Boost Feedlot Profits with TechnologyPosted in: Global Ag By Bill Strautman June 1 2009
What sparked the idea for FHMS?
I wanted to focus on the veterinarian becoming an integral part of the management team at the feedlot, delivering a whole program rather than dealing with individual sick animals.
It looked like there was an opportunity to use my expertise on a group or population basis rather than on an individual sick animal. It was also the beginning of the growth phase of the feedlot industry in western Canada, so the timing was good. Right out of school, I came to Okotoks and started working with a couple of feedlots on herd health and the preventive medicine concept.
However, the growth of FHMS has not all been related to animal health. As the science-based approach and methodology for animal health developed, it became apparent that they could be applied in other areas of feedlot production, plus the areas of procurement and marketing. Information-based decision making systems for feedlots were developed and FHMS customers were shown how to apply them. This process required new personnel with new skill sets.
In the early 90s our growth phase began. FHMS hired additional researchers, production consultants and other personnel to service the rapidly growing feedlot industry in western Canada.
What services does FHMS provide?
We provide production consulting in not only animal health, but in feeds and feeding, nutrition, performance enhancement products, individual animal management (IAM), facility design, cattle procurement and marketing – anything that pertains to cattle production in the feedlot.
If you look at the feedlot, there’s procurement, production and marketing. They’re intricately linked and you need expertise in all those areas in order to get the full picture of improving net profitability. That’s what we’re trying to do in our mission statement. If you don’t understand those three elements in detail, you’re not going to maximize profitability.
We have about 35 employees, including 12 professional staff comprised of veterinarians and people with enhanced training in nutrition, epidemiology and statistics, so we have several people with advanced university degrees - Masters, PhDs, etc. In house, we can do the vast majority of work. However, we have worked with external experts on specific items when necessary.
Who are your clients?
We deal with customers across western Canada, in Quebec and in the cattle feeding states of the US. It’s a broad range of ownership, ranging from individual entrepreneurs, corporate entities, family farms – a host of different ownership structures. They range in size from 1,000 animals to 100,000
animals. Size isn’t a factor.
FHMS influences about 1.5 to 2 million animals annually. That has steadily increased over the years. Growth is necessary and inevitable in a healthy company. Our future growth opportunities will mostly come from the US. The feedlot industry is a North American industry, so our client base is North American orientated.
How important is new technology in your industry?
The feedlot industry has always been a quick adopter of new technology. In the 25 years I’ve been in it, the industry has changed dramatically, with innovations and technology introduced in many areas.
The big change that’s occurring and continues to occur is that we’re moving away from looking at production on a pen basis, to individual animal production - IAM. For many years, our system was fill up a pen, then on a given day, sell the entire pen contents.
But animals have different growth characteristics, growth rates and carcass characteristics and are not ready for market all on the same day. We’ve moved our systems away from looking at pens as units, and towards focusing on the animal as the unit.
We’ve incorporated extensive sorting capabilities at feedlots, so they’re creating marketing groups of individual animals, with optimal individual animal characteristics, that are harvested on a given day. It’s a pretty major mindset shift in the feedlot production system.
All the necessary technology to support IAM, from sorting facilities, to physical infrastructure, computer infrastructure and information technology necessary to support that type of activity, is the biggest change that I’ve been part of. We’re selling individual animals at the optimal time, rather than the mass pen approach.
What sort of technologies do you provide to your customers?
Our company offers proprietary software. That’s one of our strengths – the software to support IAM of all these cattle.
Then there’s the methodologies required to develop systems to sort cattle in multiple directions, including keeping track of all the individual animals, collecting individual animal attributes, storing the data in data bases, analyzing the data to generate ideas and interventions, designing field studies to investigate the cost-effectiveness of proposed ideas, and the creation of practical algorithms to execute IAM. It’s an on-going process. Our whole system is based on data collection, analysis and validation of our ideas in commercial production models.
What are some of the new production technologies on the horizon?
One of the things that has the potential to dramatically change management in the feedlot is genomic technology. It could really be a revolutionary thing, where animals entering the feedlot – we would take blood samples, run DNA profiles and use that information to drive our IAM stragegies.
