Fed cattle sourcing methods assessment for Uruguayan packers

Abstract

During the last 20 years important changes have taken place in the Uruguayan beef chain. Production of grain finished cattle has become a common practice, supply agreements between packers and groups of farmers have increased and packers have begun to own feedyards. Consequently, the number of cattle pre-committed for procurement by a packer has increased significantly. Three sourcing methods are commonly used by packers to ensure captive supply of grain finished fed cattle: marketing agreements, custom feeding and owning a feedyard. The objective of this thesis is to determine the method or combination of methods that result in improved Uruguayan packer profitability through enhanced packer plant management and utilization. To achieve this objective, a quantitative and qualitative analysis using the different sourcing methods was carried out. The analysis looked to identify the drivers that determine why packers resort to one method of procurement rather than other, or a combination of them; and to determine the methods that result in better packer economic results and plant management. The results show that there is no difference between using marketing agreements and custom feedyards, and that resorting to owned feedyards entails higher costs, using current values for feedyard feed and yardage and 2005-2009 average cattle prices. When different scenarios are assessed, custom feeding emerges as the most cost effective option, followed by marketing agreements. However, when qualitative analysis is included, some doubts arise regarding the quantitative advantage of custom feedyards over the alternatives, and a combination of marketing agreements and owned feedyards may be the best option.