Cattle prices were up in December, giving Texas ranchers hope that an 18-month downturn in prices may be on its way out, but there continues to be an oversupply that will take about two years to work its way out, according to experts.
Even with a recent uptick, beef prices are about half of what they were through the fall of 2015, said David Anderson, professor with the Department of Agricultural Economics at Texas A&M University.
“Cow-calf producers have really been hit by falling prices as nationwide herds expand,” Anderson said.
The Texas drought of 2011 and 2012 may well be long forgotten by those in Dallas, Houston and San Antonio, but ranchers across the state like John Elick, owner of Texas Ranch Beef, are still dealing with its repercussions.
With a mere 14.8 inches of rain, 2011 was the Lone Star State’s driest year on record. As the drought set in, grass and hay were among the first casualties and it became too pricey for some ranchers to feed their herd. Cattle were shipped off to slaughter much quicker.
Elick, whose herd ranges between 400 to 700 cattle, said he didn’t reduce his numbers because his pastures withstood the drought conditions. But that wasn’t the case for others. Texas lost $3.23 billion in livestock during the 2011 drought, according to figures from Texas A&M Agrilife.
As ranchers were unable to replenish herds, beef prices skyrocketed.
Texas produces about 13 percent of the country’s cattle beef, according to the U.S. Department of Agriculture, and prices reflected that. The price of choice beef increased from an average of $4.40 per pound in 2010 to $4.99 per pound in 2012 and a high of $6.29 in 2015.
As prices rose and rain set in once again, ranchers scrambled to grow their cattle numbers. It takes about 18 months for a calf to gain enough weight to be sent to the slaughter house. The mad dash to cash in on high prices inevitably led to an oversupply of beef.
It was only within the last two years that cattle numbers began to stabilize, Anderson said.
“Ranchers are hard workers and they are ambitious,” said Elick of Texas Ranch Beef. “They’re self-sufficient people and there shouldn’t have been any surprises they would be able to replenish their supplies so quickly.”
Elick, who sells his calves when they reach around 600 pounds, is now getting $1.20 a pound versus the $2.40 per pound he was making before September 2015.
While ranchers might be the ones getting hit now, several years ago it was the processors, Anderson said.
“One thing that’s gone on is, as cattle numbers go up, it allows beef packers to operate at some better capacity utilization rates,” Anderson said. “The drought forced our cattle numbers so low we had a number of plants close up or go out of business.”
Cargill Cattle Feeders, for example, stopped using a beef processing facility in Plainview, Texas in 2013, “resulting primarily from the tight cattle supply brought about by years of drought in Texas and Southern Plains states,” according to a press release.
The facility employed 2,000 and was placed for sale in September 2015 with John Keating, president of Cargill’s Wichita, Kansas-based beef business, citing “excess processing capacity remaining in the region.” The plant remains for sale.
With an additional three years of increasing beef production in the forecast, Anderson said U.S. beef exports will likely be up next year.
Some cow-calf producers are keeping their fingers crossed that China will open itself up to U.S. exports again. The Chinese market has been closed to U.S. beef since 2003 when a single cow in Washington state was found to have Mad Cow disease.
“China’s got a middle class as large as (the) population of the entire U.S. That’s a market with a lot of opportunity,” Anderson said.
In September, China said it would accept U.S. beef once again, but details have yet to be nailed down.
This wouldn’t be the first time such rhetoric has come from China, said John Heinberg, market advisor with Stewart-Peterson. “Next year, China imports are definitely on the radar but it will take time to materialize,” he said.