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Agricultural News


TCFA's Ross Wilson Says Back-to-Back Droughts Hitting Feedlots Hard

Fri, 27 Jul 2012 11:32:06 CDT

TCFA's Ross Wilson Says Back-to-Back Droughts Hitting Feedlots Hard
Ross Wilson, president and CEO of the Texas Cattle Feeders Association, says 2011 was a tough year for feedlots his organization represents in Texas, Oklahoma, and New Mexico. He says 2012 is turning out to be tough as well.

He spoke with Ron Hays at the Summer Cattle Industry Conference in Denver and says the ongoing drought gets a lot of the blame. (You can listen to the full interview by clicking on the LISTEN BAR at the bottom of this story.)

"This drought continues to get larger, it seems, day by day. It's affecting an early corn crop in a more dramatic way than it probably would have in previous years. And we've all seen what's happened to corn prices. The saving grace coming out of a very tough 2011 in Texas and Oklahoma, the southwestern part of the United States with dwindling cattle numbers, was that our ration prices might be OK.

"That's gone out the window and production costs have escalated. Cattle coming out of the feedyards are losing at least $200 a head and, in some instances, more. So this is really going to test the intestinal fortitude of a lot of cattle feeders and a lot of livestock producers. They have it, but it's unfortunate after what we've come out of 2011 and now we've got to face a similar situation in 2012."

Wilson says many producers were hoping 2012 would have allowed them to rebuild herds decimated by the 2011 drought, but that hope has so far proven empty.

"Mother nature is not going to cooperate on rebuilding this herd. Let's face it, the pasture situation is just not going to allow that."

One bright spot amid last year's gloom was that cattle prices held up reasonably well. That is until June and July of this year when dramatic drops trickled all the way back from fat cattle to calves.

"We have seen a textbook example of the equation in cattle production at least in the cattle feeding sector. But it flows back to the rest of the producers. And cattle feeders don't like it any better than anyone else, but when corn goes up as dramatically as it did, they absolutely cannot afford to pays as much for feeder cattle and feeders pay as much for stockers as they did previously.

"So we've seen a tremendous hit on those two important sectors of the cattle production chain, most of it being the drought, but as you know yourself, over five billion bushels, the largest consumer of corn now in this country is ethanol. And we still are working hard to see if we can't reduce that RFS mandate.
"There are already some companies that are importing corn from Brazil. Those numbers are not dramatic and, fundamentally speaking, it won't make a significant difference as far as supplies are concerned, but psychologically I hope it at least sends a message that this corn market has gotten out of whack.

"The drought did some of it. Ethanol already had it in a precarious situation. Supplies were going to be tight anyway and now we have the drought doing what it's doing to new crop corn.

"So, I would hope that our policymakers in Washington would stop and step back and look at: We have imported corn coming in from Brazil. We have record exports of ethanol. We have record exports of DDGs. And we're spending taxpayer dollars to subsidize the production of ethanol-a mandated production.

"When I say taxpayer dollars, obviously the direct subsidies to ethanol production are gone, but that significant government intervention is the RFS mandate. It's mandated demand."

Dwindling numbers of American cattle have left some of Wilson's feedlots scrambling for cattle, with many turning to Mexico to fill the gap. Now, as drought deepens south of the border, those numbers are softening as well, Wilson says.

"They have dropped off quite a bit and we all wonder if there is an absolute end. I don't think we'll hit an absolute end, but the numbers that we import from Mexico will go down fairly significantly if they don't get rain.

"Mexico has been our number one or number two beef customer for years and so it is a good two-way street we have with the country. The record level of one-and-a-half million head that we imported last year is going to go down for the reasons we've talked about. And, in fact, that level was exaggerated, for lack of a better term, because the drought was shoving those cattle north to greener pastures. And they were coming in, really, at some of the lightest weights that some of our members had ever seen.

"So, no question about it, we have short cattle supplies in the states. We have short cattle supplies in Mexico. It's going to be a very interesting remainder of 2012 and this issue extends into 2013 and even beyond to 2014."

Wilson says feedlots all across the country are chasing a shrinking pool of cattle.

"Our members are sourcing cattle from areas of the country they haven't sourced from before because they simply have to. As you noted, occupancy levels are down. We have some members that are completely full. But we have some members that are very low. We have some members that used to finish beef at 100 percent the capacity of their yard that are now backgrounding and finish feeding. And we have a few that have totally changed their business model and are now backgrounding cattle exclusively.

"Those are structural changes and the question becomes will they transition back to full finish feeding? Only time will tell."

Wilson also addressed the chances for passage of the 2012 farm bill and Country of Origin Labeling. You can hear the full interview by clicking on the LISTEN BAR below.


   
   

 

Ron Hays talks with Ross Wilson about challenges facing feedlot operators.
right-click to download mp3

 

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