High hopes for cattle market depend on rain


Issue Date: November 28, 2012
By Steve Adler
Cattle rancher Darrell Wood of Vina says the determination of whether beef producers expand or contract their herds will depend a lot on precipitation numbers in California during the winter.
Photo/Kathy Coatney
Late fall rains have resulted in germination of new plant life in rangeland, plants that beef producers depend on to keep their herds healthy and well fed.
Photo/Kathy Coatney

For beef producers who have weathered two years of drought and related challenges, there was a feeling of optimism as they assembled in Santa Clara last week for the annual meeting of the California Cattlemen's Association.

Monterey County beef producer Kevin Kester, who wrapped up his term as CCA president at the meeting, said he expects beef prices to remain "very solid, if not potentially breaking all-time record highs going into next year."

A declining U.S. beef cattle herd and smaller cattle numbers in California fuel the prospects for continued high prices.

The National Agricultural Statistics Service will release its next statistical report on cattle numbers in January. According to its October report, the number of cattle and calves in the U.S. totaled 97.8 million head on July 1. That's 2 percent less than a year ago. Overall, it's the smallest cattle inventory since the agency began a July count in 1973.

"I think the report that comes out in January will show a decline in the California beef numbers. And obviously across the nation we will have a substantial reduction in beef cow numbers," Kester said.

The drought that has gripped much of the nation the past two years provides the biggest reason for the decline in cattle numbers. The lack of rangeland grasses combined with high feed prices prompted many beef producers to downsize their operations or liquidate their herds altogether.

"Beef prices are strong, but unfortunately the cost of staying in business is going up just as fast or even faster than our revenues," Kester said. "There are cattle producers still going out of business."

As to whether cattle numbers increase or decline in 2013, it depends primarily on the amount of precipitation that falls in California and elsewhere this winter.

"I hope ranchers are starting to rebuild their herds," he said. "Mother Nature is the biggest restriction right now. If we get some good moisture, I think the table is set for cow-calf producers to start expanding in short order."

On the other hand, if dry conditions continue, there will be a continuing constriction of cow numbers in both California and the U.S.

"With the cost of corn and other grains such as wheat or barley and the price of hay, it is not feasible in almost any case to feed very much extra to supplement a cow-calf operation. It just doesn't pencil out. So therefore when we have dry or drought situations, the only feasible financial alternative is to liquidate," Kester said.

Compounding the problem, he said, is the reduction in the number of feedlots and processing facilities resulting from lower beef numbers.

"Once we lose that infrastructure, it is going to be extremely difficult to re-establish it. As leaders in the industry, we are very worried about losing feedlot capacity and processing facilities and once they are lost, it opens the door to competitors across the globe to take over the market," he said.

Cattle rancher Darrell Wood of Vina also expressed optimism about the beef market tinged with concern about rangeland conditions and feed costs.

"I'm generally speaking pretty excited about the beef industry in California today. The cattle numbers both in California and nationally are at record lows, so from a purely supply and demand standpoint it seems to me that the beef industry should be in pretty good shape as far as not having too many cattle in the supply line to disrupt the current prices that we have," he said.

Like Kester, Wood said that the weather during the next few months will tell the tale.

"The only variable that I am worried about, of course—and this is something that happens every year—is the rainfall and the snowpack in the mountains," he said. "The biggest challenge we had this year was just keeping the cattle spread out enough to be able to have enough feed. On the east side of the Sierra, in Lassen County and Modoc and all through there, it was an extremely dry year, in fact probably close to 30 percent of normal in most places. So having stock water and enough feed to get them through has been the challenge."

Looking ahead long-term, Kester said one of the greatest concerns in his organization as well as nationally is the aging population of ranchers.

"The average age of a rancher and farmer in the United States is approaching 60 years old. It is extremely difficult for a number of economic reasons for young folks who have not been in agriculture to start to enter the ranching and farming business due to the high costs that it takes to purchase the ranch or farm," he said.

Kester also said that it appears that government regulatory agencies are growing more aggressive in placing restrictions on farmers and ranchers, thus adding to their operational costs to comply with new rules and regulations.

"It seems like it is just a faster and faster regulatory merry-go-round where both farmers and ranchers are getting hit on all sides, from air quality, water quality and all aspects of agencies in Sacramento and Washington that have the authority to regulate us. It is getting tougher and tougher and I expect that to worsen as time goes along," he said.

But despite the negatives, there is a feeling of confidence among beef producers.

"With the rebounding economy and our export markets for beef overseas breaking value records, I am very optimistic that this upcoming year will be record-breaking for all-time high prices again for our cattle," Kester said.

(Steve Adler is associate editor of Ag Alert. He may be contacted at sadler@cfbf.com. Reporter Kathy Coatney contributed to this report.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.