Cattle prices rise with drought's side effects

It's official - effects of the drought have lingered until the cows came home.

The cattle industry has taken some hits from lack of rainfall in the last few years. Many frustrated producers have limited their cattle herds, while grocery shoppers might notice higher prices at the meat counter.

Although cattle don't use rainfall as directly as, say, cotton, they still fall victim to drought's domino effect. The pasture they graze didn't receive the moisture it needed, and much of the grain they consume comes from rain-dependent crops such as corn.

"It's totally dependent on rainfall," said Jim Pat Claunch, a rancher in Bailey County. "I was forced to sell my cattle."

Claunch said he previously kept 375 head of cattle, but now has only 85. Keeping up with skyrocketing feed prices barely allowed him to maintain his operation - much less make a profit - he said.

Claunch isn't alone in missing his herd. The number of cattle has declined nearly region-wide.

"The biggest (concern) we have is the drought," said Markus Miller, chairman of the meat science department at Texas Tech. "It reduced our cattle supply a great deal."

Darren Hudson, an agricultural economist with Tech, described a cattle cycle that controls the market regardless of extraneous factors such as weather. The peaks of the cycle contain the most cows with the lowest prices, and alternate between dips with low prices resulting in fewer cattle produced.

When rain stopped falling in late 2010, the cattle cycle was at a low point with herds liquidating and prices rising. And under wetter conditions, it normally would have picked back up fairly quickly with producers taking advantage of those low prices.

"The drought hit the cattle industry at the worst possible time to hit the cattle industry," Hudson said. "It put (ranchers) in a position where they couldn't capture the benefits of the higher cattle prices."

As a result, the cycle has lagged in that dip stage longer than it would have otherwise.

It didn't take long for those effects to hurt cattle-dependent economies.

One of the most serious was the January closure of Cargill Meat Solutions' Plainview facility, which displaced about 2,200 workers. With about 10 percent of the town's population suddenly jobless, sales tax revenue declined while unemployment reached roughly double the state average.

In mid-October, the company announced the Lockney feedlot will close sometime in the summer of 2014.

"The industry has become smaller, and we see less need for processing plants," Miller said.

Eventually, cattle trouble reached the consumer level. Prices for beef are among the most sharply-rising in the agriculture industry, Hudson said.

He said that's because most drought-impacted commodities are only one ingredient of many - wheat in bread or cotton in blue jeans, for example - in a final consumer product. Steaks and hamburger meat, on the other hand, are mainly limited to a single component.

Some consumers now dig deeper into their pockets to continue shopping at the meat counter, but others have switched to more pork or chicken. And if shoppers make enough of those swaps, the law of supply and demand could mean higher prices for those beef-alternatives, Hudson said.

"Beef prices continue to be at all-time highs," he said. "...That has ramifications for everything."

Miller estimates beef prices rose as much as 20 percent. Because of the cattle breeding patterns and the age at which they can be slaughtered, those prices will likely remain that high at least another three years, he said.

But an advantage of the modern beef industry, Miller continued, is growth hormones that help produce more meat per cow. Although controversial in some circles, he defends them as safe, FDA-approved and more cost-efficient than organic beef.

"We have the smallest cattle herd we've had since the 1950s, but we're still producing close to the same amount of beef," he said. "We've really improved all the technology that's available to us."

Potential for a comeback in the meat industry is not fully determined.

Jason Slane, a market analyst for the Amarillo-based Texas Cattle Feeders Association, is somewhat optimistic. More pasture range will help in the short-term, he said, and better quality of those pastures could benefit herd totals longer-term.

"If we continue to have improvement in pasture and range conditions, we expect to see an increase in heifer retention and total cow numbers over the next few years," he said.

With those environmental conditions - and feed prices returning closer to historical levels, Slane added - herds could eventually return to their former levels. But because of the deficit the industry still faces, that probably won't be tomorrow.

"We still have a long way to go," Slane said. "You're not going to fix two to three years of drought overnight."

Claunch, the Bailey County rancher, meanwhile offers a solution that so far seems as good as any.

"Pray for rain," he said.

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