Wetter winter helps ranchers offset lower prices


Issue Date: February 3, 2016
By Ching Lee
Feeder cattle were among several cattle categories auctioned at the Cattlemen’s Livestock Market in Galt last week. The auction attracts buyers from throughout the West.
Photo/Ching Lee
Jake Parnell, manager of Cattlemen’s Livestock Market in Galt, near right, auctions off feeder cattle at a sale last week, as Bob McClelland of McClelland Livestock looks on.
Photo/Ching Lee
A prospective buyer looks at one of many feeder cattle selling at that day’s auction.
Photo/Ching Lee

People in the cattle business tend to agree that the record-high beef prices seen in 2014 and early 2015 likely won't return for some time, but California ranchers see a silver lining: greener pastures that will lead to heavier cattle this spring.

After four years of drought that decimated rangelands and drove up the cost of hay, forcing many ranchers to thin their herds, winter rainfall so far has allowed stock ponds to replenish and grasses to start growing.

"And with lower cow numbers, I think we're going to see some of the biggest weaning weights in the last five to 10 years," said Jake Parnell, manager of Cattlemen's Livestock Market in Galt.

During the last several years, when winter rains were sparse, grass was low and feeding high-priced hay became unaffordable, many ranchers were forced to wean their calves early, at lighter weights. But the strong cattle market allowed them to earn a higher price for their cattle. Though the market has softened, Parnell said, the wetter winter has given ranchers "more flexibility than they've had the last couple of years."

"We have extremely good grass," said Gaylor Wright, who buys and sells cattle for California Fats and Feeders Inc. in Oakdale. "That translates into what I think is going to be an excellent spring run and good gains on the cattle. Even though (ranchers) will be selling cattle at lower dollars per pound, they'll have more pounds to sell."

Wright was at the Cattlemen's Livestock Market last week buying cattle that will go to feedlots in California, Texas and Idaho. He described the cattle market this past year as "an absolute rollercoaster," with prices soaring in 2014 into early 2015, then crashing last fall. But he said the market appears to be holding steady and prices may have "hit bottom for now."

California ranchers have one advantage compared to producers in other big cattle states: Their animals calve in the fall and wean in the spring, whereas the opposite is true for the other states, said Mariposa County rancher Tony Toso. Being "off cycle," he noted, means California ranchers are not competing with producers in other states when they market their cattle this spring.

"That's why I'm a bit optimistic for the prices, because there's typically not as many calves coming off of grass in the spring," he said.

Although the weather looks promising right now, Toso said he's being cautious and waiting to see how the rest of the season shapes up, rather than "running out and buying a bunch of cattle" to expand his herd. If rains continue to come and feed conditions are good, he said, ranchers will probably cull older cows and try to increase their numbers by retaining more heifers.

"But at the same time, we're not out of the woods on the drought by far," he warned.

How much weight California cattle will gain also will depend on the entire weather pattern, not just a season of heavy rain, he said. If conditions stay cool and wet with no breaks of sunshine in between, the feed tends to be lower quality and calves don't gain their weight as quickly, he noted.

"That's going to be the tradeoff," Toso said. "But I'm not going to complain. Whatever rain we get blessed with, we want to take it."

With the drop in cattle prices, Parnell said those who bought yearlings last summer when the market was higher are now faced with cattle that are worth less when they come off grass. Rather than selling the animals at a loss, those producers will likely send them to feedlots, with the hope that fat cattle prices will allow them to break even. With more cattle on feed and fewer going to market, he said, cattle prices may climb slightly going into the spring.

Though the cattle market may have hit its lowest point for now, Lance Zimmerman, a market analyst for Denver-based CattleFax, said cattle producers "should expect lower highs and lower lows with each passing year through the later part of this decade."

For this current year, competing proteins will still put pressure on meat prices, with record-high pork and poultry production expected in 2016. The good news, he said, is that lower beef prices have finally allowed retailers to offer more specials and deals on beef, and that is "starting to attract the consumer back to us."

"I do think we could move more pounds through retail," he said. "We're definitely going to see increased sales at the retail level. It'll just have to come at a cheaper price."

Though U.S. exports slowed in 2015 because the stronger dollar made American products, including beef, more expensive, Zimmerman said he thinks meat exports this year will hold steady or rise, in part because prices have dropped due to increased production, making U.S. meat products more attractive on the world market. In addition, he said he thinks the global economy will stabilize this year, "and that will renew interest in U.S. beef, pork and poultry."

With pastures improving in the state, Zimmerman said "there's still plenty of opportunity" for California ranchers to expand their herds, even though the drought did not allow them to take full advantage of the "great opportunity that existed in 2014," when cattle prices hit their peak. He noted that profits for cow-calf operations in 2015 and what's being forecast for 2016 show "there's still going to be a very healthy margin."

"It may not be the $500 to $600 per-head returns that were in 2014," he said, "but there's likely still going to be $100 to $200 per-head returns this year and next year."

But California cow-calf producers will need to pay attention to their economic opportunity, he said, and make sure they don't pay too much for replacements so that they stay profitable.

Cattle dealer Wright said more rain and grass growth may spur some ranchers to think about rebuilding their herds, but expansion will still be more difficult, with high land values and lack of available grazing ground in the state. Their only other option would be to raise their cattle in feedlots, which could be feasible depending on the price of corn and other feeds.

"Everybody is looking for pasture," he said. "Everybody is trying to find a place that they can tie up for five or 10 years, to know that they've got a ranch."

(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.