Tough times again in livestock
By: Jonathan Knutson, Agweek
In a normal year, Philip, S.D., cattle producer Bill Slovek makes several thousand big bales of hay. This summer, he didn’t even hook up his haying equipment. Drought, a late-spring freeze and a summer hailstorm combined to ruin his hay crop. His pastures also were devastated by bad weather, and he’s had to rent pasture in Watertown, S.D., 290 miles away.
The cost of buying hay and renting pasture mounts quickly, says 57-year-old Slovek, who’s been ranching all his life.
“This cattle deal is kind of scary right now,” he says. “If we don’t get rain this spring, things could really get bad.”
Slovek and other area livestock producers generally entered 2012 with great optimism. Prices were high; hay was plentiful after a good 2011 crop; and the mild winter of 2011 to ’12 lowered feed requirements for animals kept outdoors.
But the optimism ended abruptly after three nasty jolts:
•The drought robbed ranchers across the region of hay and pasture. That forced them to buy hay and rent pasture, pushing up expenses. The price of hay alone has doubled from a year ago.
•The price of corn, a key feed for most livestock raised in the region, shot higher, too, because of drought in key corn-producing states. Livestock producers expecting to pay $4 to $5 per bushel for corn found themselves paying $6 to $8 per bushel.
The rising cost of expenses such as fuel also requires producers to spend more to bring in feed or transport animals to market, says Charlotte Meier, state executive of the North Dakota Pork Council.
•The price that producers receive for their animals has dropped this year. Hurt most are feeder lamb prices, which are down by half or more.
Despite the decline, the prices that many livestock producers are receiving remain high by historical standards. Trouble is, expenses are so steep that some producers will lose money this year.
Sheep producers “aren’t even remotely close to breaking even,” given the combination of lower prices and higher expenses, says Dave Hinnaland, a Circle, Mont., sheep producer and a past president of the Montana Wool Growers Association.
There’s one silver lining to area livestock producers’ woes: Most, though by no means all, producers enjoyed good profits in 2010 or 2011, or both. That provides a little financial cushion to offset the current tough times.
On the other hand, livestock producers don’t receive nearly as much protection as grain farmers under the federal safety net, says Rodney Strand, Farm Service Agency executive director in southeast South Dakota’s Turner County.
“They keep going out of pride,” Strand says of hard-hit livestock producers.
Conditions vary in region
As is always the case with Northern Plains’ agriculture, conditions vary greatly across the region. Much of southern South Dakota and southern Montana were hit especially hard by drought; other parts of the area fared a little better.
For instance, parts of northern Montana enjoyed average to good hay crops this year, Hinnaland says.
In contrast, parts of Minnesota were hit with record summer flooding that wrecked pastures and hayland, says Dale Lueck, an Aitkin, Minn., cattle producer. He’s also a spokesman for the Minnesota State Cattlemen’s Association.
Drought, of course, is a far more widespread problem than flooding this year.
The worst drought “in 50 or 60 years” hammered Turner County this year and forced many cattle producers to sell livestock, Strand says.
Corn and soybean yields were only a third of normal, and hayland and pastures were hurt even worse, he says. In an electronic newsletter from the Farm Service Agency to county producers, Strand listed two websites, www.hayexchange.com and www.haybarn.com., on which hay and straw can be bought and sold.
Strand notes that the winter of 2011-’12 was unusually warm and dry. While producers enjoyed it at the time, “We ended up paying for it,” he says.
More moisture last winter would have helped hayfields and pastures get off to a better start this spring.
As for the big hay crop in 2011, some area ranchers sold much or all of their excess hay last year at a good price — a prudent move at the time, Slovek says.
Now, some of those ranchers are forced to buy hay at prices considerably higher than a year ago. If they’d known what was coming, those ranchers would have held on to their 2011 hay.
“We went from one extreme to the other,” Slovek says of the swing from the big 2011 hay crop to the terrible 2012 crop. “Who would have expected that?”
