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THE U.S. CATTLE AND BEEF INDUSTRY AND THE ENVIRONMENT

J. Richard Conner Raymond A. Dietrich Gary W. Williams

r TAMRC Commodity Market

Research Report No. CM 1-00

March 2000

Q World Wildlife Fund, 2000. All rights reserved.

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* The authors are Professors, Department ofAgricultural Economics, Texas A&M University, College Station, Texas. In addition, Dr. Williams is Director, Texas Agricultural Market Research Center.

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THE U.S. CATTLE AND BEEF INDUSTRY AND THE ENVIRONMENT

A Texas Agricultural Market Research Center (TAMRC) report, number CM 1-00, by J. Richard Conner, Raymond A. Dietrich, and Gary W. Williams, Department of Agricultural Economics, Texas A&M University, College Station, Texas, March 2000. Copyright C World Wildlife Fund, 2000. All rights reserved. This report was conceived and commissioned by World Wildlife Fund (WWF.) as part ofits Conservation and Commodities Initiative. A version ofthis report will be part ofa future series of reports to be published by WWF.

Abstract: The relationship ofthe U.S. cattle and beefindustry to the environment is strongly rooted in its historical development, structure, and characteristics. Drawing on a detailed, segment by segment discussion of the industry, this report analyzes the important interactions of the cattle and beef industry with the environment. Trends in technology, policy, competitive forces and other factors that may force changes in the future relationship ofthe industry with the environment are also examined. Finally, the environmental challenges of the industry are summarized with emphasis on the status of efforts to solve those challenges and potential alternative solutions and resource constraints to dealing with them.

Acknowledgments: The study reported here was commissioned by the World Wildlife Fund (WWF) with funding provided by the Joyce Foundation. This publication is a version of a report that will be part of a future series of publications published by WWF. The authors are grateful for helpful comments and suggestions from David Scho~, Jason Clay, Ford Runge, apd Cornelia Flora. Any remaining errors or omissions, however, are the sole responsibility of the authors. The results provided and conclusions drawn in this report do not necessarily reflect those ofWWF or the Joyce foundation.

The Texas Agricultural Market Research Center (TAMRC) has been providing timely, unique, and professional research on a wide range of issues relating to agricultural markets and commodities ofimportance to Texas and the nation for thirty years. T AMRC is a market research service ofthe Texas Agricultural Experiment Station and the Texas Agricultural Extension Service. The main T AMRC objective is to conduct research leading to expanded and more efficient markets for Texas and Us. agricultural products. Major TAMRC research divisions include International Market Research, Consumer and Product Market Research, Commodity Market Research, Information Systems Research, and Contemporary Market Issues Research.

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THE U.S. CATTLE AND BEEF INDUSTRY AND THE ENVIRONMENT

Executive Summary

The particular way in which the U.S. cattle and beef industry has developed over time and the resulting structure and characteristics of the industry have contributed importantly to the type and extent ofthe impact ofthe industry on the environment. Because an understanding ofhow the U.S. cattle and beef industry impacts the environment requires an understanding ofthe industry itself and the forces that drive or create obstacles to change within the industry, this report first provides a detailed overview ofthe history, structure, and characteristics ofthe various segments ofthe industry from cattle production, feeding, and slaughtering to beef wholesaling and retailing and how those segments work togther as an integrated commodity system. Based on that overview, the particular interactions of the U.S. cattle and beef industry with the environment are identified and analyzed, including a consideration of the potential for environmental improvements and impediments to change. Future trends in technology, policy, competitive forces and other factors that may force changes in the way in which the cattle and beef industry impacts the environment in the future are the explored. Finally, the environmental challenges of the U.S. cattle and beef industry and the obstacles to change are summarized with emphasis on the status of current efforts to solve the environmental problems posed by cattle and beef production, the challenges that remain, and potential alternative solutions and resource constraints to dealing with the remaining challenges.

Domestic meat and draft animals are not native to America. Rather, they were introduced by early Spanish explorers in the early 1500s. Cattle were raised on a range system, primarily for miJk and draft purposes. Prior to the Civil War, cattle had begun to move in large nwnbers into Texas and states west of the Mississippi, including California. The center of the U.S. cattle and beef industry migrated westward from western Kentucky in 1860 to Kansas by the late 1890s. With the western migration of the cattle industry in the 1800s, the number of total U.S. cattle and calves more than doubled by 1900 and then doubled again by 1970.

Commercial cattle feeding and beefpacking operations both experienced major growth in the 1800s and followed cattle production westward. By the late 1800s, the Com Belt was the primary U.S. cattle feeding region. In the 1950s, a concentration oflarge-scale commercial feedlot operations first appeared in California. A proliferation of large-scale commercial cattle feeding soon followed in other areas. After 1970, cattle feeding began shifting away from the Com Belt due primarily to the lack of economy of size for most feedlot operations and the absence of continuous specialized management in cattle feeding. Currently, the predominant cattle feeding regions are the Northern Plains, the Southern Plains, and the Mountain states.

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Chicago became the dominant U.S. meat packing center by the late 1800s. Between the 1920s and the 1960s, federal regulations, technological advances in truck transportation, a developing national highway system and construction offarm to market roads, and an emerging cattle feeding industry encouraged decentralization of concentrated slaughter from close to consumption or population centers like Chicago toward areas of production in the Midwest and Texas. In recent years, commercial cattle slaughter and the increasingly sophisticated beef processing and boxed beef operations have became increasingly concentrated once again in a relatively few large, specialized, and highly efficient cattle slaughter and beefprocessing operations. The share of total boxed beef processed by the top four ftrms increased from 53% in 1980 to 90% by 1997.

Although generally trending upward between 1867 and 1970, the growth ofthe U.S. cattle industry was broken by at least 7 major peaks and troughs (cattle cycles). Since 1970, however, the total number ofcattle and calves produced, fed, and slaughtered has declined substantially. Nevertheless, commercial beef production has continued to increase reflecting both changes in U.S. beef production practices and changes in the proportion of slaughter cattle finished in U.S. feedlots to satisfy the demand for beef by U.S. consumers.

In the U.S. meat retailing sector, the number ofgrocery stores began a dramatic decline in the 1930s due primarily to the demise of small grocery stores which were unable to compete with the larger grocery retailers such as the supermarkets. By 1965, supermarkets were the dominant form of grocery business, accounting for 70% oftotal grocery sales. The U.S. grocery store industry of the 1990s is characterized by large supermarkets representing less than 25% of the grocery stores but accounting for more than 75% of grocery sales.

The major forces currently impacting the cattle and beef industry and its future will likely focus on such questions as (1) how to compete more effectively with the poultry and pork industries in a consumer-driven domestic market, (2) how to remain competitive and expand the market for beef in the international market, (3) how to produce a product which more nearly meets the concerns of health-conscious consumers while also maintaining product quality and consistency attributes, (4) how to develop industry technological and structural changes which reduce cost ofproduction, and (5) how to collaborate more effectively with regulatory agencies to assure food safety, animal disease control, and provide for the long-term integrity of the environment consistent with common goals of society and industry survival.

Both direct and indirect impacts on the environment are by-products ofthe production ofcattle and beef. The most significant direct impact of the U.S. cattle industry is the alteration of the composition of native plant communities and the associated impacts on wildlife (through habitat disruption) and biodiversity. Plant communities have been altered over much of the U.S. due to direct intervention such as plowing up native vegetation and establishing monocultural swards of derived pasture forages or by continuous overstocking of native rangelands with livestock and eliminating periodic burning from the use of fossil-based energy.

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Cattle feeding presents perhaps the._greatest potential of the U.S. cattle and beef industry for negatively impacting the environment. Among potential direct impacts of cattle feeding are the contributions to air pollution through odors and dust and to surface and ground water pollution through nutrient loading from improper handling of manure given the concentrations of large numbers ofanimals in relatively small areas.

The major impact ofthe cattle and beefindustry on the environment, however, is the likely indirect impact through the demand for feedgrains by cattle feeders on the production of feedgrains which, in turn, generates significant soil, air, water, and other resource impacts. The U.S. beef cattle industry, however, utilizes only a small portion of the total annual supply of feed grains (e.g., only about 10% of the U.S. com supply) which limits its environmental impact.

Despite current and past efforts to ameliorate the environmental impacts of the cattle and beef industry, a number of obstacles and challenges remain. The primary obstacles are rooted in the biological makeup of the bovine animal. The unique ability ofcattle to utilize grazed forages has led to a cow-calf and stocker industry characterized by many relatively small producers who are widely dispersed geographically. In addition, many of the small operators, and some ofthe larger ones, are motivated to produce cattle by goals other than financial gain and efficiency; e.g., lifestyle. The more concentrated and financially motivated segments of the industry (feedlot, slaughter, processing and retail companies) are forced to utilize the highly variable quantity (seasonally) and quality of animals provided by the cow-calf and stocker producers. This highly atomistic, widely dispersed and economically insensitive portion of the industry limits the ability of the entire beef industry to make adjustments ofany kind whether market (price) or socio-culturally induced.

