Bringing it home

Dakota Prairie Beef Co-op adding
value to home-grown cattle, grains

By Raylene F. Nickel
Editor’s Note: Nickel is a freelance ag journalist based in Kief,
North Dakota.

orth Dakota’s rolling grasslands grow nearly a million beef calves each year. In the fall and early winter, soon after the calves are weaned and possibly fed for a while on farms, semitruck after semitruck carry the calves far out of state, typically to feedlots in Kansas and Nebraska. About 95 percent of those North Dakota calves leave the state, in spite of the fact that North Dakota’s fields raise bumper crops of feed grains. Much of that grain also is shipped out of state, often to the very feedlots where the North Dakota-bred calves end up.

This tradition of feeding North Dakota grain to North Dakota calves in feedlots in states to the south got its start because farmers and ranchers believed North Dakota’s cold winters would cause poor gains in cattle on feed. But research and experience are refuting this perception, leading producers to look for ways to plant the seeds of a feeding industry in North Dakota.

In the arid southwestern corner of the state, this desire for an in-state feeding industry has resulted in a network of new feedlot pens built to hold 6,500 head of cattle. Surrounded by open prairie, the feedlot facility is owned by Dakota Prairie Beef, a cooperative of 145 members, most of them farmers and ranchers, each of them owners of cattle being custom fed in their cooperatively owned lot.

Long time coming
“The idea behind this feedlot cooperative was a long time in coming,” says former board chairman Lance Larsen. Larsen, who ranches in western North Dakota, is one of the founding members.

“We’re the first ones to get such a concept off the ground,” Larsen adds. “We didn’t form the feedlot cooperative in order to create an investment opportunity simply for the sake of earning eventual dividends. The members are the customers. We retain ownership of our cattle all the way to processing and pay the cooperative to feed them.

“The feedlot is really only an extension of a member’s own farming or ranching operation. The purpose in forming a cooperative to build a custom-finishing lot was to maximize the economies of scale that a larger feedlot affords.” This provides cheaper gain than a producer might obtain by feeding small numbers of cattle at his or her home feedlot.

Larsen was among a handful of western North Dakota ranchers who began talking together 6 years ago about the possibility of forming a cooperative to build a custom feedlot in the region. It was during the time that a regional cattle producers’ cooperative, Northern Plains Premium Beef, had organized with the intent of establishing a producer-owned packing plant. Larsen’s group believed that the formation of a producer-owned custom feedlot could be a source of fed cattle for the NPPB packing plant.

Though the cooperatively owned packing plant never came to fruition, the ranchers plowed ahead with their vision of building a producer-owned feedlot in the state. For a year, the steering committee staged community meetings in North and South Dakota as well as in Montana. The goal of the meetings was to raise enough equity for the group to build a new feeding facility on purchased land near the small town of Gascoyne in southwestern North Dakota.

Two share types offered
Two types of shares were offered to producers: “B” shares cost $60 each and bought the buyer bunk space each year for one spring-born calf delivered to the feedlot between Oct. 1 and March 30; “C” shares cost $55 each and bought the buyer bunk space each year for one yearling delivered to the feedlot between April 1 and Sept. 30.

“We offered 6,500 calf shares and sold all of those shares,” says feedlot manager Mark Vachal. “We offered the same amount of yearling shares and sold 2,400 of those. So yearling shares continue to be available, as well as some calf shares from individuals who have decided, for one reason or another, to sell their shares.” Sales of preferred stock to local one spring-born calf delivered to the feedlot between Oct. 1 and March 30; “C” shares cost $55 each and bought the buyer bunk space each year for one yearling delivered to the feedlot between April 1 and Sept. 30. businesses also contributed to the final capital pool, which amounted to $500,000.

This sum provided equity for a start-up loan of $900,000 from Farm Credit Services. Local businesses, such as Slope Electric Cooperative, a preferred stockholder, also helped initial funding by providing smaller loans to the feedlot cooperative, says Vachal.

The 145 members purchasing feeding shares in the cooperative are from North and South Dakota and Montana. The first cattle arrived at the feedlot in the summer of 2000. Vachal expects the lot to be filled to capacity, with 6,500 head of cattle, by early 2003.

Members pay for the feeding services they receive at the feedlot just as they would pay for the services provided at any other custom feedlot. Twice a month, members who have cattle on feed receive an invoice from the cooperative. They’re charged for the amount of feed their cattle have eaten in two weeks. They’re also charged a yardage fee of 25 cents per head per day. The yardage fee covers the member’s share of the cost for the use of the facility and equipment. The fee also covers the member-customer’s share of the cost of labor and utilities.

