Tax-induced cattle feeding

Cattle feeding for income tax deferral has resulted in many nonfarm investors providing substantial capital for cattle feeding in California. This recent growth in outside financing, accomplished mainly through limited-partnership arrangements, has potential economic implications to agriculture. Favorable aspects include a possible smoothing of seasonal variations in feeder and fed cattle prices with increased returns to feeder cattle producers. Participating cattle feedlot operators are better able to utilize their facilities and have probably benefited from their association with limited partnerships. There are also possible economic disadvantages. Non-participating feedlots may encounter problems obtaining the numbers of feeder cattle desired. If feedlots become dependent on these investors, as it appears they have in California, a change in tax laws or investor interest could create problems of adjustment in sources of financing. Also, if cattle funds are available on a sporadic basis, they could increase instability in the fed beef business.