An entrenched institutional obstacle to changes in the environmental interface ofthe cattle and beef industry is the highly competitive, consumer-driven market within which the industry operates and which provides strong economic incentives for cattle feeding. Over the past several decades, beef has lost significant market share to poultry, primarily because consumers have increasingly viewed poultry as a less expensive, more convenient, and healthier source ofprotein which is consistently tasty and tender. In competing with poultry and pork, the beef industry has tried to improve the reputation ofits product by emphasizing the more consistent good taste, tenderness and availability achieved through grain-finished beef. Price competition with poultry and pork has also supported the trend toward larger portions of total beef slaughtered being finished in feedlots.

Social and cultural forces also create obstacles to environmentally appropriate changes in the cattle and beef industry. The U.S. and many other developed countries are no longer agrarian societies. Most ofthe population ofthe U.S. and many other countries live in an urban, industrialized society, largely dependent on energy from fossil fuels for their existence. Along with the trend towards urbanization, consumerism and related socio-cultural trends have become the defining characteristics of our culture. Consequently, few members of our society are well attuned to the relationship between their well being and the natural environment. Such socio-cultural changes along with the unprecedented world population explosion and other economic and political forces have focused society on the pursuit of personal satisfaction through the accumulation of wealth and material possessions, the demand for convenience, and the utilization of growing leisure time satisfying

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personal curiosities while at the same time using up our natural resources and our ecology's ability to assimilate our wastes at clearly unsustainable rates.

Despite the obstacles, some progress has been made in improving the impact of the cattle-beef industry on the environment. Most notably, cattle producers and land managers have, through reduced grazing pressure and other management practices, succeeded in improving the ecological condition ofmuch ofthe nation's rangelands over the conditions which existed in the early decades of this century. There is also increasing evidence that cattle producers and land managers are recognizing the importance of wildlife and biodiversity and are managing for improved wildlife habitat along with or, in some cases, instead ofenhanced livestock grazing.

EilVironment improvements in the cattle feeding sector have largely been forced by government regulation. Over the years, the EPA and its state agencies have increasingly focused on feedlots as point sources of pollution and have become increasingly stringent and vigilant in their regulations ofpotential pollutants from feedlots. Because regulatory pressure is expected to continue and even increase, the cattle feeding industry will not likely contribute to significant additional environmental damage in the future.

Improvements have also come through educational programs. In recent decades, a great deal of attention and public information effort has been devoted to educating the public about the potential environmental dangers of technology and the rates of resource use. While much has been done to insure the maintenance of clean air and water and preserve biodiversity through protection of endangered species, notably less has been done in other areas, including, for example, reducing the rate of fossil energy consumption and its resultant increased levels ofatmospheric CO2,

Despite some successes in reducing the negative impacts of the cattle and beef industry on the environment, many challenges remain. Many plant communities in the U.S. have been so severely altered by extensive cattle production that, even if livestock grazing were eliminated completely, they would never recover to their original ecological state without the use ofexpensive restoration. practices. Due to the vast number ofacres involved and the fact that many ofthese degraded plant communities are now in relatively stable, although altered, ecological states, most of this land will likely remain in an altered ecological state indefinitely.

The economic conditions favoring grain finishing over forage finishing ofcattle will continue to be the major environmental challenge ofthe U.S. cattle and beef industry. The U.S. beefconsumer is conditioned to and demands the consistj;:ncy in taste, tenderness, and availability in beefthat is much easier to produce with grain finishing compared to forage finishing of cattle. In most cattle producing areas ofthe U.S., forage-based fattening systems are seasonal and subject to a high degree ofvariation in the volume and quality ofthe resulting beefproduct due to fluctuating forage growing conditions (e.g. drought). Given these conditions relative to forage-based finishing, the competition from pork and poultry, and the current and projected prices offossil fuels and feed grains, the U.S. cattle feeding industry faces a severe challenge in reducing its direct and indirect contributions to resource degradation through reductions in use of feedlots for grain finishing ofbeefcattle for the foreseeable future.

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Given our current culture and fossil ...energy-based economy, the challenge of achieving further progress in reducing the rate of consumption of natural resources and the assimilative capacity of our environment is formidable. Our representative form ofgovernment and the consumer-minded electorate make the political task of implementing environmentally friendly regulations with the presumed negative economic impacts extremely difficult, particularly in major livestock and beef producing states. Additionally, the challenge is made more difficult in that some of the major environmental problems are truly global in scale, such as increased levels of atmospheric CO2 , methane, etc. The solutions to these problems require multi-national concessions, agreements, and programs. The difficulty in achieving progress on this scale is exemplified by the slow rate of progress to date resulting from "The United Nations Conference on Environment and Development" held in Rio de Janeiro in June 1992 and similar efforts.

Alternative solutions to deal with the existing environmental challenges posed by the cattle and beef industry are few and the resource constraints onerous. While further degradation ofwildlife habitat and biodiversity as a result of cattle production seems unlikely given the current trends, efforts to educate cattle producers and land managers regarding the potential benefits of enhanced wildlife habitat and biodiversity should be continued or even expanded. Also, given the opportunity to use wildlife profitably, most livestock ranchers will actively preserve wildlife habitat.

One alternative to encourage increased forage-finishing over grain-finishing ofcattle is to educate consumers that forage-finished beef is both a healthier (reduced fat) and an environmentally friendlier product. This strategy is, in fact, being used by some up-scale restaurants featuring "speciality" meats and in some grocery meat markets specializing in "organic" or "natural" foods. One problem with this approach, in addition to variability in quality and availability, is that much ofthe forage grazed by cattle is fertilized with non-organic chemicals and in some cases is subjected to use ofchemical pesticides. Also, many of the cattle in the forage-fmishing production systems are treated with anabolic steroids and/or other pharmaceuticals and/or pesticides.

An often mentioned general solution to environmental pollution is to force consumers to pay the full cost of the use of fossil-based energy, including the disposal cost of resultant wastes, through a carbon tax. Research suggests that success in achieving a reduction in fossil fuel' use through a carbon tax would make grain and other foods directly derived from plant products less expensive relative to animal-based food products derived from the feeding of grain to cattle, reducing meat consumption, and cattle and beefproduction. Measures like a carbon tax, however, are going to be difficult to implement through a process that is anything more than slow and incremental. In addition to these direct economic effects, international trade and global equity issues will insure that changes will be neither fast nor dramatic. For these reasons, and others discussed in more detail throughout this report, we believe that there is unlikely to be much change in the rate ofgrain-based finishing in the beef industry for the foreseeable future.

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Table of Contents

E . Sxecutlve ummary........................................................... ..11

History, Structure, Characteristics, and Future ofthe U.S. Cattle and Beef Industry .......... 3

Descriptive History of the U.S. Cattle and BeefIndustry ......................... 3

History of the Cattle Raising Industry .................................. 4

History of the U.S. Cattle Feeding Industry .............................. 5

History of the U.S. Cattle Slaughtering, Beef Wholesaling, and Retailing

Industries .................................................. 6

Current Structure of the U.S. Cattle and BeefIndustries .......................... 9

Cow-Calf and Stocker Cattle Production Systems ........................ 9

Cattle Feedlot Finishing Operations .................................. 14

Cattle Slaughtering, Processing, and BeefWholesaling ................... 21

Beef Retailing ................................................... 25

The U.S. Cattle and BeefMarketing System .................................. 28

T Overview of the Cattle and BeefMarketing System ...................... 28

Functioning of the Pricing System .................................... 29

Per Capita Consumption of Beef and Consumer Related Factors ............ 30

Changes In Quality of BeefProduced ............ ; .................... 31

U.S. Cattle and Beef Trade ......................................... 32

Future Trends in the Cattle and BeefIndustry ................................. 33

Interactions of the Cattle and BeefIndustry with the Environment ....................... 37

Cow-Calf and Stocker Production and the Environment ......................... 37r Cow-Calf/Stocker Production and Land ............................... 37

Cow-Calf/Stocker Production and Water Quality ........................ 43

Cow-Calf/Stocker Production and Air Quality .......................... 46

Cattle Feeding and Finishing and the Environment ............ : ................ 48

Cattle Feeding and Water Quality .................................... 48

Cattle Feeding and Air Quality ...................................... 49

Cattle Slaughter, BeefRetailing and the Environment .......................... 50

Slaughter, Retailing and Water Quality ................................ 51

Trends in the Cattle and Beef Industry and Potential Changes in Environmental Impact ...... 52

Trends in Cattle and Beef Production and Management Practices ................. 52

Land and Forage Management ....................................... 52

Public Land Use and Management ................................... 53

Herd Health, Nutrition, Reproductive Efficiency ........................ 54

Land Use, Demographics, and Cultural Values .......................... 56

Trends in Feedgrains vs. Forage in the Production of Beef ....................... 59

Trends in BeefDemand, Competition, Vertical Coordination, and Other Factors ..... 59

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Summary: The Environmental Chall~ges ofthe U.S. Cattle and Beef Industry and

