Lower hay prices help ranchers cope with drought impact

Issue Date: August 5, 2009
Ching Lee

Scattered across the parched, brown hillsides of Alameda County in Livermore, rancher Dan Marciel's cattle scrounge for any last trace of forage left on the pasture as he pulls bales of hay from his pickup.

Hay has been a precious commodity in recent years due to soaring costs. Many California ranchers have had to forego purchasing hay, opting instead to shrink their herds when the state's drought-ravaged rangeland left little on the ground for cattle to eat.

While the ongoing drought has not spurred the grass growth needed to keep Marciel's hungry animals fed, he said he could now at least afford to give them hay, because commodity prices have dropped considerably this year.

Standing near a dried-out stockpond on his rangeland, Alameda County rancher Dan Marciel says he will likely need to buy water and haul it to his cattle this summer.

With massive herd reductions by both cattle ranchers and dairy producers, there are also fewer cows to feed nationwide, easing competition and demand for feed.

"Hay prices have really come down from last year," Marciel said. "You couldn't feed hay to your cows last year at all. It was just too costly."

Merced County cattle rancher Dan DeWees said when hay prices shot up to more than $200 a ton last year, he knew he would lose money on his cattle, so he reduced his herd by 40 percent. This year he's been able to buy hay for $85 a ton, so he's going to buy a few more cows too.

"We're just going to hang in there," he said. "Nobody knows what's going to happen. Everyone says if we just hang on, things are probably going to be better next year. But we've heard that time and time again."

Being able to access less expensive feed is certainly good news for beef producers who may be thinking about growing or retaining a few more heifers, said Holly Foster, a Butte County cattle rancher.

Fires in her area last year burned much of her feed, so she had to cull her herd more aggressively than originally planned. With a much smaller herd this year, Foster said she's ready to build back some of her numbers.

"There are a lot of people who are still suffering and downsizing their herds, so we've tried to take advantage of that a little bit by buying some cows as replacements," she said.

Other ranchers also appear to be in a rebuilding mode. Marciel said he had to reduce 25 percent of his herd in the last two years because of the drought, but plans to keep some of his replacement heifers this year so he can start increasing his herd size again. But with the ongoing drought, he still has some tough management decisions to make.

One concern is getting drinking water to his cattle, since his ponds are all dry. Thirsty cows can drink 10 to 15 gallons of water a day, 20 gallons on hotter days. Marciel worries his well, which pumps water to the trough, won't be able to keep up. That means he'll likely have to buy and haul additional water to his cattle this year, which is not only time consuming but also a lot of extra work, he said.

Not having a source of drinking water can really limit where a rancher can graze his cattle, said Jeff Fowle, a rancher in Siskiyou County. Even if a pasture has feed left on it, if nearby watering holes are dry, sustaining cattle there would still be problematic, he said.

While late spring rains did help some of the state's mountain regions extend their grass-growing season, the showers came too late for the rest of the state, Marciel said. He noted that the rain actually hurt the quality of his hay, which he grows for his own ranch and to sell to area horse owners.

Ranchers in the north state, which has not been as dry as other regions, may also be ill-prepared this year to find alternative ground for their herds, Fowle said. Unlike ranchers in the rest of the state who have been dealing with the drought for the past two years, those in the north are being hit hard for the first time this year.

"We've got guys scrambling to find feed and scrambling to find land that has water, so the guys up here are now doing what the guys in the south and Central California have been doing the last two years," he said.

But lower commodity prices are definitely working to ranchers' financial advantage right now, he added. They will probably be more inclined to buy feed rather than sell cows, as many of them have already culled down as far as they practically can, he said.

Weaker corn prices will also affect feedlot operators' decisions about buying feeder cattle, Foster said, because cheaper corn means they could afford to feed more mouths and buy more cattle this year.

"And that trickles down to cow-calf producers as to the marketability of our calf crop," she said.

But so far this year, feedlot inventories have been slightly below analyst expectations, according to the U.S. Department of Agriculture. That may change, however, as feedlots adjust for lower feeding costs.

The strengthening of the feeder cattle market was evident during Western Video Market's July auction in Reno, Nev. Kevin Devine, a representative for the auction service, said "prices are good for cattle on the hoof" and the success of the recent sale "means buyers have confidence in the way things are going."

"I think this is a good sign," he said. "But I still think the market is potentially volatile. It's always a good sign when people display confidence. We like to see that, and confidence builds on itself. But things in the national economy are volatile and we're subject to that."

For one, the economic downturn has hurt beef consumption, with fewer people dining out and less demand from restaurants for high-dollar cuts. That has contributed to the downward slide of retail beef prices.

"Simply stated, people are eating a lot more hamburger than they are steak this year, and that has an impact on everyone who's raising cattle," said Matt Byrne, executive vice president of California Cattlemen's Association. "When the most valuable cuts of the animal aren't bringing the premium like it can when demand was strong, then it makes those animals less valuable."

But strong consumer demand for hamburger meat may also be "a blessing in disguise," said Fowle. With a second dairy herd-retirement program scheduled this year and so many dairy cows entering the market, potentially driving down cattle prices, Fowle said the summer barbecue season when consumers traditionally eat more hamburgers may be one reason why cull cow prices have not been as low as many expected.

"Ironically, the economy might end up helping us in that it's going to allow more of that ground beef to wash through the system quicker than it might have in a normal instance," he said.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.