Drought is starting to recede in many of the top beef producing states.
Signs of a rebound in U.S. beef supplies are taking shape with the changing color of the pastures on Glen Cope’s 2,000-acre ranch in Aurora, Mo.
"It’s so green and lush," Cope, 35, a fourth-generation calf breeder, said of the knee-high grasses that feed his cows about 55 miles from the Oklahoma border. "We’ve been getting plenty of rain. 2014 so far has let us consider expanding once again and make up for the numbers that we sold off."
Pasture conditions in the U.S., the world’s largest beef producer, are mostly recovered from a 2012 drought that forced ranchers to shrink the domestic herd to a 63-year low. While it takes years to reverse a decline in animal supply, record-high beef prices and the increasing availability of cheap feed are providing incentives for some producers to begin expanding.
A production rebound would help slow beef-price gains that the U.S. government said will be the biggest of any food group this year except pork. Cattle futures that touched a record high in July already are showing signs of a shift, heading for their biggest monthly drop since before the peak of the drought. That signals lower costs for meat buyers including Ruth’s Hospitality Group Inc. and Hormel Foods Corp.
"Record profitability and good pasture conditions may be the combination that pushes us over to really see some expansion in cattle inventory," said Scott Brown, a livestock economist at University of Missouri in Columbia.
Forty-eight percent of pastures and rangeland were in good or excellent condition as of Aug. 17, the best for that time of year since 2010, the U.S. Department of Agriculture estimates.
Topsoil in most states was wetter than the 10-year average as of Aug. 10, according to data from the National Weather Service and National Oceanic and Atmospheric Administration. Drought conditions have eased with 22 percent of the country, excluding Alaska and Hawaii, in severe drought on Aug. 12, down from 32 percent a year earlier, the U.S. Drought Monitor said.
Prospects for record U.S. harvests are also reducing feed costs for livestock producers. Cash corn prices will average $3.55 to $4.25 a bushel in the 12 months that start Sept. 1, down from as much as $4.50 a year earlier and the lowest since 2009, the USDA said in an Aug. 12 report. Sorghum, barley and oats also will decline.
Cattle futures fell 5.5 percent on the Chicago Mercantile Exchange this month to $1.48725 a pound, after touching a record $1.6075 on July 28. Feeder cattle, the young animals sold by ranchers to feedlots, slid 2 percent in August to $2.16225 a pound, after touching an all-time high of $2.2355 on July 31.
While pastures are improving in much of the Midwest and the Great Plains, conditions are lagging behind in Texas, the biggest beef-cow producer. About a third of the state was in severe drought as of Aug. 12, and 34 percent of its pastures were in good or excellent condition, trailing the national average.
Even in areas with better conditions, expansion of beef output will be slow. The gestation period for a calf is about nine months, and it takes as long as two years for an animal to reach slaughter weight.
Tight supplies mean a "structural bull market" will last a few more years, Christopher Narayanan, Societe Generale SA’s head of agricultural research, said in a July 29 report.
U.S. beef output probably won’t begin to increase until 2017, as ranchers keep heifers for breeding instead of sending them to processing plants, said Chris Hurt, an agricultural economist at Purdue University in West Lafayette, Ind. The slaughter of non-dairy cows through July 26 this year was 17 percent less than a year earlier, USDA data show.
Beef production will drop 1 percent in 2015 to 24.4 billion pounds, the lowest in two decades and the fifth straight decline, the USDA said on Aug. 12.
Even after this month’s declines, cattle futures are 16 percent higher than a year ago and feeder cattle surged 37 percent. Consumer ground-beef prices gained 12 percent this year to a record $3.88 a pound in June, while boneless sirloin steak climbed 13 percent to an all-time high of $7.689 a pound.
Higher meat prices and lower feed costs are improving profitability for livestock producers, the Federal Reserve Bank of Chicago said in an Aug. 14 report. The value of ranchland in the Plains gained more than 2 percent in the second quarter, the Federal Reserve Bank of Kansas City said in a report.
Cope, the Missouri rancher, said he has begun keeping young heifers for breeding rather than selling them to be fattened for slaughter, beginning the process of replacing the 15 percent reduction in his cow herd after the drought.
Drought conditions are likely to recede or end in major cattle-producing states including Kansas and Oklahoma by the end of October, the National Weather Service said last month.
Pasture conditions near Canova, S.D., are "the best they’ve been in years," said Cory Eich, 55, president of the South Dakota Cattlemen’s Association. He plans to increase his herd to about 450 cows this year from 425.
"I can see us growing the cow herd by 2 to 5 percent for the next few years nationwide," Eich said. "Nobody’s too worried about flooding the market with cattle. The global demand for protein isn’t going to go away."