Obstacles to Change ........................................................... 60

Principal Obstacles to Change in Cattle Producer Behavior ...................... 60

Status ofCurrent Efforts to Solve Environmental Problems ................ 61

Challenges Remaining ............................................ 61

Alternative Solutions and Resource Constraints ......................... 61

Role of the Market Structure and Current Regulatory Environment ................ 62

Status of Current Efforts to Solve Environmental Problems ................ 62

Challenges Remaining ............................................ 62

Alternative Solutions and Resource Constraints ......................... 63

Principal Economic, Social, and Political Challenges ........................... 63

Status of Current Efforts to Solve Environmental Problems ................ 63

Challenges Remaining ............................................ 64

Alternative Solutions and Resource Constraints ......................... 64

References .................................................................. 66

List of Figures

r Figure 1. Total Cattle and Calves, United States, January 1, 1867 to 1999. . ............... 74

Figure 2. Marketing channels for Slaughter Cattle, United States, 1998 ................... 75

Figure 3. Distribution Channels, United States, 1998 ................................. 76

Figure 4. Texas Per Capita Personal Income by Region, 1994 .......................... 77

Figure 5. Texas Land Use and Population .......................................... 78

Figure 6. Texas Rural Land Use. . ............................................. : .. 79

Figure' 7. Texas Cattle Ranchers by Age and Income Source ........................... 80

Figure 8. Share ofIncome from Livestock and Wildlife. . ............................. 81

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List of Tables

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Table 1. Cattle Inventory, United States, January 1, 1970 to January I, 1998............. 82 Table 2. Beef Cow and Diary Cow Inventory, by State and Region, United States,

January I, 1990 to January 1, 1998....................................... 83 Table 3. Calf Crop and Stocker Cattle Supplies, by State and Region, United States,

1990 and 1998 ....................................................... 86 Table 4. Number of Beef Cow Operations and Average Beef Cows per Operation, by

State and Region, United States, 1990 and 1998. . ........................... 89 Table 5. Percent ofBeef Cow Inventory, by Size ofOperation, State and Region, United

States, 1998 ......................................... '................ 92 Table 6. Number of Dairy Cow Operations and Average Dairy Cows per Operation,

by State and Region, United States, 1990 and 1998 .......................... 95 Table 7. Percent ofDairy Cow Inventory by Size ofOperation, State and Region, United

States, 1998. . ....................................................... 98 Table 8. Number of Cattle on Feed, by State and Region, January I, 1970 to

January I, 1998..................................................... 100 Table 9. Number of Commercial Cattle Feedlots, by Size ofFeedlot, 12 Major

Cattle Feeding States and United States, 1970 and 1998 ..................... 104 Table 10. Number of Fanner-Feeder Cattle Feedlots and Fed Cattle Marketed by Fanner

Feeders, 11 States and United States, 1970 and 1998 1. .... 106 Table 11. Number of Fed Cattle Marketed by Commercial Feedlots, by Size ofFeedlot, 12

Major Cattle Feeding States and United States, 1970 and 1998 ................ 107 Table 12. Cattle Feeding Practices, by Region, United States, 1997/98 .................. 110 Table 13. Estimated Typical Cattle Feeding Ration, per Head Fed, by Region,

United States, 1997/1998 ............................................. 111 Table 14. Marketing Year Supply and Disappearance for Com, Barley, Grain Sorghum,

and Wheat, United States, 197511976 and 1996/1997 ....................... 112 Table 15. Cattle Feedlot Selling Practices, by Method of Sale, United States, 1994/1995. .. 113 Table 16. Commercial Cattle Slaughter, by State and Region, United States, 1970 to 1997 .. 114 Table 17. Commercial Cattle Slaughter, Average Cattle Slaughter Weight, and

Commercial Beef Production, United States, 1970 to 1998 ................... 117 Table 18. Composition ofCommercial Cattle Slaughter, United States, 1970 to 1997. . .... 118 Table 19. Number of Federally Inspected Plants Slaughtering Cattle and Head

Slaughtered, by Size Group, United States, 1980, 1990, and 1997. . ........... 118 Table 20. Number of Livestock Slaughter Plants, by Type of Inspection, by State

and Region, United States, 1970 and 1998 ................................ 119 Table 21. Steer and Heifer Slaughter Concentration: 4, 8, and 20 Largest Firms,

United States, 1975 to 1996 ............................................ 122 Table 22. Number of Grocery Stores and Sales Volume by Kind of Grocery Store,

United States, 1985 and 1995 .......................................... 123 Table 23. U.S. Restaurant Chains, by Type of Food Service, 1994 ..................... 124 Table 24. Type of Menu Offered by Fast Food Restaurant Chains, 1994 ................. 125

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Table 25. Per Capita Consumption

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THE U.S. CATTLE AND BEEF INDUSTRY AND THE ENVIRONMENT

Without question, animal agriculture alters the environment and environmental processes. Such impacts are not new, however. Many of the same environmental problems intrinsic to raising and utilizing domesticated animals like cattle have plagued mankind throughout the ages - odors, overgrazing ofpasturelands, etc. Though the U.S. cattle industry is as old as the country itself, the potential environmental impacts ofthe industry have been ofparticular concern only since about the beginning of the 20th century. Modernization and technological advances and related structural changes in the production, feeding, processing, and retailing ofcattle and beefhave created growing pressure on the soil, water, air, energy, and other resources in the United States. In large part, the resulting pattern and rate ofgrowth and development ofthe U.S. cattle industry is a direct response to rapid economic growth and development, growing per capita incomes, and a consequent shift in consumer diets from grains to meat. The particular way in which the U.S. cattle and beef industry has developed has contributed importantly to the type and extent ofthe impact ofthe industry on the environment.

The biological characteristics ofcattle production also helps define the interface ofthe cattle industry on the environment. For example, the production ofbeef is unique compared to that ofother meats like pork and poultry in that significant amounts ofgrazed forages are utilized relative to feedgrains. Because cows can reproduce and young animals can grow efficiently on grazed forages, the cow-calf and stocker portions ofthe industry are characterized by a large number ofrelatively small producers who are widely dispersed geographically, many of whom are motivated to produce cattle by goals other than financial gain and efficiency. In contrast, the slaughter-processing-wholesaling segments of the industry are characterized by a very few, very large, profit driven companies which are responsible for the slaughter, processing and distribution ofthe vast majority of the beefconsumed in the U.S.

The production of cattle and beef and, therefore, the environmental interface of the industry, is driven in large part by consumer demand and preferences. The cattle and beef industry exists in a highly competitive, consumer driven market for meat. Over the past several decades, beefhas lost significant market share to poultry primarily because consumers have increasingly demanded a less expensive, more convenient, and healthier source ofprotein that is consistently tasty and tender. In competing with poultry and pork, the beef industry has attempted to improve the image ofbeef by emphasizing the more consistent good taste, tenderness and availability achieved through grainfinished beef. Price competition with poultry and pork has also supported the trend toward a larger share of total beef slaughtered being finished in feedlots.

Both direct and indirect impacts on the environment are by-products ofthe production ofcattle and beef. The production and release ofmethane into the environment is one important direct impact ofthe cattle industry on the environment. Since cattle are ruminants and utilize forage, they generate

relatively large amounts ofmethane. Over the past 200 years, however, livestock methane emissions have largely only replaced wild animal emissions. Additionally, since cattle numbers in the V.S. have declined recently and are not expected to increase in the future, the beef industry is not seen as a significant source of expanded methane emissions in the future.

The most significant direct environmental impact ofthe V.S. cattle industry, particularly the cow-calf and stocker segments, is the alteration of the composition of native plant communities and the associated impacts on wildlife (through habitat disruption) and biodiversity. Plant communities have been altered over much of the V.S. due to direct intervention such as plowing up native vegetation and establishing monocultural swards ofderived pasture forages or by continuous overstocking of native rangelands with livestock and eliminating periodic burning from the ecosystems.

In recent decades, cattle ranchers and public land management agencies have recognized the error of the earlier overstocking. Consequently, much of the nation's rangeland has actually exhibited improvement in ecological condition over the past sixty years. However, many of the plant communities have been so severely altered that even iflivestock grazing were eliminated they would never recover to their original ecological state without the use of expensive restoration practices. Given the vast number of acres involved, most ofthis land will remain in an altered ecological state indefinitely.

In recent years, ranchers and land managers have also become much more cognizant ofthe potential importance ofwildlife and biodiversity. In many areas, land managers are now managing primarily for wildlife habitat and secondarily for cattle production. This trend toward more emphasis on wildlife and biodiversity is expected to continue into the foreseeable future.

The cattle and beef industry's potential for negatively impacting the environment both directly and indirectly is greatest in the feedlot segment. Among potential direct impacts are the contributions to air pollution through odors and dust and to surface and ground water pollution through nutrient loading from improper handling ofmanure given the concentrations oflarge numbers ofanimals in relatively small areas. In both cases, however;because the animals are so concentrated, feedlots are considered point sources of pollution by EPA and, therefore, are stringently regulated. For this reason, the beef cattle industry will not likely contribute to significant additional direct environmental damage in the future through feedlots.

