Harris Ranch, other California feedlots, brace for more volatile cattle market due to ripple effects of severe drought in southern Plains; lack of pasture forces ranchers to cut cattle numbers
August 23, 2011
(California Farm Bureau Federation)
Severe drought in the southern Plains that has devastated ranchers and blistering temperatures that have hurt crops in the Midwest are sending ripple effects to segments of California agriculture.
As a feedlot operator, Mike Smith, special projects manager for Harris Ranch in Fresno County, said he is bracing for a more volatile cattle market ahead. Lack of forage and pasture has forced ranchers in Texas, Oklahoma and surrounding states to cut their cattle numbers and, in some cases, liquidate entire herds.
Some animals are finding homes in other states that have grass, such as North Dakota and South Dakota, said Mike Barnett, spokesman for the Texas Farm Bureau. However, many others are being sent to processing.
"We're the largest cattle-producing state in the nation. Is that going to hold true after this drought? I don't know," Barnett said. "We're having record auction runs across the state. There's just no end to it."
Smith said younger, lighter-weight cattle are being placed in feedlots now, and that will increase the supply of fed cattle by the end of the year and the beginning of 2012, putting downward pressure on that market.
And while cattle from the drought-stricken states may not necessarily end up in California feedlots, mainly due to high freight costs, Smith said what happens with the Texas-southern Plains market ultimately sets the tone for the market nationwide. Harris Ranch sources its cattle mainly from California, Oregon and Nevada, said Bob Martin, the company's feedlot superintendent.
Down the road, these herd reductions will create a hole for feeder cattle, Smith said, because cattle that would have been placed in the fall and early winter will not be available, pushing up costs for feedlots that acquire them. He noted that feeder cattle prices already are at historic highs due to current low beef cow inventory in the nation.
"Everybody is chasing a smaller supply of available cattle to place into feedlots, and that's the reason the feeder cattle market has marched upwards significantly in the last year," Smith said.
Not only is the price of feeder cattle escalating, but the price of corn, the main commodity feedlots use to finish cattle, also is rising, said Bill Brandenberg, manager of Meloland Cattle Co., a feedlot operation in the Imperial Valley.
Corn prices have been high due to low stocks, and record-high heat in the Corn Belt this summer has further downgraded U.S. Department of Agriculture crop-yield projections. The drought and heat wave have also shortened the nation's supply of hay and other feed crops.
Brandenberg said if feed prices weren't so high, feedlots would typically be buying lighter cattle and keeping them on feed longer when their inventory numbers are down, but he is reluctant to do that at current prices.
"In general, almost all of the feeding industry is going to be shrinking in numbers, because there's going to be cattle unavailable," he said. "The cattle cycle takes about three years, so it takes a long time to increase the numbers of the beef industry. I think we're going to have a shortage for at least the next two to three years."
While cow-calf producers will feel the impact of higher hay costs, they will ultimately benefit from the nation's low cow numbers and enjoy earning higher prices for their cattle, Brandenberg said.
Stevie Ipsen, spokeswoman for the California Cattlemen's Association, said many of the state's cow-calf producers have been trying to rebuild their herds after massive reductions during California's own three-year drought. They were blessed with plentiful rainfall and grass this year, but lingering drought impacts, high feed costs and other market and economic uncertainties have dampened prospects for much cow-herd expansion.
"I think there are a lot of people trying to build their herds back up, but cattle prices are so high, and there just aren't that many cattle out there," she said. "But I know there are a lot of people looking for them. If you can afford cattle, it's a good time to buy."
The long-term impact of the current drought, Brandenberg said, is that U.S. beef production will drop, and with international demand for beef increasing and U.S. beef exports continuing to grow, in part due to a relatively weak dollar, there will be less beef for American consumers in the next two to three years.
Meanwhile, the damage that hot temperatures are causing to crops in the Midwest offers a positive outlook for California rice growers, said Kirk Messick, senior vice president of Farmers' Rice Cooperative.
Rice acres in the Midwest have been reduced drastically in favor of commodities such as corn, soybeans and wheat, all of which have seen high prices due to demand from China and other countries, as well as weather-related production problems in the Midwest, he said.
"The futures market for rice is going up because the other commodities are going up and dragging rice along with them," Messick said. "It's not so much that the bad weather is affecting the yield on rice; it's affecting the yield of substitute commodities, which is having a bullish effect on the rice market."
There is already huge demand and reduced carryouts projected for the competing commodities for next year, he said, and if the prices for those commodities go up, then U.S. farmers will want to grow more of those crops and less rice the following year, which raises the projected price of rice.
The Southern drought will also result in a much smaller U.S. cotton crop this year, said Mark Bagby, spokesman for the Bakersfield-based cotton cooperative Calcot, which markets cotton from California, Arizona, New Mexico and Texas. The Lone Star state is the nation's biggest cotton producer, and it has lost $1.8 billion in production this year, according to Texas AgriLife Extension Service.
Bagby said because cotton is a global commodity, he doesn't expect the loss of production in Texas to have much effect on the overall cotton market, at least not on the price for the fiber. But cotton growers also produce cottonseed used by dairy farmers for feed. With feed crops in short supply, California cotton growers will likely see higher prices for their cottonseed this year, he said.