My View From The Country

Will The 2012 Drought Reshape Our Industry?

Last year’s drought in the Southwest had already depleted feed reserves and decreased whatever cushion was available in the system.

Corn has risen in price by more than 45% in less than 30 days, while feeder cattle have fallen by nearly $25/cwt. or nearly $200/head. Fed-cattle losses are swelling, and calf prices are shrinking, as liquidation has once again been triggered, distorting the historical placement patterns. What was initially a very optimistic outlook for 2012 has definitely soured.

These are all short-term effects, but last year’s drought in the Southwest had already depleted feed reserves and decreased whatever cushion was available in the system. Today’s prices are declining while input costs are skyrocketing, and demand continues to weaken as a result of an anemic domestic economy.

These conditions are certainly no recipe for expansion. The focus now becomes just how far the industry can contract without beginning to lose major infrastructure, which would affect its ability to ever return to the size and scope it once was.

Our federal deficit shows no signs of abating, but still Congress continues to maintain price-distorting policies that mandate that the ground that used to feed the world be converted into an expensive and inefficient means to produce energy – ethanol. How long will consumers be content to shoulder the long-term debt of the current federal deficit, as well as pay through the nose at the retail case, to support this system? Will beef ever regain the market share it will lose as the industry continues to consolidate?

There are a lot of questions, but not a lot of answers at this point. When the subsidization of ethanol began, it was assumed that the beef industry would have to shrink by 10% or more, but the addition of drought has magnified the impact and risks.

Now, the question that everyone is asking is: “How small will our industry have to go to return to some level of economic balance?” All that can be said right now is that it must become smaller than it is today.

Discuss this Blog Entry 13

delos.thompson (not verified)
on Jul 20, 2012

My dad, a retired dairy farmer who is now 87, has always said; "one aspect of farming has to lose for another to gain." In my 55 years I've never seen his statement more true than in todays markets.
Delos Thompson Jr.
Folsom,La.

Doug Ferguson (not verified)
on Jul 20, 2012

There ya go Troy. Blame all the problems on something else and give yourself and every one that reads your garbage space to be a total victim. Competent cattlemen, which are few, are expanding, or are set to make some real good profits right now.

Anonymous (not verified)
on Jul 20, 2012

RE: "Competent cattlemen, which are few, are expanding, or are set to make some real good profits right now."

What a DummA** you are. The few that are in a position to expand are a small percentage of the one's of us that are out there. The rest of us have to figure out just how far we can go in the short term and with long term uncertainty to survive.
.

Kevin Nankey (not verified)
on Jul 20, 2012

Well Mr. Ferguson, I hope the guys that are expanding got some rain, cause here in WI everything's getting a little crispy and I don't know anybody that's expanding. Guess I'm not a competent cattleman. Bummer...

Okie (not verified)
on Jul 21, 2012

Well this is yr 2 of our second bad drought,we have to survive ,it's tough and costly but I'm staying as long as possible,are you?

Eaglepass (not verified)
on Jul 21, 2012

I think that if you are expanding or contracting your business and making a consious decision aboout what you are going to do and how you are going to do it is th emost important thing. For me I like to stay ahead of what is happening by being pro active and not reactive. If you know what you are going to do from year to year and have contingency plans, for droughts, too much rain, not enough feed and so forth then you are acting and being pro-active. If onn the other hand you are simply waiting for the next crises to determiine what you are going to do, then you should probably look at your business planning...this is business folks and in order to do good business you have to be pro-active. A good company makes money in the lean years as well as the hay days.

Doug Ferguson (not verified)
on Jul 21, 2012

I'm the dumb one? Myself and some competent people I know are expanding right now. I live right smack in the middle of this drought, and there are motivated sellers all around me. Some of us just know how to manage and the rest of you, as evidenced by your comments don't. Probably why you read BEEF magazine.

on Jul 21, 2012

Hey Doug. Hubris. Proverbs 16:18.

Anonymous (not verified)
on Jul 21, 2012

Sounds like RCALF is venting. We can all use our management skills to do the best we can with what the circumstances has dealt us. Calling some one stupid that you don't have any clue who they are is immature.

Anonymous (not verified)
on Jul 21, 2012

The last time this happend to a large scale was 1988. We have better seed to stand the lack of water, they say. That will be proven this year without a doubt. But in 1988 we had no corn based hydrocarbons produced in a large scale to use up 40 % of the crop. We had grain in Reserve back then, owned by the gov. How much do we have today in reserve held by the gov? The bottom line, the gov. and others has lead many to believe that we can produce all the corn we need, no matter what Mother Nature throws at us to cover all the needs of the livestock users and those that blow it out of the tail pipes of our cars, at a reasonble price. Today because of the gov. and the stup's in leadership, they say the drought will not cause the cost of groceries to go up. The SEC. of AG said that this week. What does that tell you folks of our leaders of this country? Those that think that is true, then you must get your head out of the sand, along with him. We have Oil in storage, but not grain. Why? They think the Middle East will with hold oil from us again, and that may very well happen,but if we continue down the road of massive crop failures in this country, what is to say Russia or some other country that has the land to grow crops might not do the same if we had to import grain to cover our needs. We have more oil production in North America today than any time in the last thirty years, as well as untold amount of Natural Gas. Why not use that in our Autos and use what corn we need to feed the livestock and sell the rest to countries like China, etc.. To me that is progressive thinking, not some waste of resources burning corn in autos. That was bad policy 7-8 years ago, and is even worse today. Most say let the markets work, like $ 8.00 --$10.00 corn is to high for anyone, and I agree, so let corn based ethanol stand on its own, just like cattle are, and may the best indusrty win . Just remeber five years from now if you make bumper crops back, to back, to back, don't come crying to the livestock people becasue the factory has been destroyed. Just my two cents!

Anonymous (not verified)
on Jul 21, 2012

i am definetly looking at agreat opportunity for profit i have always been an opposite in tought times is the graeatest time for profit nick

Brian (not verified)
on Jul 22, 2012

Quite a few people that don't think this drought is any big deal are operating on inherited money.

Jeff (not verified)
on Jul 23, 2012

Mr Ferguson/Others

Lets put this debate into perspective. Mr. Ferguson your ability to expand and possibliy profit during this drought is a blessing. But I'll remind you that there are plenty of experienced ranchers that are adjusting for the drought that probably have more "know how" than all of us put together. The inability to expand or the choice of not to expand is a combination of mother nature, finances, risk tolerance, and stewards of their land (Remember, we are grass farmers first).

My point is that any fool can buy cattle. But it takes a Holistic Rancher to look at the big picture and move forward accordingly. In my life time I have not met or read (Yes, even experienced ranchers read to expand their knowledge base) of any people more dynamic that farmers and ranchers. I dont think arrogance got us here.

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What's My View From The Country?

As a fulltime rancher, opinion contribur Troy Marshall brings a unique perspective on how consumer and political trends affect livestock production.

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Troy Marshall

Troy Marshall is a multi-generational rancher who grew up in Wheatland, WY, and obtained an Equine Science/Animal Science degree from Colorado State University where he competed on both the livestock...

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