The major impact ofthe cattle and beef industry on the environment, however, is the likely indirect impact through the demand for feed grains by cattle feeders on the production of feed grains which, in turn, generates significant soil, air, water, and other resource impacts as discussed in some detail in recent reports by Runge (1998) and Schnittker (1997). The V.S. beef cattle industry, however, utilizes only a small portion of the total annual supply of feed grains (e.g., only about 11% of the 1992/93 com supply) which limits its environmental impact. Given the competition from pork and poultry, the particular biological characteristics ofcattle production, consumer preferences for grainfed beef, and other factors, the V.S. cattle industry will continue to use feedlots for grain finishing of beef cattle for the foreseeable future.

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To understand the ways in which the ~.S. cattle and beef industry impacts the environment and the environmental challenges that the industry presents first requires an understanding of the industry itself and the forces that drive or create obstacles to change within the industry. Consequently, this T report first provides a detailed overview ofthe history, structure, and characteristics ofthe various

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segments of the industry from cattle production, feeding, and slaughtering to beef wholesaling and retailing and how those segments work togther as an integrated commodity system. That overview then provides the background for a detailed discussion ofthe interactions ofthe U.S. cattle and beef industry with the environment, including a consideration of the potential for environmental improvements and impediments to change. The report then explores trends in technology, policy, competitive forces and other factors that may force changes in the way in which the cattle and beef industry impacts the environment in the future. Finally, the report summarizes the environmental ch;Ulenges of the U.S. cattle and beef industry and the obstacles to change with emphasis on the status of current efforts to solve environmental problems posed by cattle and beef production, the challenges that remain, and potential alternative solutions and resource constraints to dealing with the remaining challenges.

History, Structure, Characteristics, and Future of the U.S. Cattle and Beef Industry

U.S. cattle and beefproduction, processing, and marketing have undergone substantial change over the last two centuries. The operational characteristics and the number, size, and location ofU.S. cattle and beef producers and slaughtering, processing, and marketing firms have developed and made operational adjustments in response to available resources, technological advances, regional changes in population and economic conditions, governmental policies and regulations, and competition to meet the demand for beef by consumers. This section first provides a brief descriptive history of the U.S. cattle and beef industry from inception to 1970. Then the structure and operational characteristics of the industry from 1970 to 1998 are examined in more detail followed by an analysis ofthe current cattle and beef marketing system in a changing domestic and . world economy.

Descriptive History ofthe Us. Cattle and BeefIndustry

The historical forces generating growth and change in the U.S. cattle and beefindustry are many and varied. Although closely related in many ways, the history of the growth and development of the U.S. cattle industry, the U.S. cattle feeding industry, and the U.S. cattle slaughtering and beef wholesaling and retail industries and the major events which have shaped them are also quite unique in numerous other ways.

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History of the Cattle Raising Indu~try

Domestic meat and draft animals are not native to America. Rather, they were introduced by early Spanish explorers, including Columbus, Cortez, and Coronado in the early 1500s (Williams and Stout 1964). The first permanent introduction of livestock and cattle on the East Coast was at Jamestown in 1611. Cattle were raised on a range system, primarily for milk and draft purposes. When slaughtered, the most valuable product often was the hide.

Cattle production increased rapidly in the New England colonies. The common pasture for growing settlements quickly became inadequate for cattle grazing, launching the westward movement for the cattle industry (Anderson 1951). Large cattle herds appeared in the CarolinaS in the 1600s and were well established in Ohio and Kentucky by 1800 and later in Illinois and Missouri by 1860.

A major problem facing livestock producers in the early 1800s was transportation. Cattle were moved on foot from the western Com Belt to the eastern markets. Railroads, however, were established in many areas prior to the Civil War. Major factors which affected the growth, location, and nature of the cattle and beef industry after the Civil War, included: (l) the rapid development of railroads, (2) the Homestead Act of 1862 which encouraged westward migration, (3) the development ofthe McCormick reapers which facilitated grain harvesting, and (4) the advent ofthe refrigerated railroad car which allowed western packers (Chicago, Cincinnati, etc.) to ship fresh meat to Eastern markets. The development ofa livestock terminal market in Chicago (the Union Stock Yard and Transit Company) in the 1860s adjacent to railroad facilities in response to demands from the Chicago packing industry was soon followed by the establishment of other public stockyards adjacent to railroad facilities. The construction of nearby major slaughter plants with rail sidings throughout the southwest and midwest at Omaha, Sioux City, Kansas City, Denver, Oklahoma City, Forth Worth, etc. soon followed.

Prior to the Civil War, cattle had begun to move in large numbers into Texas and states west ofthe Mississippi, including California (Voorhies and Koughan 1928). By 1880, the Dakotas and the mountain and inter-mountain states were sparsely stocked with cattle. By 1894, however, nearly all ofthe western territory was stocked close to capacity. The center ofU.S. beefproduction migrated westward from western Kentucky in 1860 to Kansas by the late 1890s.

With the western migration of the cattle industry in the 1800s, the number of total U.S. cattle and calves more than doubled from 29 million head in 1867 to 60 million head by 1890 (Figure 1). That number doubled again to 112 million head by 1970. Although generally an upward trend between 1867 and 1970, the growth pattern for U.S. cattle numbers has been broken by at least 7 major peaks and troughs, often referred to as cattle cycles (Figure 1).

A fundamental change in the composition ofthe U.S. cow herd since the 1920s has had an important impact on the growth of the U.S. beefcattle industry. Prior to 1954, cow herds on U.S. farms and ranches consisted of more milk cows than beef cows. For example, U.S. milk cows totaled 21 million head in 1920 compared to 13 million beefcows. In 1954, however, beefcows (25 million head) outnumbered milk cows (24 million head) for the first time. Cows kept for milk declined

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continually in the U.S. between 1954,and 1970 such that by 1970 milk cows totaled only 13 million head compared to 38 million beef cows.

Many factors encouraged the steady growth in beef cow numbers, including a rapidly growing population with rising per capita income, increasing urbanization of the U.S. population, and the increasing percentage of women entering the work force after World War II which contributed to a more rapid growth in consumer income. These trends have continued well into the 1990s.

History of the U.S. Cattle Feeding Industry

Cattle feeding in the United States dates back to early colonial times. Southeastern Pennsylvania was an important feeding area at the time ofthe American Revolution (Ball 1992). Cattle purchased from cow herds in the Carolina Piedmont and the Shenandoah Valley were fattened on Pennsylvania com and then driven to markets in such cities as Charleston, Baltimore, and Philadelphia. Cattle raisers in the Hartford, Connecticut area finished several thousand head ofsteers a year on brewers mash, root crops, and apples around 1800 (Ball 1992). Farmers in the Bluegrass Region ofOhio and Kentucky were also feeding cattle by the early 1800s. Farmers typically bought three to five-year-old steers and hauled shucked com on wagons to cattle in feeding fields (Ball 1992). These older steers were preferred because they could better survive the long drives to market.

The primary cattle feeding region in the U.S. during the late 1800s and early 1900s was the Com Belt with Iowa and Illinois as the major cattle feeding states. Both states had large and growing supplies ofcom which farmers marketed to cattle feeding operations. Texas also began feeding cattle in the late 1890s and early 1900s with the establishment of feeding facilities near or adjacent to the numerous cottonseed oil mills throughout the state (Ball 1992).

According to U.S. Department of Agriculture (USDA) statistics, the Com Belt (Iowa, Illinois, Indiana, Ohio and Missouri) was the leading U.S. cattle feeding region by 1930 with 43% ofthe all cattle on feed. During that period, the four major cattle feeding states were Iowa with almost 20% of the total, followed by Nebraska with 13%, and Kansas and Illinois each with another 10%. The second leading U.S. cattle feeding region in 1930 was the Northern Plains area (Nebraska, Kansas, South Dakota, and North Dakota) with almost 30% of the U.S. cattle placed on feed that year.

The two primary cattle feeding regions in the U.S. between 1930 to 1970 were the Com Belt and Northern Plains. Nevertheless, placements (cattle placed on feed) in those two regions declined from almost 75% of the total in 1930 to about 57% in 1970. During this period, Iowa remained the leading cattle feeding states with placements ranging from 17% to 22% of total U.S. placements. The second and third leading cattle feeding states during this period continued to be Illinois and Nebraska, respectively, with Nebraska taking over second place after 1962. Common to all three states (Iowa, Nebraska, and Illinois) were large supplies ofgrain and numerous farmer-feeders and/or lots with less than 1,000 head, one-time capacity. For example, in 1964 these three states reported 101,993 fanil feedlots, about half the number offarmer-feeders reported by the USDA for that year (USDA 1965). Farmer-feeders accounted for 60% of the fed cattle marketings in 1964 compared

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to 55% by 1970. Fanner-feeders, how~ver, represented approximately 99% ofthe total cattle feeding operation during the 1964 to 1970 period.

