My View From The Country

The Expansion Conundrum

The big industry riddle right now is what it will take to entice producers to expand their herd size. Typically it's a price-driven move, but that's just another thing that makes this cattle cycle so much different than anything in the past. Most producers truly expect prices to improve and to remain high for several years, so they're optimistic on the price front. However, there are four major factors dissuading producers from pulling the trigger on expansion.

1. Access to capital. Cows, land, labor, fuel and essentially every other input has been going up at a rate equal to, or at least close to, the rate of cattle prices. That's a double-edged sword because you're putting a lot more money at risk without a promise of greater returns. Plus, the amount of capital required to expand has increased dramatically and is expected to continue to rise.

2. Labor. The industry has been consolidating since the BSE episode in late 2003, and the advent of ethanol subsidies in 2006. That means people have been forced to stretch their labor to the limit. Talk to producers and the ability to find good people, or maybe the ability to pay good people what they're truly worth, is one of their most limiting factors to expanding their operations.

3. Land. Fewer cows should equate to more grass availability, but that's not the case in a lot of regions. Land is being absorbed by urban sprawl, sopped up by outside forces looking at the land as an investment or a recreation property, being converted from pasture to grain production, or being utilized differently and stocked less heavily.

A lot of areas are seeing stocking rates increase. Additionally, there's a lot more demand for grass for stockers as every system is trying to put as many pounds on as possible outside of the feedyard.

The net result is that even though the number of cows has decreased, it's becoming increasingly difficult to find grass. Throw in the effects of the devastating drought in the Southwest and leasing ground is as difficult as ever. And it surely costs more to buy land.

4. Risk. Nearly every producer in the country has experienced the effects of drought, ethanol, BSE and the global economic downturn. The simple fact is that you have to put more dollars at risk to expand and the outside risk has increased by a significant factor.

We'll see expansion in the cattle business when prices overcome the four factors above, and that might take quite a bit more in terms of price improvement.

What's My View From The Country?

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

Contributors

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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