increase but less than one
percent. Effluent controls will accelerate the present trend of small feedlots exiting
17. Key Words and Document Analysis. 17a. Descriptors
Pollution, water pollution, effluent, effluent control, agricultural wastes, feedlots,
economic, agricultural economics, economic analysis, cash flow, demand, supply,
prices, fixed costs, variable costs, employment, community, production capacity,
fixed investment.
17b. Idenufiers/Open-EndeJ Terms
02 Agriculture, B-agricultural economics, E-animal husbandly
I7c.
18. Availability M.iur.ii nt
National Technical Information Service
Springfield, Virginia 22151
19.
20. .Se^ uruy I 1.1-.-, (lln:
Pa,-c
l'\r I \---IHin
21. .\J. <>t !
300
-------
16. Abstracts (Continued)
from the industry. Small hog producers are expected to be the most
impacted as the additional investment required is substantial compared
to the original facilities investment.
Employment and community impacts will be slight as impacted
resources will be redeployed to large feedlots on existing farms and
off-farm endeavors. The.Central States will be more seriously impacted
as they have the majority of small operations.
The impact analysis is based upon a number of assumptions and cost
estimates which are identified.
Protection Agency
2CO s, - ; ,j Dearborn Street
Chic- -os Illinois 6060H
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