While commercial cattle feedlots are generally defined as feeding operations with 1,000 or more head, one-time capacity, a concentration of large-scale commercial feedlot operations with 10,000 or more, one-time feeding capacity first appeared in California in the 1950s. A proliferation oflargescale commercial cattle feeding soon followed in such feeding. areas as Arizona, Texas, Colorado, Kansas, Oklahoma, and Nebraska. By 1970, large-scale commercial cattle feeding operations were well established in many cattle feeding areas. Commercial cattle feedlots accounted for more than 99% ofthe cattle fed in California and Arizona, 97% ofthe cattle fed in Texas, 91 % ofthe cattle fed in,Pklahoma, 85% of the cattle fed in Colorado, almost 74% of the cattle fed in Kansas, and 55% of the cattle fed in Nebraska. Com Belt cattle feeders, in contrast, were still relying predominately on fanner-feeders. Feedlots with less than 1,000 head capacity accounted for more than 90% ofthe fed cattle marketed in that region in 1970.

History oftbe U.S. Cattle Slaugbtering, BeefWbolesaling, and Retailing Industries

The first commercial meat packer in America was William Pynchon who established a slaughter plant near Boston in 1662 (Williams and Stout 1964). Livestock slaughter plants during colonial times were crude and inefficient, meat packing was a seasonal industry, and slaughter was performed mostly during the winter months (Anderson 1951). The first major packing center was established at Cincinnati in 1818 primarily because Ohio had become a major hog producing state (Williams and Stout 1964). Packing plants were soon established at Chicago and Milwaukee (Anderson 1951). Cities on the Missouri and Mississippi Rivers, including South St. Paul, East St. Louis, Sioux City, Omaha, St. Joseph, and Kansas City, developed into meat packing centers.

The advent of the refrigerated rail car in the 1870s and the earlier development of railroad transportation systems led to the establishment of large livestock terminal markets in Chicago. By. the 1880s, Chicago had become the dominant meat packing center in the United States. Railroads allowed large numbers of beef cattle to be shipped from western production areas to Chicago for slaughter. Refrigerated rail cars facilitated year around beef slaughter and shipment of beef from Chicago to deficit beef markets in the East. The continued growth of the rail system allowed the development ofother terminal markets and the establishment ofslaughter plants near those markets through the end of the century.

The structure of the infant slaughter industry of the late 1800s was also shaped by the use of mechanical power to develop large-scale slaughter operations and the growth ofthe corporate form ofbusiness which led to capital formation and expansion ofthe slaughter industry. National packers (packers with national systems ofdistribution) began to appear in the 1860s with the establishment ofmUlti-species slaughterhouses by Armour & Company and Swift & Company at Chicago. These were soon followed by Wilson & Company and Cudahy Packing Company with the construction of plants at nearby locations. These packers obtained the majority oftheir slaughter cattle and calves at nearby terminal markets. All of the major packers operated under a federal meat inspection

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T system established by the Meat Inspe

The advent ofhighly efficient single sp'ccies slaughter plants with accompanying fabrication facilities and the passage of the Wholesome Meat Act in 1967 brought about monumental changes in the structure of the U.S. slaughter industry. Even though 85% of the commercial cattle slaughter was under federal inspection in 1967, the Wholesome Meat Act was passed after a study by Havel (1966) revealed that only 38% ofalmost 15,000 meat facilities operating on an intrastate basis were subject to state or local inspection (McCoy and Sarhan 1988). The Wholesome Meat Act required each state to establish inspection standards and procedures for red meat at least equal to those of the federal government. States which did not comply were to submit all non-FIS plants which sold meat to federal inspection. The net results were that many of the smaller and older slaughter plants and wholesale distributors went out of business rather than renovate existing facilities to meet FIS requirements. The total number of slaughter plants declined from 9,214 in 1968 to 5,877 in 1974 (USDA 1970 and 1975).

In addition to slaughter plants, other types ofmeat firms that were instrumental to the development ofthe beef industry included packer branch houses, wholesale meat distributors, and meat retailing firms such as independent meat markets and grocery stores which later developed into the modem supermarkets. Packer branch houses (non-slaughter firms owned by national packers) served as a distribution artery for national packers and were generally located inornear large metropolitan areas. These firms contained storage facilities for fresh and cured meats, fabricated fresh meat items, and manufactured sausage items and smoked and cured products. Packer branch houses were a product of the rail system and first appeared in the late 1800s after refrigerated rail cars became prominent in the meat industry (Williams and Stout 1964). By 1929, the number ofpacker branch houses had peaked at 1,157, accounting for one-half of the total meat sales at wholesale. By 1958, packer branch ho~es had declined by more than 50% as truck transportation became more prominent in the meat industry.

The development ofthe U.S. highway system in the 1940-50 period, the advent of increasing direct sales by national packers to retailers, and the increasing wholesaling and fabrication fimctions performed by wholesale distributors contributed to the decline of packer branch houses. Merchant wholesalers (independent non-slaughtering firms) were performing a variety offimctions including fabrication of meat products to specifications as required, processing of meat products, packaging, and back-door or store delivery ofproducts to customers. Wholesale distributors included merchant wholesalers who merchandised mostly primal and sub-primal cuts, specialty wholesalers who catered to the hotel, restaurant and institution (HRI) trade, and jobbers who delivered meat products or sold directly out of their trucks. The rise of wholesale distributors was due primarily to the demand for specialty wholesaling and fabrication services provided by these firms which were not provided by slaughtering firms. The number ofmerchant wholesalers grew rapidly in the early 1900s to 2,225 in 1929. Although reaching a peak of 5,041 in 1967, their numbers declined to 4,800 by 1972 as a result of both the passage of the Wholesale Meat Act in 1967 and the efforts of some packers to duplicate some of the services provided by merchant wholesalers (McCoy and Sarhan).

The U.S. meat retailing sector (retail grocery stores, independent meat markets, and the food service industry) has undergone dramatic change in structure, method ofoperations, size, purchasing, and selling since the 1930s. The number of grocery stores have declined sharply since that time from

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a peak ofalmost 387,000 stores in 1939 to about 208,000 by 1970. Sales per store have increased dramatically, however, from almost $20,000 per store in 1939 to about $425,000 per store in 1970 (National Commission on Food Marketing 1966; McCoy and Sarhan 1988). The decline in store numbers was due primarily to the demise ofsmall grocery stores which were unable to compete with the larger grocery retailers such as the supennarkets. Combination food stores, which combined grocery and meat departments in the same facility or supermarkets, first appeared in the Southwest and California in the 1920s and were called "cheapies" because of their low prices (McCoy and Sarhan 1988). Supennarket designation in the grocery industry is based on annual sales per store. Annual sales volume needed to qualify as a supennarket in the 1930s was $250,000 and $1,000,000 per store in the 1960s. In the late 1930s, supennarkets numbered less than 1,000 and accounted for about 5% of the total grocery sales. By 1965, supennarkets were the dominant fonn of grocery business, accounting for 70% of total grocery sales.

The retail food chain concept gained recognition much earlier than did the supennarket concept. A retail food chain is defined as a finn which owns and operate 11 or more stores. Chain stores started in 1859 with the Great Atlantic and Pacific Tea Company (McCoy and Sarhan). The chain concept started slowly but became an important part of the grocery business by 1930. The major impact of the chain store movement was upon wholesale operations (National Commission onFood Marketing 1966). The chains combined wholesaling and retailing and were able to operate at lower costs. They cut prices aggressively which attracted consumers in growing numbers.

Most finns classified as retail food chains are corporations which operate many stores under one ownership and management (Williams and Stout 1964). Procurement and sales facilities generally are closely controlled by top management. Other types ofchains, such as voluntary group retailers and cooperative retailers, generally involve much less control from the top. In a voluntary group chain, retailers are affiliated members ofa group that usually is sponsored by a grocery wholesaler. Cooperative retailers are owned by the retailers themselves, who own the stock of the wholesale organization. Grocery chains comprised less than 10% of the grocery stores in 1940 compared to about 16% by 1970 (McCoy and Sarhan 1988). Grocery sales by chains, on the other hand, increased . from 35% of the total grocery sales in 1940 to 48% of the grocery sales by 1970.

Current Structure ofthe Us. Cattle and BeefIndustries

The structure, operational characteristics, and pattern of development of the U.S. cow-calf and stocker cattle production systems, cattle feedlot finishing operations, cattle slaughtering/processing and wholesaling, and beef retailing since 1970 reflect their historical underpinnings as influenced by modem political, social, and economic forces.

Cow-Calf and Stocker Cattle Production Systems

The U.S. cow-calf and stocker cattle production system utilizes available resources, such as rangeland and pasture grasses, forages, hay and other feeds, to maintain and raise cattle and calves

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for further reproduction, feedlot finishing, and/or slaughter to satisfy the ultimate demand for the kind and type of beef desired by conSumers.

