Drought playing big role in beef cattle marketing decisions

By LORI COPE | East Texas Edition

July 7, 2005 - Many beef cattle sale barns are seeing more of a market reaction to drought conditions rather than the recent announcement of bovine spongiform encephalopathy (BSE) in the United States.

Drought conditions, coupled with high hay prices, are forcing cattle producers to reduce their herds, or sell out. In Central, East and South Texas regions, dry conditions have slowed the grass growth, Texas Cooperative Extension reported.

The hot and dry conditions even prompted Texas Forest Service (TFS), in late June, to officially declare "the start of the 2005 fire season."

For beef producers, the hot and dry conditions are prompting a decision about herd reduction or selling out. If drought conditions continue (and the outlook from TFS indicates it will), then making a decision sooner may be better than later.

In Northeast Texas, Joe Don Pogue, co-owner of Sulphur Springs Livestock Commission, said on June 28 that they've had two herd sell-outs because of drought, and he expects more to follow. "The (sale) numbers will be easing up. ... But, "I don't foresee any drastic drop" in prices ... "We see this at this time of year any way."

In Southeast Texas, Kenny Richardson, owner of Four County Livestock in Industry, said area producers have been expressing concern about the dry conditions and lack of hay, but he hasn't seen a big increase in sale volume because of those facts. "But, if it doesn't rain soon, we'll see the (sale) runs pick up. We'll see producers pulling lightweight calves; which we've already seen just because prices have been good."

Pogue said he sees a few local buyers, at his barn, still purchasing the bred and stocker cows, but many now end up going to slaughter. "Stocker cows are the first thing hit," price-wise, as prices for cattle sold for slaughter are less than those sold to go into a herd.

In Central Texas, Mike Domel with Meridian Livestock Commission, noted conditions are "terribly dry." While his market hasn't seen much evidence of herd reduction yet, forages are "burning up. ... One guy said his Coastal (cut for hay) is making about a third of what it did last year. And with Hay Grazer, they are cutting it now, even though they are getting about half of what they did last year, but if they don't get it now, they won't get it at all."

The number of cattle in Bosque County is down overall, Domel noted on June 29, but those still in the business should be okay for the next "30 to 45 days if they're reasonably stocked."

In South Texas, Riley Rhodes, owner of Live Oak Livestock Commission in Three Rivers, said conditions are "drying out; but we're not in a distressed area - yet. But south of here, where a lot of our customer-base is, I'd say south and west of Premont, it's getting critical."

What Rhodes has been seeing, because of the dry conditions, is producers pulling the calves they would have sold in the fall.

"It's a bad situation in that there's drought and the cattle are under stress, but it's good that the market on these little calves has been good."

He added that about 65 percent, of the June 27 sale's 2,100 volume, were calves under 400 pounds or lighter ... and the prices were still good.

Dr. David Anderson, Extension economist in College Station, said if herd reduction is in the plans, "it's not a bad time to sell calves early and move culls" ... maybe some that didn't raise a good calves or breed back easily ... "because prices are good and supplies are tight."

He said conditions in the College Station area vary from "pretty dry" to "worse. ... And we've got a long summer to go through to be as cooked as we are."

Anderson offered some advice to producers considering a change in their herd: "It's better to do something earlier, than to wait."

If drought conditions continue, and a county is officially declared to be in disaster, then the county's producers will be eligible for a low-interest, emergency loan through Farm Service Agency. The emergency loan interest rate is 3.75 percent, noted Juan Garcia, agricultural program manager at Farm Service Agency's state office, and the money can be used to purchase hay, feed, or pasture lease, etc.

While the Livestock Assistance Program (LAP), offered through FSA, has not been assigned in 2005, some LAP funds for 2003 and 2004, in counties mostly west of I-35, are available. A producer must have suffered at least a 40 percent loss of pasture in those two years to be eligible. Garcia advised producers should contact the FSA office in their county to find out full details.

Another factor affecting cattle prices is the major, corporate feedyards are full, Pogue said.

Richardson added that there needs to be a market correction, when it comes to the situation at the feedyards.

Then, there's the news of BSE in the United States that was announced Friday, June 24. Burt Rutherford, spokesman for the Amarillo-based Texas Cattle Feeders Association, told the Associated Press that when the cattle markets opened Monday morning (June 27), they trended down, found their bottom and finished higher than Friday's closing prices.

At the local level, though, sale barn owners noticed a reaction from their buyers. Pogue simply answered "oh, yeah" when asked if the BSE announcement affected his June 27 sale.

"I'd say nothing drastic, but noticeable." On average, the most drop in price was for lightweight feeder calves. Order buyers were basically just wanting to buy cheaper because of the news, he added.

At the Four County Livestock barn, "we could tell it right away," recalled Richardson, when buyers' cell phones started ringing when the BSE news was announced Friday, June 24. He said prices were decreased about $3 to $10 (per hundredweight) because of the news.

Domel expressed concern with the way the U.S. Department of Agriculture is handling the BSE testing, tracking, and news announcements. "Personally, I don't think it ever existed. I think the information was manufactured in an effort to tell Japan and the rest of the world that we (U.S.) are not covering anything up" if a case was discovered then it would be announced, and that U.S. testing procedures are extensive," he cited.

Rhodes, from the Live Oak Livestock barn on June 29, added, "Frankly, I've heard from the customers that they are tired of hearing about it. ... We know our beef is as safe as any in the world." He feels the news of BSE can be used to manipulate the market.

"We worked all weekend (June 25-26) to try and figure what the market would do," Rhodes said.

"But you don't really know until you put one in the ring." And when the cattle went through his barn ring on Monday, June 27, Rhodes said he didn't see much of a price decrease. "There was a little hesitation on the plainer cattle, like Longhorns or paints. They were about 5 to 8 cents cheaper. ... There was just a 2-cent difference on the good cattle."

Richardson added a concluding thought: "You know, Mother Nature has the biggest reflection on the market. ... I think some look at this BSE thing backwards. Number one, it's a positive thing that they found it and know it's not going into the food supply. I think a lot of it is politics. We've got the best meat in the world, as far as taste, quality, and safety."