The Enid News and Eagle, Enid, OK

Business

August 11, 2012

Drought hurting sale barns

ENID, Okla. — As Trever Mason was preparing for this week’s cattle sale at his sale barn, he was hoping, if things went well, he would sell one-fourth the number of cattle he sold this same week last year.

Mason, general manager of Northwest Stockyards west of Enid, experienced peak sales at his barn last year. It was a trend repeated across the region last year, as cattle producers liquidated their herds in the face of a crippling drought, little forage and expensive hay and grain.

This year, the drought has spread, leading to herd liquidations and increasing grain costs in other parts of the country, causing the sales volume and prices at Oklahoma sales barns to bottom-out.

“Our sale barn moved 1,700 head this week last year,” Mason said. “This week, we’ll be lucky if we move 300 or 400.”

Sales trends have gone far below a return-to-normal after last year’s liquidations. Mason attributed the drop in sales to a combination of decreased forage and increased cost of corn, which he said is further compounded by a growing demand for ethanol.

“The producers are having to compete with both the ethanol companies and the drought,” Mason said. “Right now, we’re seeing corn prices at $8.50 to $9.50 (per bushel) ... and that’s just unheard of.

“The problem is, nobody has any place to put their cattle, because they have no grass. And, if you have to put them in a feed yard, then it goes from bad to worse, because you’re putting that calf in a feed yard where it’s going to cost you $9 per bushel to feed him, and the math just doesn’t work out any more.”

Because producers in other regions can’t afford to buy as many feeder cattle this year, Mason is seeing fewer cattle come in for sale.

And, the prices producers and sale barns are getting for the cattle that do sell likewise are down.

“Cattle prices across the board have taken it on the chin,” Mason said. “The calf deal is a lot softer, because of these corn prices and the drought.”

Mason said feeder cattle now are selling $15 to $25 less per hundred pounds than they were this spring, while calves have seen a $30- to $40-per-hundred-pound reduction since the spring.

“There’s a lot of things we’re seeing right now that, for a guy who owns a sale barn and feed yard, it’s scary,” Mason said. “If I don’t have any cattle in the community to sell, it’s definitely going to affect my business. It’s a scary time, no question.”

The story at Northwest Stockyards is being repeated across the region as producers and sale barns feel the effects of the expanding drought.

“If we weren’t back in a drought this year, we’d probably see people rebuilding their herds, but we’re not rebuilding,” said Greg Highfill, area livestock specialist for the OSU Extension Service. “People pretty much got their herds down to bare bones last year, and we haven’t rebuilt. We’re just holding our own this year.”

Because the drought has spread this year to affect much of the cattle-producing land in the U.S., buyers in other regions can’t afford to buy cattle from Oklahoma markets, Highfill said.

“Cattle prices are coming down, which is just a direct result of the drought in the midwest and the corn crop being so low,” Highfill said. “Cattle feeders that are buying our calves simply can’t pay as much for them because of the high price for corn in the midwest.”

Derrell Peel, Extension Livestock Marketing Specialist for Oklahoma State University, said while the drought in Oklahoma and Texas this year isn’t as bad as last year, the effects of this year’s larger drought likely will be worse for local producers.

“What we’re seeing in Oklahoma this year with the drought isn’t even as severe as it was last year,” Peel said.

What makes things potentially worse this year, Peel said, is the drought is much more widespread, affecting the entire U.S. cattle market.

“Nationwide, the drought is much more widespread, and it’s affecting more producers,” Peel said.

While Oklahoma and Texas suffered a severe drought and liquidated much of the regional cattle herds last year, other areas had good growing conditions to buffer the effects of the drought. This year, Peel said, those areas are suffering what Oklahomans experienced last year, and likewise are culling their herds.

“The market impacts last year were pretty minimal, because when we had to liquidate cattle, those cattle had somewhere else to go,” Peel said. “Some of those places that had excellent conditions last year are having drought this year. What we’re seeing now is some additional cattle liquidation and more impact on prices because the drought is so widespread.”

Peel said this year, the market is affected both by a lack of forage and hay in the southwest and high grain prices due to failing corn crops in the midwest.

“The drought is having a significant impact on corn production, and that’s adding to the magnitude of the impact for cattle, because these feeder cattle are going to end up in the feed yard eating that expensive corn,” Peel said.

The net effect is the market for Oklahoma’s cattle has shrunk, as buyers in other regions are themselves cutting back and are hesitant to take on the increasing cost of feeding out calves.

Far from the glut of sales seen in association with last year’s drought-related herd liquidations, sale barns this year are seeing deep cuts in sale volumes.

“In the last four weeks, compared to the same period last year, our auction market totals for feeder calves are down 40 percent,” Peel said. “It’s even worse for cows, which are down 77 percent from last year.”

Peel remained optimistic cattle prices have fallen as far as they’re likely to go, and quickly could return to normal levels with “some good moisture.”

“In some sense, the worst of this may be over,” Peel said. “The markets look like they’ve probably bottomed out and may stabilize from here on.

“I think the market has gone about as low as it’s going to go this summer. How much it recovers this fall will depend on whether we get some fall moisture for forage and winter pasture.”

While prices could quickly recover, Tim Starks worries it could take much longer to reestablish herds that have been liquidated, and a prolonged drought could drive small producers from the cattle business for good. Starks is president of the Livestock Marketing Assocation and owner of Cherokee Sales Company, a Cherokee-based sale barn.

Starks said the worst of sales levels at local markets may be yet to come.

“We had the biggest January this year we’ve had in a long time, but that was mostly pulling the cattle sales way forward,” Starks said. He said many producers sold their cattle early this year in anticipation of the drought, meaning sales levels likely will drop further as summer turns to fall.

“Where we’re really going to see the impact of this is going to be later this fall,” Starks said. “I expect we’ll really see our numbers fall off dramatically.”

The real long-term impact, though, may be in the loss of small producers who can’t afford to wait out the drought.

“The older gentleman that had a 30- to 40-head cow herd, I’m definitely concerned that producer might not get back into the business,” Starks said.

He said the U. S. cattle market, unlike the pork and poultry industries, still heavily relies on small producers for its total volume.

“They’re vital to the size of the U.S. cow herd,” Starks said. “The cattle business isn’t like the hog or chicken industry. The small producer is still a major player in the cattle business, and a very large percentage of the U.S. cow herd is made up of herds of less than 50 cows.”

Starks said cattle prices could quickly rebound, but supply will take considerably longer to catch up, especially if smaller producers are hesitant to restock their herds.

“As a market owner, that is of some concern to me,” Starks said, “because the smaller producers keep the livestock auctions going.”

Mason, like Starks, remains hopeful the weather will change in time to save small producers, and the local livestock markets.

“We need a little bit of rain and some luck,” Mason said. “If we can get those things lined out, we stand a chance, but if we don’t start seeing a more regular weather pattern, it’s going to get ugly.”

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