Current Inventory and Changes in Inventory by Region

The total number of cattle and calves on U.S. farms, ranches, and feedlots on January 1, 1998 amounted to only 99.5 million head compared to 112.4 million head in 1970 (Table 1). However, commercial beefproduction as reported by the USDA totaled 25.7 billion pounds in 1998 compared to 22.1 billion pounds in 1970, reflecting both changes in U.S. beefproduction practices and cbanges in the proportion ofslaughter cattle finished in U.S. feedlots to satisfy the demand for beefby U.S. consumers.

The composition of the U.S. cattle inventory has changed substantially as reflected by the higher proportions ofbeef cows in U.S. herd in 1998 compared to 1970, although the percentage of total cows in U.S. herds remained substantially the same between 1970 and 1998. Beefcows made up more than 78% ofthe U.S. cow population in 1998 and 75% in 1970, reflecting both an absolute and a relative decline in dairy cow inventories by almost one-fourth from 1970 to 1998 (Table 1). Other major changes in the composition ofthe January 1 U.S. cattle inventory from 1997 to 1998 were the numbers of other heifers and steers weighing 500 pounds or more. Other heifers and steers, 500 pounds and over, totaled 21.4 million head or 19% of the total inventory in 1970 compared to 27.2 million head or 27% of the total in 1998, reflecting primarily the increased number of cattle in feedlot inventories in 1998 versus 1970.

The largest beefcow producing region in the contiguous 48 states in 1998 was the Southern Plains with more than 22% of the beefcow inventory, followed by the Northern Plains with almost 18%, the Mountain states with 15%, the Com Belt with 12%, Appalachian states with 11%, followed by the Southeast, the Delta, and the Pacific regions (Table 2). The populous Northeast and Lake states accounted for about 3% of the beefcow inventory in the contiguous 48 states.

Total beefcow numbers remained virtually unchanged between 1990 and 1998 with small declines in beefcow numbers noted in the Northeast, the Com Belt, the Southeast, the Delta and the Pacific (Table 2). Beefcow inventories increased in all other regions over the same time period. States with the highest numbers ofbeefcows in 1998 were Texas with 16% of the total followed by Missouri, Oklahoma., Nebraska., South Dakota, Montana., Kansas and Kentucky.

Three regions (Lake states, Pacific, and Northeast) accounted for 62% of the U.S. dairy cow inventories on January 1, 1998 (Table 2). The most populous dairy cow region was the Lake states with 25% ofthe U.S. inventory, followed by the Pacific (predominately California) and the Northeast regions both with another 19%. A common characteristic of these three regions is that they also contain substantially higher proportions of the U.S. population than do the other regions. Regions with the next highest dairy cows numbers were the Com Belt and the Mountain states. California and Wisconsin, with almost equal numbers ofdairy cows, together accounted for almost one-third of the total U.S. dairy cows in 1998. The next largest dairy cow producing states were New York

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with 8% of the total, Pennsylvania ~th another 7%, and Minnesota with 6%. Together, these 5 states held 51 % of the dairy cow inventory in 1998.

Other important supply consideration for V.S. beef production include the annual calf crop and the availability of stocker cattle which eventually end up in the beefproduction stream as do cull beef cows and bulls including cull dairy cattle. Because the annual calf crop. other things equal, is a product of the combined beef and dairy cow populations in the respective states and/or regions, annual state and regional calfcrops closely resemble the pattern and numbers ofbeefand dairy cow population numbers. The January 1 calf crop represented 90.5% of total cow inventories in 1990 and 89:6% in 1998 (Tables 2 and 3).

The Southern Plains region was the largest producer of calves in 1998, followed closely by the Northern Plains and Mountain states, the Corn Belt, the Appalachian and Pacific states (Table 3). The largest increase in the calf crop between 1990 and 1998 was in the Mountain states while the Lake states reported the largest decline in the calf crop for that period (Table 3).

Regional supplies of stocker cattle l reflect, among other things, a variety of factors and available resources, including: (1) supply and condition of range grasslands; (2) fall and winter small grain acreage available for grazing; (3) feedlot costs of gain versus cost ofgain on grassland; (4) feedlot costs ofgain versus cost offeeder cattle and price ofgrain; and (5) grazing practices and quality of management. The major sources of stocker cattle in 1998 were the Northern Plains, the Southern Plains, and the Mountain states (Table 3). Common characteristics of these three regions include relatively large amounts of rangeland for grazing stocker cattle, relatively large acreages of small grain for grazing, and often nearby feedlot outlets for stocker cattle.

Texas, Kansas, Nebraska, Oklahoma, the Dakotas, Colorado, Missouri and Iowa accounted for twothirds of total stocker cattle inventories on January 1, 1998. Cattle feeding is relatively prominent in these states. Feedlots or owners offeeder cattle to be placed on feed at a later date often purchase lighter weight feeder cattle which are placed in stocker growing programs to gain additional weight and also to "cheapen-up" such cattle prior to placement in feedlots. Substantial proportions ofsuch cattle are also owned by professional stocker cattle producers who purchase feeder cattle for placement in stocker growing programs with expectations of future profits by selling such stocker cattle to feedlots, custom cattle feeders, or by retaining ownership through the feedlot finishing phases.

Number and Size ofOperation by Region

The number ofbeefoperations in the V.S. dec1inedfrom 932,000 in 1990 to 855,000 by 1998 (Table 4). The average number ofcows per operation, however, increased from 36 head in 1990 to 40 head by 1998. Numbers ofbeefcow operations declined in all regions between 1990 and 1998 except the

I Stocker cattle supplies, an important source ofplacement cattle for feedlots, were estimated by summing other heifers and steers 500 pounds or more and subtracting cattle on feed for 1990 and 1998 (January 1 data).

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Lake states, the Southern Plains, and ~e Mountain area. The largest number ofbeefcow operations is in the Southern Plains, followed by the Appalachian region and the Com Belt. The Northeast accounts for the fewest number of beefcow operations.

Average beef cows per operation increased in all regions between 1990 and 1998 except the Southern Plains and Lake states (Table 4). These statistics suggest that additional producers had entered the beefcow business during the 1990 to 1998 period but that the proportions ofproducers entering and leaving the beefcow business were about the same. The greatest number ofbeefcows per operation were in the Mountain and Northern Plains regions while beefcows per operation were lowest in the Northeast and the Lake area. Almost four out of five beef cow operations in the Mountain states contained 100 head or more beef cows during 1998 (Table 5). The Pacific and Northern Plains regions also report that over two-thirds oftheir beefcow operations had 100 or more head. States with the highest percentages ofbeefcow herds of 100 or more head include Wyoming, Arizona, Montana, New Mexico, California, Florida and Oregon. Regions with largest percentages of beef cow herds of 50 head or less include the Northeast, Appalachia, the Lake states, the Com Belt, and the Southeast.

The number ofdairy operations declined 40% in the U.S. between 1990 and 1998 (Table 6). Over the same period, the average number ofdairy cows per operation increased from 52 head in 1990 to 79 head in 1998. Although dairy cow operations declined in all regions between 1990 and 1998, the largest declines occurred in the Southeast and Delta states. The smallest declines occurred in the Northeast and the Lake states, two prominent U.S. milk producing regions.

Regions with the largest number of dairy cow operation in 1998 were the Lake states with about 37,000 operations, the Northeast with 25,000 operations, and the Com Belt with another 20,000 operations (Table 6). These three states accounted for 70% ofall U.S. dairy cow operations during 1998. Other regions with substantial dairy cow operations were the Appalachian states with 9,100 operations, the Northern Plains with 5,800 operations, and the Southern Plains, the Mountain and Pacific regions, each with about 5,000 operations during 1998.

The largest dairy cow operations during 1998 were in the Pacific, the Mountain, and the Southeast region (Table 6). Regions reporting the lowest number ofdairy cows per operation in 1998 were the Com Belt, the Northern Plains, and Appalachia. States reporting the largest number ofdairy cows per operation were California and Arizona with about 520 head per operation, followed by New Mexico with 432 head, and Florida with 246 head (Table 6). States with the lowest number ofdiary cows per operation were Wyoming, West Virginia, and Montana. New Mexico and Arizona were the largest among states reporting 78% ofmore oftheir dairy cows in herds ofthe 500 head or more (Table 7). Other states with high proportions ofdairy herds containing 500 or more head included Florida, California, and Utah. The most often reported dairy herd size group in the Northeast, the Lake states, and the Com Belt was 50 to 99 head.

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Production Systems and Land Tenurfi-by Region

Cow-calf production systems (often defined as systems where calves are sold at weaning age) vary on a regional basis by such factors as calving system, annual growing season, availability of improved pastures, type ofnative forages available, terrain, size of operation, etc. More than 40% of the beef cow herds in the southern states, including the Southeast, the Delta, and the eastern portion of the Southern Plains often practice year-round calving practices due to size ofoperation, climatic conditions favorable to longer growing seasons, and generally greater utilization of improved pastures for grazing (Dietrich, Amosson, and Crawford 1988). Seasonal calving patterns are more pronounced in the Mountain states, the Northern Plains, the Pacific, the Northeast, and the Corn Belt. In those areas, up to 70% ofthe beefcows are bred to calve in the February-May period.

