Agriculture
12:55 pm
Mon March 26, 2012

For many ranchers, profits dry up

With ground beef selling for record prices, you might think cattle ranchers are raking in the profits.

But most ranchers in traditionally big cattle states are still in crisis mode — dealing with the fallout from last year’s drought, high input costs, and competition from international markets.

“The problem is a lot of people had to sell their cattle because they couldn’t feed them,” said Steve Carlson, a Texas rancher, assessing the drought’s long-term impact. “Or, they went ahead and bought expensive hay and kept them on the land. Any profit is going to go back into restoring the pasture and paying for all of those expenses.”

States like Texas and Oklahoma have been hit particularly hard by this combination of misfortune, according to U.S. Department of Agriculture’s Shayle Shagam.

“This has resulted in both liquidation in the beef cow herd, and a large number of feeder cattle being placed in feedlots,” Shagam said.

Agriculture economist David Anderson from the Agriculture and Food Policy Center at Texas A&M University, said it’s natural to assume ranchers’ profits now mirror the consumer cost at the grocery store.

In 2010, the average price of beef was $2.88 per pound retail. In 2012, it has ballooned to $3.46 per pound retail.

With the cattle supply dwindling and the price of corn used in feed climbing, many ranchers are stuck in a difficult situation. Take a look at the interlocking factors that are driving up the price of beef: 

Cattle population

  • 2010: 93,881
  • 2012: 91,000

Beef production

  • 2010: 26.2 billion lbs.
  • 2012: 25.1 billion lbs.

Beef exports

  • 2010: 637,862 tons
  • 2012: 810,741 tons

Corn prices

  • 2010: $5.18/bushel
  • 2012: $5.80-$6.60/bushel

 Source: USDA Economic Research Service, NASS and FAS

“Most people think, man those guys must be making big money,” Anderson said. “In places that were not hit by the drought, they are certainly seeing higher profits. We’re seeing a situation where those northern states are benefiting from our misfortune.”

More-diverse farm states such as Missouri experienced a calmer summer, and so its farmers have suffered less and been able to cash in on those high beef prices. Nebraska cattleman Homer Buelle said his state has one of the best cattle markets in the nation right now.

“We’ve been doing very well in the last year and a half,” Buelle said. “It’s gotten better, too, because the prices keep going up. It’s something you can do when the entire industry has seen a lack of supply.

Buelle said last year, he was pulling in about $135 per hundredweight for one of his cows, and they averaged 920 pounds. Compare that to this year’s outlook for $150 per hundredweight for the same sort of cow.

Buelle acknowledged his operating costs have increased, gas is more expensive and the corn used to supplement his herd’s mostly pasture diet is pricey. And he’s not completely in the clear, because if he wants to buy more cows to increase his herd, he’ll end up paying more as the U.S. cow population has shrunk.

“If I look back at the last 10 years in general, they have not been profitable,” Buelle said. “I would still like to see everybody in the cattle industry be profitable. I hope that happens. I would never want my profit to override someone down in Texas and their situation."

Heading into another summer, ranchers in Texas are still attempting to recover their losses and recuperate the damaged and still very dry soil.

That bone-dry soil is still around in the southwest. And ranchers are still in shock from having to reduce their herd size and struggle with a low cash flow over the winter.

Their financial situation may be bone-dry, too. If a rancher kept a herd around and trucked in hay from northern states like Wisconsin or Nebraska, that meant almost half of the cost of that hay was sunk into transporting it to their parched pastures and hungry cattle. Texas ranchers usually rely on their own hay forage in dry stretches, but the drought was so powerful that the forage crops withered away.

“For example it is pretty common in Texas to grow Bermuda grass for hay, maybe two or three cuttings of hay a year,” said Anderson, the ag economist at Texas A&M. “It was pretty common last year to get zero. Zero cuttings from their own farms. It was simply because it never rained.”  

Don’t mistake this crisis as a strictly recent one. Anderson said it began long before last summer. Back in 2006, the silent signs of a beef and cattle crisis were revealed.

“Feed costs skyrocketed, the price of fertilizer, fuel. All those high prices go into producing a hamburger,” Anderson said.

More: A Texas-sized profit-squeezing beef crisis

Jessica Naudziunas reports for Harvest Public Media, an agriculture-reporting project involving six NPR member stations in the Midwest. For more stories about farm and food, check out harvestpublicmedia.org.