Many states including Texas and Oklahoma 
are still suffering from drought, and producers see herd expansion as risky
ZUEHL, Texas (Reuters) — Texas rancher Jim Rackley would like to expand his cattle herd to take advantage of sizzling beef prices and growing demand from health-conscious consumers for his grass-fed beef.
However, the prospect of cloudless skies keeps him cautious.
Rackley’s worries over a lack of rain are typical of many U.S. beef cattle producers trying to restock after a years-long drought that peaked in 2011. It decimated ranches built up over generations and shrank the nation’s herd to its smallest in more than 60 years.
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Now, record-high cattle prices and cheap grain have prompted ranchers to start adding cattle earlier than expected.
However, the rebuilding will be long and slow.
Producers like Rackley worry the drought will return, shriveling scant pasture and sending grain costs soaring again. At the same time, there is no guarantee Americans will continue to consume beef at the current rate, given high prices.
“Every time we think we’re coming out of the drought, we get hit again,” said Rackley, a former high school football coach in Texas, where the sport and beef are state passions.
Rackley’s 49 cattle, including 25 cows used for breeding, have yellow numbered tags clipped to their ears for identification.
He surveys a landscape of flat pasture and points out which animal will be the next to go to slaughter at the end of the month.
Feeder cattle futures are trading 20 percent higher than a year ago and corn futures are trading 13 percent lower, which is providing obvious incentives for ranchers to rebuild their herds.
Still, the decision to expand is proving complicated for many, with the price for buying new cattle at nearly $3,000 a head and pastures still patchy in places.
The nation’s herd edged up one percent to 89.8 million head Jan. 1, according to the U.S. Department of Agriculture.
The report stunned analysts who had predicted a decline and prompted some to bring forward their expectations of when beef supplies will increase to late 2016 from 2017.
The cattle population was larger than in 2013 and 2014 but still the third smallest since 1952, said University of Missouri livestock economist Ron Plain.
“Herd rebuilding is on the way, but putting a calf into the herd today will take at least a year and a half before you get anything out of it,” added Jack Salzsieder, owner of Iowa-based brokerage firm JRS Consulting.
In Oklahoma, Joe Smith wants to rebuild his cattle herd after selling three-quarters of his animals in 2011.
Smith said he was being “very cautious” in his attempt to expand production, holding back 10 cows of his 100-head herd to breed instead of sending them to slaughter. His ranch in Duncan still needs more rain to grow grazing grass.
Thirty-three percent of the southern United States, including the big cattle states of Texas and Oklahoma, was in some form of drought as of Feb. 5, down from 37 percent a year earlier, according to the U.S. Drought Monitor.
However, 8.7 percent of Texas was considered to be in extreme or exceptional drought, up three percentage points from a year ago.
It may be 2018 or 2019 before increased supplies start to significantly push down beef prices, said Derrell Peel, an agricultural economist at Oklahoma State University.
There are “a lot of places that are vulnerable to go backward in a hurry” if conditions turn dry, he added.
In the meantime, beef prices are likely to stay high, squeezing consumers in grocery stores and restaurants and prompting some Americans to eat less beef.
Per capita consumption fell to an estimated 24.6 kilograms in the last year from 25.5 kg a year earlier, and the USDA expects it to slip to 23.9 kg this year, even though overall consumption still outstrips domestic production.
Beef processors are desperate to see production rise. They have shuttered beef-processing plants in recent years and may still need to close more facilities, said Pete Anderson, director of research for cattle nutrition company Midwest PMS.
One of the few processors investing in expansion is JBS USA LLC, which is sinking US $75 million into a Utah beef plant. However, the company is looking to include dairy cows to raise its output there.
Meanwhile, in drought-hit California, rancher Kevin Kester plans to reduce his 300-head herd further after cutting it from as many as the 500 head he had back in 2010.
“Everybody wants to expand,” he said.
“We’re looking for Mother Nature to co-operate.”