Improved pastures, with appropriate applications of fertilizers, have greatly improved cow-calf carrying capacities in the Delta, the Southeast, and the eastern Southern Plains during the last two decades. Beefcow herds in the Northeast, the Corn Belt and Lake states are often supplementary enterprises. Beef cow herds in the Corn Belt and Lake states often depend on small acreages not suitable for cropping, hay from rotation cropland, and residues from field crops, especially corn (Gustafson and VanArsdall 1970). Much of the land in the western Southern Plains and the Mountain states is pasture land, rangeland, or timberland with substantial variation in elevation, topography, climate, soils and vegetation (VanArsdall and Skold 1973). Also, much ofthe land in the Southwest, including most ofthe western Southern Plains and the Mountain states, receives low average annual rainfall. Given the thin, rocky soils from which a small amount of forage is produced, livestock grazing (e.g., cow-calf production) is often the most suitable enterprise for utilization of available resources. Beef cows in the Mountain and Pacific states are grazed under Mountain ranching, inter-mountain desert, and mixed crop-livestock systems.

Up-to-date published information concerning stocker cattle operations and land tenure systems for cow-calf production systems are generally not available. However, case studies ofstocker cattle and cow/calf operations provide information on current leasing and cattle grazing practices. Stocker cattle wheat grazing lease arrangements are often for 120 days, beginning in November and terminating in March ofthe following year. Winter wheat grazing fee arrangements vary within and between regions. For example, stocker cattle wheat grazing fees are often based on in-weights with a grazing fee assessment schedule based on per 100 pounds ofgain or on a per-pound-of-gain basis with side stipulations regarding supplemental feeding, labor furnished, or payment for services, etc.

Cow-calf and stocker cattle pasture or range grazing leases in the Northern Plains or Mountain state regions are often from May to October with charges based on a per animal unit per month or per animal unit per season. An animal unit is generally defined as a cow-calf pair while animal units for stocker cattle vary depending upon weight.

Land tenure practices vary by region and size of herd, especially in cow-calf operations. As cow herd size increase to 200 or more head, observations by livestock specialists suggest that numerous larger cow-calf operations often find it more economical to expand their operations by leasing rather

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than purchasing additional acreage .(Wellman 1999). Further, owner-operators represent an estimated 75 to 90% of the beef herds currently grazing on the western non-public range lands.

Technological Innovations and Animal Health Practices

Technical innovations which have had a major impact on the cow-calf industry include performance testing, hybrid vigor, advances in reproduction and animal health, and continuing improvements in forage production. Performance testing, which is available through numerous programs, focuses on such desirable traits as calving rate, weaning weight, rate of gain from birth to weaning age, and various carcass characteristics. Selections based on performance testing provides a basis for selecting herd replacements to improve quantity and quality of output and more efficient use of available resources.

Hybrid vigor (selective crossbreeding between breeds) often produces larger and faster growing calves which tend to utilize available resources at the cow-calf, stocker, and feedlot level more efficiently. Further, improved management of breeding herds, including better nutrition, culling, pregnancy testing, and use of prudent animal health practices, generally lends to improvements in calving percentages and weaning weights.

Other major innovations include estrous synchronization, artificial insemination, embryo transplanting, and more recently, cloning, all of which have or are likely to have the potential to produce a beef product to meet the quantity, quality, and time constraints ofconsumers. Anabolic implants, commonly called growth promotants, have been used by cow-calf, stocker cattle, and fed cattle producers since the 1960s to improve feed efficiency and increase the rate ofgain (Williams, Dietrich and Byers 1991). Other innovations in the cattle industry include various phases ofvertical integration. Although total vertically integrated operations have been highly successful in the poultry and hog industry, such operations have not met with major successes on an industry-wide basis at the cow-calf level other than retained ownership by some producers through the initial phases of production.

Cattle Feedlot Finishing Operations

The function of cattle feedlots is to place feeder or stocker cattle on a feeding program to convert feed grains and other feedstuffs into additional muscle and bone growth to produce finished beef carcasses exhibiting the weight, quality, and yield grades desired by consumers. A number of important factors define the nature ofcattle feedlot finishing, including the number and size ofcattle feedlot operations by region, marketings by size and region, feeding and selling practices employed, contractual and financial arrangements, technological innovations, and animal health practices employed.

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Number and Size ofFeedlot OperatiC?ns

Dramatic shifts occurred in the cattle feeding industry between 1970 and 1998 (Table 8). The Com Belt ranked first in numbers ofcattle on feed in the U.S. in 1970. By 1998, however, cattle on feed in the Com Belt had declined almost 60%. The predominant cattle feeding regions in 1998 were the Northern Plains with 37% ofthe cattle on feed, followed by the Southern Plains with 24%, and the Mountain states with another 15%. Over the same 1970 to 1998 period, the Pacific region (primarily California) also experienced a decline of cattle on feed ofmore than 60%.

The decline ofthe cattle feeding industry in the Corn Belt between 1970 and 1998 can be attributed p~marily to the lack ofeconomy ofsize for most feedlot operations and the absence ofcontinuous specialized management in cattle feeding since cattle feeding operations in the Corn Belt were predominantly small-scale farmer-feeders. These combination offactors, among others, contributed to a substantial competitive disadvantages in cattle feeding by Com Belt feeders compared to the Northern and Southern Plains where large scale commercial feedlots predominate (Dietrich 1969 and 1971).

With the proliferation oflarge-scale commercial cattle feeding, and subsequent construction oflarge, specialized cattle slaughter and processing facilities near concentrated cattle feeding areas, the Plains area became the dominant cattle feeding area in the 1980s and 1990s (Table 8). The Northern Plains, the Southern Plains, and the Mountain states (primarily Colorado) have become the dominant cattle feeding belt in the U.S. as projected by Dietrich in 1971. Together, these three areas accounted for more than three-fourths ofthe U.S. cattle in feedlots in 1998.

The number ofU.S. cattle feedlot operations declined from almost 184,000 units in 1970 to 104,071 units in 1998 (Table 9 and 10). Farmer-feeder operations, lots with less than 1,000 head one-time feeding capacity, accounted for 99.9% of the decline in feedlot numbers. Com Belt farmer-feeder operations declined from 105,192 in 1970 to 35,900 in 1980, representing more than 87% ofthe U.S. feedlot decline over that period.

The second major change in the U.S. feedlot structure was an increase in feedlots with a 16,000 head or more, one-time feeding capacity from 149 in 1970 to 249 by 1998. The major impetus for this change has been an attempt by feeders to realize economies ofsize in feedlot operations to reduce per head cost of feeding by spreading annual fixed costs over a larger number of output units (Dietrich, Thomas, and Farris 1985). Attempts to realize economies ofsize were especially evident in the number of feedlots with a 32,000 head or more capacity which increased by 150% between 1970 and 1998 (Table 9). Construction ofsuch large, commercial cattle feeding facilities was most prominent in the commercial cattle feeding states ofKansas, Nebraska, Texas, and Colorado.

Fed Cattle Marketings by Size ofFeedlot and Region

Fed cattle marketings in the U.S. increased from 24.9 million in 1970 to 26.7 million head by 1998 (Tables 10 and 11). Although farmer-feeders marketed 45% ofthe fed cattle in 1970, they accounted for less than 15% ofthe total U.S. fed cattle sold in 1998. Much ofthe decline occurred in the Com

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Belt and the upper Northern Plains w~ere fed cattle marketings by farmer-feeders declined 72% and 74%, respectively, between 1970 and 1998 (Table 10). States experiencing the largest decline in fed cattle marketings by farmer-feeders during this period were Iowa, Nebraska, and Illinois.

Fed cattle marketing by commercial cattle feedlots (lots with 1,000 head or more one-time capacity) increased by more than two-thirds between 1970 and 1998 (Table 11). Fed cattle marketings from commercial feedlots during this period increased in all states except Arizona, New Mexico and California. Although generally benefitting from economies of size, feedlots in Arizona, New Mexico, and California suffer a locational competitive disadvantage with respect to readily available supplies of feed grains and feeder cattle. Such impediments are often a major disadvantage to successful cattle feeding operations in a highly competitive industry (Dietrich 1971).

The USDA began reporting fed cattle marketings by size of feedlot during 1998 for commercial cattle feeding operation for the 12 states shown in Table 11. While the data reported for those 12 major commercial cattle feeding states are highly useful, regional analysis is limited since data are not available for all states within specified regions. Nevertheless, the data provided are useful for analyzing some of the major changes in commercial cattle feeding between 1970 and 1998.

