Despite record prices, cattle industry struggles with drought’s long coattails
When Oklahoma rancher Adam Brooks looks over his diminished herd, he dreams of what might have been. With feeder cattle and calf prices at record levels, Brooks and other ranchers in the Central Plains would have cashed a handsome paycheck this past fall, had they been able to hold their herds together. The historic two-year drought that still grips much of the region, however, forced herd reductions and robbed Brooks and others of calves they would have sold.
"It’s been tough," Brooks says. "We’ve reduced our herd by half, and our production costs are up because we’ve had to buy so much feed. We’re due for a better year."
Change ahead. With record-high cattle prices, it might appear that producers are enjoying profitable times—except those prices also reflect an industry nearing a tipping point.
That tipping point is excess feeding and packing capacity, and as competition heats up for cattle, those businesses are closing. USDA data reveals the total capacity of 1,000-plus-sized feedyards was 16.9 million head on Jan. 1, 2013. The latest cattle on feed report, however, says those same sized feedyards currently have an inventory of 10.6 million head, or an occupancy rate of 62.7%. In other words, one out of every three feedlot pens is empty.
USDA figures also reveal how America’s shrinking cattle herd has affected smaller feeders. In 2012, at least 2,000 feedlots with capacities less than 1,000 head ceased operations, a reduction of 2.7% in that category. That same year, 30 feedlots with capacities of 1,000 to 1,999 head were shuttered.
More visible to the casual observer, however, are closures at the upper end of the scale—where more jobs are lost and the effects on a local economy are devastating. Almost a year ago, Cargill, the nation’s third largest beef packer, closed its Plainview, Texas, processing plant, citing a declining number of available cattle. The plant processed 4,000 head of cattle per day and employed 2,000 people.
At the time of the closing, John Keating, president of Cargill Beef, said the Plainview decision was made after an exhaustive analysis of the regional cattle supply and processing capacity situation in North America.
"We were compelled to make a decision that would reduce the strain created on our beef business by the reduced cattle supply," Keating says. "Increased feed costs resulting from the prolonged drought, combined with herd liquidations by cattle ranchers, are severely and adversely contributing to the challenging business conditions we face as an industry."
In October, Cargill also announced it will close its Lockney, Texas, feedyard by summer 2014 for similar reasons. The Lockney yard, with a one-time capacity of 62,000 head or 120,000 cattle annually, primarily supplied cattle to the Plainview packing facility 15 miles away. Cargill will continue to operate two remaining Texas feedyards in Dalhart and Bovina.
In Kansas, Hays Feeders closed in early 2013 for similar reasons. The 18,000-head facility was part of Pratt Feeders. Jerry Bohn, general manager, says the decision to close the facility was a "function of the economics of the industry."
Those economics have been bleak for the past two years. High grain prices that were a boon to crop farmers have been devastating to livestock producers. John Nalivka, president of Sterling Marketing Inc., a livestock economic and research advisory service, says feedyards have lost money on cattle marketed for 19 of the past 24 months, including a string of 17 months in a row that ended in October of 2013.
"Feedyard profitability is primarily a function of the cost of feeder cattle and the cost of grain," Nalivka says. "Both of those inputs have been historically high for the past two years."
With the return of normal weather and ample rainfall this year, cow-calf producers are on track for record high net returns, nearing $300 per cow.
Drought’s long coattails. Anyone who has experienced a flood can attest to the devastation and the lingering grief of crops and possessions lost. But in many ways, a drought can be worse. It’s a slow, lingering destruction that gradually sucks the life out of the fields first, then the animals and eventually an entire community and region. Just as a drought takes time to work its misery, recovery is sluggish.
- January 2014