Drought raises feed costs, thinning herd and lifting beef prices

Talk about it

MITCHELL -- A drought-driven spike in feed costs is reducing the American cattle herd, which will raise beef prices in stores.

The U.S. Department of Agriculture released a report recently saying the national cattle herd had dropped 2 percent from last year and is at the lowest point since 1952. However, South Dakota, pushed by an increase in the state’s dairy herd, has seen a 5 percent growth in its cattle herd.

Still, times are challenging for South Dakota beef producers.

Neal Olson of Artesian has farmed and owned cattle since 1973. Olson said bred cattle are selling for $500 less than last year, while feeder calves are bringing the same price as last year.

He said the 2012 drought, and the fact that more corn is being planted, leaving less grassland for pasture or for hay production, are major factors. In addition, while crop insurance gives some assurance to commodity producers, there is no similar program for those in the cattle business.

“The grain farmer, he has protection,” Olson said. “The cattleman, he gets nothing.”

He said he tried to buy hay recently from a farmer in Wessington who had gotten out of the dairy business.

The man offered him premium alfalfa hay for $280 a ton. When Olson countered with a price of $200 to $225 a ton, his offer was quickly rejected.

Olson said he has seen prairie hay, with cattails and other weed and grasses in it, bring $170 a ton.

“All that is, is filler for cattle,” he said.

Hay sales

Across the country, the term “skyrocket” is used to describe the cost of hay. It increased dramatically in late 2012, according to numerous published reports.

Warren Rusche, a cow-calf field specialist at South Dakota State University’s Watertown Regional Extension Center, said hay auctions are a relatively new concept in South Dakota.

“There have been some hay auctions, but we’re seeing a few more this year. Some places like Pipestone, Minn., and Rock Valley, Iowa, have held hay auctions for years,” Rusche said. “Others, like Mitchell, have started up more recently to meet market demands.

“Basically, hay has been more difficult to find, so there has been a need that these auctions are filling by bringing buyers and sellers together in one place,” he said. “Sellers like them because the auction format draws more buyers and the seller is more assured of getting full market value.”

Mitchell Livestock Auction co-owner Marion Rus said the hay supply is so low, hay is being auctioned off at 1 p.m. every Tuesday.

Quality alfalfa brings $200 to $300 per ton, Rus said. It’s something he’s never seen during his career in the livestock business.

As feed costs remain low, and more cattle are sold off, the dwindling herd size will affect beef prices, Rus said.

“Yeah, I think you can look for high-priced beef prices in the stores in the next few years,” he said.

While some producers are biting the bullet and buy the more expensive hay, there are reports of hay being stolen.

A National Public Radio story in December said hay thefts are cropping up across the country. The Davison County Sheriff’s Office said there have been no reported hay thefts in the county.

With two months of winter left, many cattlemen will be forced to sell their stock off because they simply can’t afford to feed them, Olson, 63, predicts.

The national cattle herd is as small as it has been for 60 years, and he said that trend will continue.

With fewer cattle, it follows that fewer calves are being born. In 2011, 35.3 million calves were produced, the smallest number since 1950, when 34.9 million were born.

A decline in cattle numbers also means fewer are going to market, which has caused a spike in beef prices in stores.

Cargill Inc., one of the nation’s largest beef processors, closed its Plainview, Texas, beef plant Feb. 1.

“The U.S. cattle herd is at its lowest level since 1952,” John Keating, president of Cargill Beef, said in a statement. “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.”

A steady decline

Rusche said it has been a steady decline.

“Cattle numbers have been in a general downtrend since about 1995-1996, with one or two blips up around 2005-2006,” Rusche said.

A number of factors are contributing to these changes, he said, including:

-- “Drought, especially in the Southern Plains (Texas and Oklahoma). In 2011, those two states saw their inventories of beef cows that have calved drop by almost 950,000 head. In 2012, that drought spread northward, affecting larger areas of the plains including Nebraska and South Dakota. Dry conditions mean less grazing forage is available.

-- “Drought conditions also affected the cost of harvested feeds. We’ve seen increased costs for corn, corn by-products, and hay. These increased costs have shrunken margins sharply and in many cases have led to significant financial losses.

-- “The agricultural economy in recent years has seen a shift where crop production has been much more profitable compared to producing livestock. That has led to increased land acres being diverted away from range, pasture and hay production toward the production of cash crops. These acreage shifts result in less availability of pasture and forage resources, putting pressure on the ability of livestock producers to maintain herd sizes.

-- “The demographics of farmers and ranchers has also played a role. As the age of the average livestock producer increases, more of those individuals elect to exit the livestock business and aren’t necessarily replaced by younger producers.”

Rusche said there is another factor worth considering.

“I also need to point out that while cattle numbers have dropped, beef production in terms of pounds of product available for retail, food service, export, etc. has not,” he said. “Some of that is short term, due to cows being slaughtered earlier than normal because of drought conditions, but some of that is also due to beef producers becoming more efficient in terms of beef produced per cow. These efficiency increases are due to improved genetics and better management techniques.

“One reason there are fewer cattle is that they are more productive,” he said. “Beef producers successfully produced larger framed, faster-growing cattle by selecting for increased weight gain and performance.”

Some of the growth is due to crossbreeding, but primarily it’s because the fastest-growing bulls are bred to heavier cows of the same breed to accomplish faster-growing, larger-framed, heavier cattle.

But despite these efforts, Rusche said people will feel the pinch at the grocery store. Beef prices are up nearly 5 percent from last year.

“We have seen increased cattle and beef prices because of the declining numbers,” he said. “That would tend to put pressure on beef prices to increase. How willing consumers will be to pay higher prices is a question that we don’t know the answer to yet.”

Candy for cows

Olson owns several hundred cow-calf pairs, which he raises on a farm a half-mile across the road from the farm where he grew up. Olson lives one mile west and 5.5 miles north of Artesian.

Olson’s two sons want to farm, but he said they can’t afford to get started.

Rusche said the future of the cattle business is up in the air.

“What happens next will depend in large part on what the moisture outlook will be in the next few months,” Rusche said. “If and when drought conditions ease in livestock production areas and feed costs drop, we may see increased heifer retention and a buildup in cow herd inventories. If that happens, that will result in fewer cattle entering the feedlots and less beef being produced than we are currently.

“For all of this, the bottom line when it comes to cattle numbers may be that when farmers and ranchers believe that the profit potential is high enough to justify taking on the additional risk, they will expand,” he said. “If they don’t see the potential for more income, or if the barriers to take advantage of that opportunity are too high, then they won’t expand and grow.”

But some are getting creative to stay profitable. Cattle producers are using options for feed that would not have been even considered a few years ago.

Reuters News Service reported late last year that candy has been added to some cows’ diets.

“Brokers are gathering up discarded food products and putting them out for the highest bid to feed lot operators and dairy producers, who are scrambling to keep their animals fed,” Reuters reported. “In the mix are cookies, gummy worms, marshmallows, fruit loops, orange peels, even dried cranberries. Cattlemen are feeding virtually anything they can get their hands on that will replace the starchy sugar content traditionally delivered to the animals through corn.”

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