Current cattle pains, future cattle gains
The cattle industry is, in generally, hurting badly on account of the drought. But at the same time, is there also opportunity in the sudden drop in auction market prices and growing glut of cows and calves on the market?
Right now, a lot of cattle producers are feeding hay and whatever else they've got on hand because there's next to nothing left in pastures. But, that can't go on forever, and as the feed supplies that should typically last months longer start to dwindle, the market's going to be flooded. Though that will mean heartbreak for most producers, the liquidation may benefit some younger producers, farmers and specialists say.
The local sale barn for Agriculture.com Farm Business Talk advisor Nebrfarmr has had a lot of 12-hour sales lately, and local farmers are booking cattle to sell weeks in advance, recognizing the herd liquidation may just be beginning.
"It seems that a lot of people are running out of grass early, and so they are trying to sell 6 weeks worth of calves in 2 or 3 weeks. Keep in mind that while this is happening, the grass isn't growing anywhere else, and neither is the hay," Nebrfarmr says. "So, add to that mix some old granny cows that calved early enough that their calves can be weaned, and even some cow/calf pairs here and there that are being sold just because the rancher will not be able to feed them."
That's got prices sliding quickly; Nebrfarmr says a lot of mature cows going through the sale ring right now are bringing about half of what they were about 2 months ago.
"Reduced value of calves and feed uncertainty will most likely result in further declines in cow numbers this fall and winter. National slaughter data so far during this drought indicate only modest increases in cow slaughter," says Purdue University Extension ag economist Chris Hurt. "However, most Midwest producers have had hay to feed helping them to avoid panic liquidation. How the drought unfolds in coming months will influence how much cow liquidation occurs. More rain and thus grass will reduce liquidation. Continued drought will increase fall and winter cow culling."
There are bright spots, however; first, lower prices make now a "good time to stock up on ground beef," Nebrfarmr says. And, if you're in a position to hang on to current herd numbers, you could position yourself fairly well for when the drought does eventually break.
"The message for cow-calf producers is to hold on to the cows if possible. The short-term losses of the next 12 to 14 months will be replaced by large profits in late-2013, 2014, and 2015," Hurt says. "These anticipated 'golden' days are based on continued reductions in per capita beef supplies which will mean higher-and-higher retail beef prices."
And, that makes it a good time right now -- again, if ample, cost-effective feed supplies are available -- for other farmers, especially those who may just be starting out in the industry, to grow a beef herd.
"If he has a place to put them that has grass, or if he has enough hay, and if he has a understanding banker who realizes that it will turn around, but maybe not overnight, there are some really, really good opportunities to get cattle at a reasonable price," Nebrfarmr says. "The $2000 that nice bred cows were bringing early this spring will probably sell for less than half that. Granted they will be a little thinner, but they will be the same quality of cow."
Adds Hurt: "The problem for some producers in a weakened financial condition is that they have to survive the pain in the short-run to secure the prize in the long-run. The message for family feedlot managers is 'risk management.'"