Kay's Korner

Nov 2, 2012

Drought persists in places

Hurricane Sandy is causing havoc across the Northeast as I write this, with rain and seawater combining to cause widespread flooding. I wouldn’t wish a hurricane of any strength on anyone. But I’m sure there are folks in Farm and Ranch Country who keep wondering why they are missing out on timely rains or even early snow. They might even put up with a mini-Sandy to alleviate their ongoing battle with drought.

Much has already been written about the impact of the 2010-2011 Texas/Oklahoma-based drought and this year’s most widespread drought in 59-plus years. Drought has forced cow/calf operators to cull cows, retain fewer heifers than expected, and thus reduce their herds for another year. Several analysts say beef cow numbers will decline annually by about half a million head by Jan. 1 next year.

Hidden beneath the national statistics are too many cases of cow/calf operators who have been forced to sell most or all of their cows because they have little feed or water. October saw steady rains in many drought-stricken areas. But key areas of the Midwest, north Plains and Southwest saw precious little precipitation. Nebraska, western Kansas and New Mexico have received little rain this year, and there are other pockets that remain drought-stricken. Communities in such areas rely almost solely on farming and ranching for their economic well-being, which makes the impact of drought even more devastating.

Lest one thinks the drought has “broken,” consider these numbers.

Roughly 61.79 percent of the contiguous U.S. was suffering from at least moderate drought as of Oct. 23, according to the U.S. Drought Monitor. This was only slightly down from 62.39 percent a week earlier. The portion of the U.S. under exceptional drought held steady at 5.84 percent and was mostly in western Kansas and Nebraska. In the High Plains region, which includes Kansas, Nebraska and the Dakotas, severe or worse drought levels covered 84.9 percent of the region. An estimated 27.44 percent of the region was still in the worst level of drought, unchanged from a week earlier. Nebraska was the worst hit state in the country, with 77.58 percent of the state classified in exceptional drought. Kansas continued to have 77.80 percent of the state under extreme drought, the second-worst level, with 39.68 percent of the state under exceptional drought.

What’s especially disturbing for the beef industry is that the four High Plains states on Jan. 1 this year had 5.783 million beef cows.

This was 19.4 percent of the national beef cow total. In other words, nearly one in five of the industry’s beef cows are in a region still suffering from severe or worse drought.

Producers throughout the region are doing their utmost to hold on to their cows, grabbing any kind of feed they can or parking the cows in feedlots on a maintenance ration for the winter. But what happens if pasture and range conditions are not much improved by next spring?

What might happen to a herd’s calving rate if cows are not kept in the best shape possible? None of this is a recipe for heifer retention and herd rebuilding.

The industry, from its publications to beef extension specialists, has done an excellent job of highlighting strategies for drought relief. I would urge all cow/calf producers in drought-stricken regions to avail themselves of this information, if they haven’t already done so. It might make the difference between survival and liquidation.

The consequences of two years of drought have already shown up on the ranch and in the feedlot. They haven’t even begun to show up in the grocery store or restaurant, and that’s where the other “D” word, demand, comes in. Remember that overall demand includes retail, foodservice and exports. All appear to be holding their own this year, which is a minor miracle given high beef prices and the still weak U.S. and global economies.

There are signs of stress, however. Exports of beef cuts and variety meats for the first eight months of this year were 11 percent lower in volume than a year ago, largely because of high wholesale prices, but were 2 percent higher in value because of those same prices. Fortunately, domestic demand has remained strong enough to offset the decline in export demand.

Demand will become even more critical next year as cattle numbers continue to decline and production costs remain high. Cow/calf producers will need even higher prices for calves or feeder cattle, i.e., more revenue per animal, to offset their fixed costs. But how high those prices will go will depend on cattle feeders’ ability to pay higher prices and get higher prices for fed cattle, and on packers’ ability to sell beef at higher prices to pay for those fed cattle. Ultimately, every segment of the industry will depend on Americans’ ability and willingness to buy beef in the grocery store or the restaurant at prices that might need to be 8-10 percent higher than they are today. — Steve Kay

(Steve Kay is Editor/Publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707/765-1725. Kay’s Korner appears exclusively in WLJ.)