Texas, Kansas, Nebraska and Colorado are currently the predominant commercial U.S. cattle feeding states, accounting for almost 80% of the fed cattle marketed by commercial feedlots during 1998 (Table 11). An analysis ofmarketing by size of feedlot indicates that feedlots with a 32,000 head or more capacity accounted for more than 45% of the U.S. commercial fed cattle marketed during 1998, followed by lots with 16,000 to 31,999 head capacity with another 24% or a total of almost 70% by the two largest feedlot size categories. In contrast, these two size groups accounted for only 44% of the fed cattle marketed by commercial feedlots in 1970. The changing structure of the commercial cattle feeding industry is further evidenced by the decline in the number of fed cattle marketed by feedlots with less than 8,000 head capacity in 1998 compared to 1970 in most of the commercial cattle feeding regions. Fed cattle marketed by these small commercial feedlots declined from 33% of total U.S. fed cattle marketed by commercial lots in 1970 to less than 18% in 1998. Past research has shown that the commercial cattle feeding industry is a capital-intensive industry which requires high levels ofexpertise in such areas as buying and selling cattle, purchasing feed, healthcare, and financial and personnel management (Dietrich, Thomas, and Farris 1985). Past research has also shown that given the competitive advantages associated with economies ofsize and their general advantages in feeding, feed procurement, marketing, healthcare, and management, commercial feedlots are likely to continue increasing in number and size. The number ofsmaller commercial feedlots are almost certain to continue declining (Clary, Dietrich and Farris 1984).

Cattle Feeding and Marketing Practices

Cattle feeding practices associated with such factors as days on feed, placement and market weight, ration ingredients, and kind of cattle placed on feed vary by region, season, price of feeder cattle, feed ingredients, size offeedlot, price offed cattle, and other factors. Days on feed are generally the lowest in traditional cattle feeding regions like the Northern and Southern Plains, the Mountain states, and the Corn Belt and somewhat higher in non-traditional cattle feeding regions like the

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r

r

I

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Northeast, the Southeast, and the De.lta regions during (Table 12). Placement weights tend to be heavier in the Com Belt, the Lake states, and the Northern Plains than in the Mountain and Southern Plains regions. The weight at which cattle are placed on feed is impacted by the sex of the animals, available grazing and growing conditions, economic considerations, and strategies relating to the prices and weights offeeder cattle, the cost offeed ingredients, and the cost ofgain in feedlots versus stocker cattle cost ofgain. Placement weights are currently reported by the USDA for only a limited number of states which limits detailed seasonal and regional analyses ofplacement weights.

Market weights of fed cattle are relatively uniform among the major cattle feeding regions. Slaughter firms market the majority oftheir beefproduction as boxed beef which requires relatively uniform carcass weights. Steers and heifers carcass weights, however, have increased substantially since 1970, reflecting current feeding practices and the increased proportion of cattle being slaughtered as fed cattle. The average dressed weight ofsteers slaughtered under federal inspection increased from 683 pounds in 1970 to 764 pounds in 1997 while heifer carcass weights increased from 573 pounds to 703 pounds over the same period.

Feed conversion ratios (the pounds of feed per pound of gain) are generally highest in the Lake states, the Com Belt, and Pacific states (Table 12). Regions with higher feed conversion ratios generally include substantially larger proportions ofhigh moisture feed ingredients (e.g., silage and by-product feeds) in the cattle feeding rations than do regions with lower feed conversion ratios. The economic objective of cattle feeding is to obtain pounds of gain at a profit which is best achieved through least-cost feed ration mixes for given energy requirements. The regional composition of such rations varies and depends on the available supplies and cost of feed ingredients given the available feed processing technology.

The volume and composition ofcattle feeding rations varied substantially among regions in the U.S. during 1997/98 (Table 13). Cattle finished in U.S. feedlots consumed about 4,100 pounds of feed per head, on an as is basis, during 1997/98 with total rations varying from 3,900 pounds per head in the Southern Plains to more than 5,000 pounds per head in the Northeast and Pacific regions (Table 13). The major feed ingredient in cattle feeding rations is grain which averaged about 70% of the cattle feeding rations during 1997/98. The second most used feed ingredient was silage, followed by hay and roughage, and pre-mixes, protein supplements, additives, etc.

The basic feed grain ingredient in most major cattle feeding regions is com which can be replaced or partially substituted for in cattle feeding rations by such feed grains as sorghum, wheat, and barley depending upon market price relationships. Com accounted for more than 83% of the combined com, barley, grain sorghum, and wheat used for livestock and poultry feed in the U.S. during 1975176 and 1996/97 (Table 14). Further, U.S. com and grain sorghum producers depend upon sales to the domestic livestock feeding industry for only 60% and 68%, respectively, oftheir production. The remaining 30% to 40% is sold in the export market or to domestic food, alcohol, and industrial use industries. The two major outlets for wheat were the export market and the domestic food, alcohol, and industrial use industries with the livestock feed industry a distant third.

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Grain rations in the Corn Belt, the ~ake States, and much of the Northern Plains and Mountain regions typically consist of90% to 100% com: Although the major feed grain ingredient in Southern Plains feed grain rations is also corn, grain sorghum has become a major feed ingredient in that region. Since the advent ofsteam flaking technology, grain sorghum has been widely used by cattle feeders in the Southern Plains, the Central Plains, and in the Southwest. Nevertheless, com has remained the major feed grain ingredient in cattle rations since almost the inception of cattle feeding2.

A recent study of fed cattle procurement by Williams et al. (1996) indicates that about 69% of all fed cattle are sold on a liveweight basis (Table 15). The second most important sales method is ccass weight and grade, followed by carcass weight, and contracting. Sales of fed cattle on a formula or rail basis are generally not used by feedlots. The proportions offed cattle merchandised under a particular sales method tends to vary by region. For example, a 1985 study ofcattle feeding showed that more than 90% of the fed cattle in Texas feedlots were sold on a direct to packer liveweight basis (Dietrich, Thomas and Farris 1985). An earlier study reported similar results for Arizona (Menzie, Hanekamp, and Phillips 1973).

Contractual and Financial Arrangements

Contractual arrangements, including custom feeding practices, and financial arrangements vary by size of feedlot and by region. Under custom feeding arrangements, feedlots provide facilities, management, healthcare, feeding services, feed, and usually selling services to clients or owners of non-feedlot cattle for a fee. Because 95% ofcattle feeding costs are short-term or variable costs and because more than 90% of the variable cost is accounted for by feed, interest on feeder cattle and feed, and death loss, custom feeding offers some economic advantages to feedlots. Custom feeding decreases their working capital requirements and spreads the high risk, short-term capital requirements over many cattle owners (Dietrich, Thomas and Farris 1985).

Custom feeding charges are usually assessed on the cost offeed plus a mark-up ranging from 10010 to 30% above feed costs to cover handling, milling, labor costs, and feedlot management. Assessments for medication, vaccination, branding, dehorning, etc. are generally made on a per head basis and are not included in custom feeding charges. Regional variations exist relative to types of charges assessed above basic feed costs. For example, some feedlots assess a per head per day fee to cover such charges while others assess a daily pen charge per head ofcattle fed.

The proportions of cattle fed on a custom basis vary by size of feedlot and region. Generally, the percentages ofcattle fed on a custom basis increase with feedlot size. The percentages ofcattle fed on a custom basis in the Southern Plains, the Mountain states of Colorado and Arizona, and the southern Northern Plains area range from 40% to 90%. Custom clients include professional cattle feeders who feed in several feedlots at the same time, ranchers and non-farm cattle owners such as

2 See Wilcox et al. (1927) for a discussion of cattle feeding in the 1920s.

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doctors and lawyers who wish to ,retain ownership through another production phase, feed manufacturers, slaughter plants, etc.

The primary source for operating capital for feedlots and custom clients are commercial banks, followed in importance by PCAs (Production Credit Associations), finance companies, and individuals. Commercial banks have been the most important source of financing for fixed investments. However, as they increase in size, feedlot owners often use insurance companies as a source for funding capital investments.

Animal Health Practices

T Feedlot animal health practices focus on disease prevention and control. Feeder and stocker cattle processed by feedlots as cattle are placed on feed are closely monitored for signs ofsickness, disease or animal health concerns and normally given a battery ofvaccinations consistent with the season of the year and practices of feedlots in a region. Feedlot animal health practices include usage of antibiotics in feed and water as well as injections, vitamin injections, clostridial and nonclostridial vaccinations, and internal and external parasite control (Feedlot Health Management, NAHMS). Feedlots generally administer antibiotics in feed for 90 days or more, while antibiotics are also placed in water for 8 days or more for cattle arriving in feedlots. Antibiotic injections (regular or long-lasting) were administered to less than 20% of the cattle fed by feedlots surveyed by NAHMS in 1993/94. Similarly, vitamin injections were administered by almost 60% ofthe feedlots surveyed byNAHMS.

Clostridial vaccinations as enterotoxemia - overeating, blackleg, malignant edema, black disease, etc. were administered by 90% or less of the feedlots surveyed by NAHMS depending on the type of vaccination. Similarly, non-clostridial vaccinations as bovine viral diarrhea (BVD), infectious bovine rhinotracheitis (IBR), parainfluenza (PI3), and bovine respiratory sync