Genomic companies are doing the mapping and have products available, where they’re looking at 100 or 150 different traits, or SNPs. We think we will be able to use that information in our IAM systems.
We’re just starting to develop the expertise to use that technology and incorporate it into our IAM processes. We’ve been looking at it for quite some time. It always takes time to understand how to use technology and what the value proposition is for the production system.
What about new marketing technologies?
Selling cattle on a pricing grid is not new, but the grids are becoming further refined to reflect carcass characteristics that the processor’s customers want.
What we see is more targeted production of certain carcass types, to meet certain markets. With that, the arrangement between the packer and the feedlot producer gets increasingly complex.
Packers are looking for specific traits, characteristics or carcass sizes. They’re sending the signal out to tailor feedlot production more precisely. That creates a competitive advantage for feedlots that are capable and sophisticated enough to meet these requirements.
A simple example might be a packer saying he wants a tight specification. With respect to carcass size – say between 750 and 850 pounds - really big or really small carcasses are not wanted. Or the packer might have customers that specifically want carcasses grading in the upper 1/3 of Canada AAA or USDA Choice.
How does the beef industry interact with the grain industry in western Canada?
The majority of feedlots are in the grain business as well. They would, at the minimum, own enough crop land to grow a silage or forage base. Most feedlots also have significant grain
Manure disposal from the feedlot requires significant amounts of land and typically feedlots try to own that land to take advantage of the fertilizer value of the manure, which often goes unrecognized. But it is significant, especially with today’s fertilizer costs.
The two industries are intricately intertwined, given that cattle consume a significant amount of barley in western Canada. In most situations, when grain prices decrease, livestock prices increase and vice versa. That’s not to say that both can’t thrive at the same time, but historically they haven’t.
What effect will the ethanol industry have on the cattle business?
This is a complicating factor of another user of feed grains – the ethanol industry. It’s an additional complexity that’s emerged over the last ten years. The feedlot industry needs to figure out how to work with the ethanol industry.
In western Canada, wheat-based dried distiller’s grains (DDGs) can be used in feedlot rations. In Canada, the impact of ethanol production is going to be different in the west than in the east. In the west, the substrate used in ethanol production would probably never have been used in feed, to begin with.
Wheat is generally exported, or trades at levels not used in livestock feed, whereas the byproduct will be used in the feeding industry. As a result, in western Canada, ethanol will increase the amount of feedstock available, whereas in eastern Canada it’s going to decrease it, because corn is used as the ethanol substrate and corn is also used as a feed grain in feedlot production.
Ultimately, the underlying economics of production will determine what each sector does. In North America, cattle numbers are decreasing because grain prices have increased and made cattleproduction in many geographical locations not profitable. The response to decreased profitability is decreased supply.
Where do you feel the beef industry is heading in the next two decades?
A lot of people aren’t, but I’m pretty optimistic for the beef industry in Canada. For high-quality, grain-fed beef, we are the low cost producers in the world. If natural economic forces are allowed to operate, then we should have a pretty rosy future, barring market access issues or other events that have slowed us down.
If you look at beef consumption globally, it continues to increase. If we didn’t have this major setback in the global economy, I think the beef industry would have got really good. And it’s going to. It’s just a matter of having economic recovery and the global demand will come around. Medium-term I believe the outlook for the cattle business in Canada is extremely bullish. We just have to get there.
We’ve got the infrastructure, wide open spaces, and relatively few environmental constraints. We’ve got all the things you need to compete in the global market. We’ve just been hindered by market access issues related to the political nightmare of BSE. When we get over that and the economy of the world improves, these cattle are going a lot higher than they are today.
What does the future hold for FHMS?
Medium and longer term, we’re gearing up our research, delivery and support teams to meet additional requirements of current customers and future customers. In our particular area, it’s important to have the in-house expertise and that doesn’t happen overnight. Our challenge is finding capable personnel to meet the current and future demands of our customers.
A lot of our growth will come in the US, but some will also come from other countries where feedlot industries are starting to take off, like South Africa, Mexico and South America.
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