NOBULL: U.S. Cattle Ranchers Endure More Drought, Rising Feed Prices

Bloomberg Businessweek

U.S. Cattle Ranchers Endure More Drought, Rising Feed Prices

By Peter S. Green

Brown shoots of a fast-growing weed stretch across the high-plains pasture of Gerald Schreiber’s 5,000-acre cattle ranch, located near a crossroads named Last Chance, Colo. A half-inch of rain the night before was the first Schreiber had seen in two months. He examines the gray matted clumps that should have been sprouting rich green native grasses by now and worries about his future.

Despite record supermarket prices (sirloin is up 148 percent from 20 years ago), the 723,000 ranchers with 500 head or fewer who provide 83 percent of America’s beef face a squeeze unlike any since the Dust Bowl of the 1930s. Ranchers in the high plains east of the Rockies have suffered through three years of drought, wildfire, and rising costs. Corn has jumped from $2 per bushel to nearly $8 since 2005. Even the price of silage,​a sweet-smelling mix of hay, straw, and chopped cornstalks used as livestock feed, has doubled over the past few years. The size of the U.S. beef cattle herd, at 89.3 million, is at its lowest since the 1950s.

Drought conditions trouble many ranchers who thought they had staying power, says Jake Allacher, the agricultural loan officer at High Plains Bank in Flagler, Colo., population 568. “You can’t go through too many years like this,” he says. “You gotta have cattle around to make your income, but if you can’t afford to keep the cattle around ….”

Schreiber calculates it costs him about $800 to raise a calf from its birth in the spring to the fall, when it starts its journey to the slaughterhouse. A 550-pound calf would bring in about $1.50 a pound, or $825, a margin of just over 3 percent. “If I’d known how tough it was going to be, I’d have culled half my herd, but replacing them takes at least two years,” says Schreiber, a small, taut man in cowboy boots and Wrangler jeans who patrols his range in a wheezing white Dodge flatbed truck. Already his herd is down to 200 cow-calf pairs from last year’s 250.

With a replacement heifer costing more than $1,000 and interest rates between 4.5 percent and 6 percent, above the 3 percent margin earned from raising cattle, if a rancher sells out, “you’re not going to rebuild your cattle herd,” says Allacher.

Cattle is still a hands-on business. Ranchers breed calves, raising them on pasture and hay for six to nine months, until they separate from their mothers and are sold to stockers at 500 pounds to 650 pounds. Stockers pasture the cows, fattening them up to about 900 pounds before selling them to feedlots. There the cows are penned into corrals to gain three pounds a day on protein and starch-rich diets that can cost $4 a day. At 1,300 to 1,500 pounds, a cow is put on a truck and sent to the slaughterhouse.

Rising feed costs have squeezed the margins of ranchers and stockers alike. Beth Craig and her husband, John, turned their home into a bed-and-breakfast after their land became too parched to run a stocker operation. They shipped the cows they’d bought to pasture in South Dakota. “This year we’re paying about $1.70 a pound and selling at about $1.35,” says Craig.

Gary Withington, a rancher who lives near Genoa, Colo., says his herd is down from about 120 cow-calf pairs to 80, and the price of alternative feeds such as ethanol residue has jumped in the past couple of years. The sparse, stunted pasture has left Withington using his winter hay and buying feed to keep his cattle alive. “I’ll run till my hay pile’s gone, then I don’t know what I’ll do,” he says. Ty, his 13-year-old son, wants no part of ranching “for now,” and his 10-year-old daughter, Shae, has other plans. “Depends if anything else pans out,” says the fourth-grader. “It’s kind of my Plan B.”

Besides the drought, pressure from packers and feedlots “is just killing my margins,” Schreiber says. After years of consolidation, four corporations—JBS (JBSS3:BZ), Tyson (TSN), Cargill, and National Beef Packing—control 80 percent of slaughterhouse capacity. Schreiber’s been to Washington to tell Congress about it, but last year the Republican-controlled House killed a bill that would have let the U.S. Department of Agriculture regulate feedlots and packers more closely.

“With the drought and high feed prices, ranchers are getting squeezed,” says Senator Jon Tester, a Montana Democrat and a former rancher. He’s reintroducing legislation to give the Agriculture Department expanded authority to regulate meatpackers and to break up what he says is an oligopoly. Tester says he fears the House will sink his proposal. Spokesmen for JBS, Cargill, and Tyson say the beef market is already heavily regulated to prevent price fixing and that their combined share of the packing business hasn’t grown substantially in years. National Beef didn’t respond to requests for comment.

Photograph by Christopher Wurzbach for Bloomberg Businessweek Wil and Jim Bledsoe on their ranch in Colorado

In southwest Colorado, the Bledsoe brothers, Wil, 27, and Jim, 25, say only diversification allows them to keep running cattle—they have more than 1,000 cow-calf pairs on the 50 square miles or so that their grandfather and great-grandfather accumulated after a drought in Texas drove them there in 1918. They also have a few oil wells, run antelope-hunting weekends, grow wheat and corn, and invest spare cash in the stock market. Graduates of Colorado State University with degrees in agricultural business, the Bledsoes are supposed to be the future of U.S. ranching. Even if the drought goes on and they can’t make a profit, Wil says he’ll stay on the land. “I’ve always wanted to be a cowboy and a rancher,” he says. “It’s a bad addiction to have.”

The bottom line: Drought and high feed prices have pushed the 89.3 million U.S. beef cattle herd to its lowest point since the 1950s.

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