Beef producers see a significantly better outlook for this year

Mar 26, 2010
by WLJ

After a very challenging 2009, California’s beef producers look at the frequent rainstorms of the past few months as bringing a ray of sunshine to their troubled agricultural sector.

“It was a very tough year in the cattle industry,” said Tom Talbot, president of the California Cattlemen’s Association (CCA). “Our producers were met with high feed prices and there was drought in a lot of areas. And then there was a slumping economy, which really hurt demand for beef. The outlook for 2010 is significantly better.”

A number of developments contribute to the optimistic projections for 2010, said Talbot, a cattle producer and veterinarian in Bishop, CA. For one, corn and feed prices have dropped and stabilized, and winter rains have resulted in improved grazing conditions and replenished stock ponds. There are also indications that the global trade picture is recovering, he said.

“While there is a lot of room to improve, things certainly appear to be better,” he said. “I am hoping that we will come out of the current economic recession so people will have more dollars available to spend on higher-end beef products. So we are optimistic for what is going to happen in 2010, compared to what we went through in 2009.”

Beef producer Kenny Watkins of Linden, CA, said he also is optimistic because of the strong beef market at the present time. But he said he is hedging his bets by expanding his walnut plantings. Watkins, who is first vice president of the California Farm Bureau Federation, operates a diversified ranch with his brother Andrew. They produce beef, hay and walnuts.

“This year, we will be looking to reduce our herd size because we are losing pasture by planting more walnuts,” he said. “This is a continuing trend throughout the state as farmland is shifting from pasture to uses such as grapes, orchards and other higher-intensity crops.”

CCA Executive Vice President Matt Byrne estimates that there are currently about 600,000 to 700,000 head of beef cattle in California. But those numbers are low compared to the past.

“Over the past three to four years, California’s cattle herd has been reduced by probably 200,000 head,” Byrne said.

“As we go forward from here, there is a lot of optimism because of improvements in the weather and because the cow herd has been reduced. Those who are still in the business see some room to not only be able to draw value from the herd that they’ve got, but also to potentially grow those herds as the weather continues to cooperate,” he said.

Besides having to deal with drought and higher input costs, beef producers felt the brunt of the economic downturn as consumers’ buying patterns shifted from purchasing fine cuts of beef at high-end restaurants to dining at home or in fastfood outlets.

“Probably the areas that have taken the biggest hit are the truly high-end restaurants. They have had a very difficult time because people just can’t afford to go to them. So the demand for the higher quality cuts has dropped and the demand for hamburger and less expensive cuts has increased. The fast-food restaurants have really benefitted from this shift in buying patterns,” Byrne said.

Dan McCarthy, western field representative for the National Cattlemen’s Beef Association (NCBA), agreed that the shift in consumer spending has had an impact on the types of beef cuts being purchased, rather than on overall sales.

“We’ve had some tough times in recent years and a lot of that is due to the falloff in the demand for those higher-end meats.

The overall demand hasn’t fallen—it is actually staying fairly level—so as we move forward, there are going to be tremendous opportunities for producers.

The cattle numbers are not there, so we are definitely going to have to increase production at some point. Whoever can stay in the game is going to benefit in the future,” he said.

“It was a rough year last year and it is probably going to be slightly better this year, but as we look into the future, if producers can just scratch and claw and find a way to hold on here, things are definitely going to get better,” McCarthy said.

Byrne said that much of the hope for economic recovery hinges on increasing global sales of U.S. beef.

“Trade plays a very important role in putting dollars on the head of every animal that moves through the production process,” he said.

“We must develop our trade as the global demand for beef increases. With the growing middle classes in China and other countries around the world, there is reason to believe that some of those dollars are going to come back to the United States, because we have a superior product that consumers around the world have indicated a desire to have on their plates.”

So is this a good time for producers to expand their herds?

“Whether a California cattle producer decides to expand his or her herd depends on the individual situation,” Talbot said. “If you’ve got the feed and you have the land and the places to expand, I think it is probably appropriate. But in many cases, we are seeing shrinking numbers of producers and land that has gone out of production, either from development or other crops. If a producer has an opportunity to expand, it is a good time. But in many cases, that isn’t the case. As families get older and people pass away and land is divided, it makes it more difficult for people to hold onto these ranches.”

McCarthy, a fourth-generation rancher from western Colorado, noted that while there may have been a slight decrease in the number of beef producers because of the depressed economy, a bigger contributing factor is the average age of ranchers.

“As I travel around the 12 western states, I see that we are losing a lot more producers because of age, and things like the death tax, than we lose because of the economy in general,” he said. “We need to have the ability to pass on our operations to future generations without a huge tax burden. I know several examples of where, through no fault of their own, the values of ranching operations increased because of land development pressures. You just can’t pass on an operation with a few million dollars in debt to pay off the IRS and expect that operation to remain viable moving forward.”

Byrne said there has been talk within beef circles of increasing the $1 beef checkoff that is administered by NCBA in order to increase beef sales.

“The beef checkoff on a national basis is $1 per head every time an animal is sold. There are a number of states that have looked at changing that to $1.50, $2 and some even as high as $3, to use those dollars for more promotion and research. When you look at the fact that every dollar invested in the checkoff has yielded $5 in results, we start asking ourselves whether it does make sense to increase that investment on a per head basis,” he said.

“I think that answer is going to come from the producers as to when is the right time to increase the investment in the research and promotion activities that the checkoff covers and, over time, that will be made a little bit more clear,” Byrne said. — Steve Adler, California Farm Bureau Federation