The cooperative employs eight full-time individuals. Besides managing the actual feeding of and caring for the cattle, Vachal’s responsibilities also include marketing the finished cattle to packing plants.

Co-op provides grading, conversion data to members
Member-customers of Dakota Prairie Beef have the opportunity to get detailed information back about individual animals fed at the feedlot. The information tells them how their cattle performed in the feedlot in terms of feed conversion. It also tells them how their animals’ carcasses graded and, in some cases, even the characteristics of each individual animal’s carcass, such as the size of the ribeye.

“The ribeye is one of the highest-value cuts in the carcass,” says Vachal. “The larger the ribeye, the more valuable the carcass.” When producers sell their finished animals to packers on a grid basis, they earn premiums for such highquality traits as large ribeyes.

Tracking the performance of individual animals and their carcasses is possible because of an electronic button implanted in the ears of cattle at the time owners deliver them to the feedlot. The button’s number, along with the number on the animal’s visual eartag, permanently identifies the animal and its carcass. Scanners at the packing plants “read” the number on the button at the time the animal is harvested and its carcass measurements recorded.

Western North Dakota rancher Wes Andrews, chairman of Dakota Prairie Beef, views this local opportunity to get feeding and carcass information back on his cattle to be a key benefit to feeding cattle at the cooperatively owned feedlot. “Learning the carcass quality of my cattle and how they perform in the feedlot helps me to make genetic improvements in my herd,” he says. Breeding cattle for higher carcass quality, for instance, could increase Andrews’ income in the long term.

Andrews will begin making genetic changes after a couple more years of data give him a broader picture of the feeding and carcass-quality genetics in his cow herd. Andrews, who runs a cow herd of 350 head, partners each year with his father to feed 150 head of calves at the Dakota Prairie Beef feedlot.

When the cooperative was being organized, Andrews joined a steering committee. Along with other early members, he envisioned Dakota Prairie Beef as an opportunity to add value to cattle and feed grown in the region.

Indeed, the feedlot provides a local market for hay, corn and silage. This year, Dakota Prairie Beef purchased 3,000 tons of corn silage from farmers within a four-mile radius of the feedlot. In addition, the co-op purchased upwards of 1,000 ton of hay from growers within 100 miles of the lot.

First dividends expected soon
The financial performance of the cooperative is on schedule, says Vachal, with debt repayments being drawn from the feed and yardage charges paid by member-customers. Indeed, payment of dividends could begin as early as next year, with holders of preferred stock receiving the first dividend payments. If there is sufficient net income after dividends are paid to preferred stockholders, customer-shareholders will be paid dividends as well.

Despite good rates of gain of cattle fed at Dakota Prairie Beef feedlot, profits earned by individual member-feeders have, however, been poor, due to reduced prices packers have paid for finished cattle during the past 2 years, says Vachal. He expects market conditions to improve in the coming year. The slim profit earnings in feeding cattle are industry wide, he notes, and do not result from the northern location of the feedlot.

Concerning location, former co-op chairman Lance Larsen adds: “We can feed cattle here cheaper than they can in southern feedlots. We know we’re not too far north to feed cattle successfully because there are Canadian feedlots several hundred miles north of us that do very well.”

Critics of feeding cattle in North Dakota often point to North Dakota’s distance from packing plants to the south, saying that it’s too costly to transport finished cattle from the state to processing facilities typically located farther south. But Vern Anderson, an animal scientist at the Carrington (N.D.) Research Extension Center, says the criticism is unfounded.

“Feed is more expensive to haul than feeder cattle,” says Anderson. “Cattle should be fed as close as possible to where the feed is grown. The Canadians have proved this rule of thumb to be true. The potential is great for feeding cattle in North Dakota. We’ve got plenty of feed because we’re a grain-producing state. In addition, there’s an increasing amount of ag processing going on, making coproduct feeds available. Typically, we can meet a feedlot animal’s nutritional needs with combinations of grains, coproducts and forages for substantially less cost for feed than they can in Kansas feedlots.”

Indeed, such information fuels the vision held by Bill Patrie, economic development director for the North Dakota Association of Rural Electric Cooperatives. Patrie, who helped organize Dakota Prairie Beef as well as a number of other farmerowned cooperatives in the state, sees great potential for farmers and ranchers to own a larger share of the beef-production chain, rendering the industry more efficient in the process.

“Under a farmer-owned system,” says Patrie, “the beef feedlot would be a cooperative owned by the same people that own the calf; the same people that own the processing plant, the fabrication plant, the rendering plant and the distribution company. In such a system the feedlots would be placed where they made the most sense geographically. Ownership of the production chain would extend from prairie to plate, from the calf all the way through to the end consumer.”

November/December Table of Contents