The economics of it
The outlook for livestock producers was bright as recently as April, says Tim Petry, North Dakota State University Extension Service livestock economist.
“As of this spring, we had record prices for just about all market classes of livestock,” he says.
A big U.S. corn crop was expected to hold down corn prices, allowing the boom in livestock prices to continue.
“Then, in mid-June, reports of the drought started coming in, and that just had a huge impact on all classes of livestock,” Petry says.
As corn prices began to soar, some livestock producers, unwilling to absorb the higher feed costs, sold some of their animals. The supply of meat temporarily increased, pushing down livestock prices, Petry says.
Livestock prices have begun to improve, now that the temporary increase in meat supplies is ending, he says.
Sheep producers were hit harder than their counterparts who raise other types of livestock.
“The sheep industry is a whole different situation,” Petry says. “Relatively small changes in production can have a big impact. Anything that throws something out of kilter really affects the market.”
Last year, drought on the Southern Plains caused many lambs to come off the range early. The animals reached market unusually early, backlogging the market and pushing down prices, he says.
Another factor was lower demand by high-end “white-tablecloth” restaurants that serve lamb. Once the restaurants raised their menu prices to reflect higher lamb prices, customers were less likely to order lamb, cutting demand, Petry says.
The combination of factors caused the price of feeder lambs to fall from about $200 in April to $80 or $100 recently, he says.
Feed lamb prices now have begun to rally.
Look at the entire industry
With prices so high early this year, many livestock producers were preparing to expand their operations. But those plans were scuttled, at least temporarily, after corn prices soared, Petry says.
As a result, U.S. meat production won’t rise as anticipated, and that almost certainly will push livestock prices to record highs in 2013, Petry says.
Record-high prices are good for producers with animals to sell. Nonetheless, the U.S. meat industry suffers when high prices are based partly on some producers being forced to downsize or go out of business, he says.
Producers selling animals at high prices may not make a profit when their expenses are high, too, he says.
Lueck, the Minnesota cattle producer, says agricultural officials in his area have worked to make sure producers there have enough feed to last the winter.
“We don’t want anybody going out of business,” he says. “Once you get out, it’s very hard to get back in.”
Hard numbers are tough to come by, but anecdotal evidence suggests that few area livestock producers, so far, have thrown in the towel. Instead, many have cut back on the size of their operations by culling breeding stock.
But without meaningful precipitation this winter and spring, some producers will face painful choices next year, Petry and others say.
‘Going to be a challenge’
Slovek says his operation, which in a “normal to good year” consists of about 900 cow-calf pairs, 300 yearlings and an annual bull sale, will be able to survive the winter.
But he’s concerned about the outcome if pastures and hayland aren’t recharged by winter and spring precipitation. If they aren’t, he would need to continue to buy land and rent pasture.
“The prices (received by ranchers) are still pretty good,” he says. “But it’s the inputs that are killing you.”
Many people involved in livestock are in their late 50s or early 60s. Given their age, they’re less willing to put up with extended tough times, Slovek says.
“I think you’ll see that if we have another bad year, a lot of people will bail out,” he says.
Slovek says he built up the genetic quality of his herd in 30 years with the use of artificial insemination. Selling some of those cattle, and replacing them later with cattle possessing lower-quality genetics, isn’t attractive, he says.
Slovek also had to overwinter part of his herd at a different location in 1996. This year, however, a much higher percentage of his herd is involved and the cattle needed to be taken much farther to winter pasture — almost 300 miles away.
“The drought is just so widespread this year. There just wasn’t pasture closer to home,” he says of taking his cattle to Watertown.
An extended period of above-average precipitation is required to end drought. But Slovek has received only about a quarter inch of precipitation this month, and only about an inch altogether in the past four months.
Given the lack of moisture and the high cost of hay and other inputs, “Next year is going to be a challenge, to say the least,” he says. “All we can do is try to tough it out.”