Field Notes: Drought will continue to haunt beef industry

Dec 22, 2012

This is the latest installment of Harvest Public Media’s Field Notes, in which reporters talk to newsmakers and experts about important issues related to food production.

For this edition of Field Notes, I spoke with Kevin Good, an analyst for the agriculture research firm CattleFax, about how the ongoing drought will affect the beef industry in 2013 and 2014. Good was one of the speakers at this year's Missouri Cattlemen's Association convention.

The latest seasonal drought outlook from the National Weather Service forecasts that between now and April, heavy snow and rain will help reduce the impact of the drought in parts of the country. But for the Midwest and much of the Great Plains, drought conditions are expected to persist or even intensify. That’s bad news for livestock producers hoping to rejuvenate their pastures and fill up their ponds with much-needed precipitation.

At this year’s Missouri Cattlemen’s Association convention in Columbia, Mo., the impact of two years of drought on the beef industry was highlighted in a talk given by Kevin Good, an analyst for the research firm CattleFax. I got a few minutes alone with him after his lecture.

"With the severe drought in the U.S. -- continued drought in reality, it’s been a long-term pattern for the last ten years or so -- we continue to see liquidation of the beef cow herd," he said.

By liquidation, Good really means taking cattle to slaughter. Thanks to the drought, it has been more cost-effective for ranchers to cull their herds than it has been to pay astronomical costs of feed.

"In 2011, the numbers were liquidated about 3 percent, or roughly 1 million head. In 2012, roughly a 1 percent liquidation rate," Good said. "As we go forward, the moisture will be a major driver on the size of the cattle herd in the U.S., whether we expand or liquidate going through 2013, 2014."

If dry weather persists, the beef cow herd will continue to shrink and that will impact all phases of beef production, according to Good, including feedlots where cattle are fed and finished before being harvested and companies that prepare, pack and transport beef for sale.

"As we think about fewer cattle numbers, which basically is less supply, at the same time your demand for the product -- whether it’s cattle demand at the feedlot level, cattle demand at the packing level -- that has a fixed demand," he explained. "Because of that, the margin operators will have a tougher time coping with tighter supplies than the actual cow calf producer."

And as long as grain prices are high, Good says farmers will look to plant more row crops. They may even convert pasture land into fields for sowing grains.

"We’ll continue to see expanding farming acres and it’s all related to price of the crop," Good said. "And a big part of that price is driven by the drought. So it’s sort of an amount of interrelated circumstances that, you know, the drought is driving higher prices, so therefore we try to produce a bigger crop and the economic incentive is there to plant more acres."

What’s bottom line for consumers in all of this? If the herd of beef cattle gets smaller, it’s likely we’ll have higher prices for domestic beef at the supermarket.

Here's the National Weather Service's U.S. Seasonal Drought Outlook, which shows drought conditions will persist or even intensify in much of the Midwest and the Great Plains between Dec. 20, 2012 and March 31, 2013:

Credit National Weather Service