Consolidation, expansion spark growth in cooperative feed sales

By Eldon Eversull, ag economist
USDA Rural Development

Editor’s note: Information for this article is
from a soon to be published Research
Report 207.

gricultural cooperatives sold about $7 billion in feed in 2004, more than double the sales value reported in USDA’s last study, conducted in 1984. Many changes have, of course, occurred during the past 20 years for cooperative feed manufacturers. Six of the major cooperative feed manufacturers no longer exist. However, their manufacturing facilities have not been lost. Prior to ceasing operations, alliances were developed with other cooperatives to incorporate most of the feed mills into existing cooperatives.

This consolidation and expansion trend continued until one cooperative became the leading cooperative feed manufacturer. This same cooperative purchased a major investor-owned feed manufacturer and has become the largest U.S. feed manufacturer. Also, one large cooperative feed manufacturer converted to an investor-owned firm.

The more than doubling in the dollar amount of feed sales for cooperatives over the past 20 years is thus the result of a combination of business expansion, purchase of an investorowned feed manufacturing firm and increased ingredient costs, minus the loss of the cooperative that converted to an investor-owned firm, among other such changes.

USDA survey
USDA Rural Development sent a survey to 646 cooperatives that had at least $500,000 in feed sales in any of the prior five years. There are many more cooperatives that sell feed, but few of these with less than $500,000 in sales had feed mills. About 33 percent, or 220, usable surveys were returned.

Among the major changes since the 1984 survey is that hog production continues to be concentrated in larger farms and vertical integration continues among feed production, hog production and meat packers. Hog production has also seen movement from traditional production areas of the Corn Belt, Lake States and Northern Plains to Appalachian, Southeast and Mountain states, much of the migration being driven by pollution and odor issues.

Global markets have also opened U.S. borders to meats produced overseas. Bovine spongiform encephalopathy (BSE), or mad cow disease, has closed the U.S./Canadian border several times to importation of live animals and has impacted export markets. Avian flu has had a large impact on foreign poultry production and could become a major domestic concern. The large increase in ethanol production has made distiller’s grain (an ethanol byproduct) a competitive choice to traditional feed production.

Survey highlights
The survey found that:

The Corn Belt and Lake States account for 80 percent of cooperative feed production;
Types of feed and percent of total production by co-ops are: complete feed — 83 percent; supplement feed — 12 percent; premix feeds — 5 percent;
Feed sold in bulk accounts for 90 percent of feed sales, while 10 percent is still sold in bags.
Meal was the most common form of feed produced by co-ops (72 percent of the total); pellets were second (14 percent), followed by coarse-textured (11 percent), liquid (2 percent), cubes (1 percent) and blocks (0.4 percent).
Hog feed was by far the biggest share of the market, accounting for 53 percent of co-op feed production, followed by dairy feed at 17 percent and beef feed at 14 percent.
Over half of the feed produced was sold at the retail level, while 17 percent was sold wholesale; 15 percent was custom grind and mix; 9 percent was custom fed to others’ animals; and 6 percent was fed to animals owned by the cooperative.

Complete, supplement
or premix feeds
Formula feed is produced according to exacting specifications to satisfy different animal groups’ physiological and environmental needs. Feed production is usually classified further into specific feed types, such as complete, supplement and premix. Comparing 2004 to 1984, we can see that complete feed production rose about the same amount as supplement feed declined (chart 1). By region, complete feed production increased greatly over the 1984 average of 74 percent in all but the Northeast, Lake States and Southeast.

By feed mill size: mills producing from less than 999 tons to 74,999 tons annually produced complete feeds about 70 to 79 percent of the time.

Feed mills producing from 75,000 to 99,999 tons produced more supplement feed (30 percent) and less complete feed (65 percent). Production at feed mills with a volume of more than 100,000 tons also differed from the average, with more than 90 percent complete feed and only 6 percent supplement feed.

Feed type
In 1984, the use of pellet feed had increased greatly from prior studies, accounting for about half of total feed production. By 2004, pellet feed dropped to 14 percent of total production while meal climbed to 72 percent and coarse-textured 11 percent (chart 2). This compares to 49 percent meal in 1984 and 47 percent pellets. Meal production increased in the Corn Belt, while pellets increased in the Southeast. Much of this apparent drop in pellet feed may be due to several larger cooperative feed manufacturers not responding to the survey.

Feed mills with less than 999 tons of production made about equal amounts of meal and coarse-textured feed. They also made the most liquid feed. Feed mills with 10,000 tons to 74,999 tons of production made about the average amount of meal feed, 70 percent. Feed mills with 75,000 to 99,999 tons of production made the most pellet feed (32 percent).

Animal type
Hog feed accounted for 53 percent of the feed produced by respondents, while dairy feed was the most-produced feed in the 1984 survey (chart 3). Hog feed was the most-produced feed in the Lake States, Corn Belt, Northern Plains and Mountain regions while beef feed was the most-produced feed in the Southern Plains and Pacific regions. Dairy feed was the most-often-produced feed in the Northeast, Appalachian, Southeast and Delta regions.

Hog feed was the most-often-pro- duced feed for feed mills with annual production from 25,000 tons per year to over 100,000 tons. Feed mills with a volume of less than 999 tons per year to 9,999 tons focused on beef feed. Feed mills producing between 10,000 tons per year and 24,999 were about evenly split between hog and dairy feeds.

Feed distribution
By a large margin, respondent cooperatives distributed the feed they produced through retail sales (chart 4). This is very different from the distribution pattern found in 1984, in which wholesale sales and retail sales were about equal. Again, several large cooperatives that did not respond to this survey have feed sales that are known to be heavily weighted toward wholesale sales and thus may have skewed survey results.

Retail sales increased by about 20 points over 1984 while wholesale sales dropped about the same amount. Custom-grind and mix feeds dropped six points, as did feeding to cooperative- owned animals. Feeding to others’ animals (custom fed in feed lots or confinement facilities) grew by almost nine points. Retail sales accounted for at least 90 percent sales in the Northeast, Appalachian, Delta, Southern Plains and Pacific regions.

Feed mills with production of less than 999 tons per year almost exclusively relied on retail sales. Feed mills producing from 75,000 to more than 100,000 tons per year relied on wholesale sales about 24 percent of the time. These same feed mills also custom-fed their feed to others’ animals for more than 10 percent of their feed sales.

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