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BOOM IN PRICES, BUT NOT INDUSTRY [Missoulian (MT)](Missoulian (MT) Via Acquire Media NewsEdge) Due to high demand and limited supply, cattle prices are the highest they've ever been. Montana's livestock production industry, with roughly 1.5 million cows and 1.2 million calves statewide, is expected to bring in more than $1 billion in gross receipts this year, accounting for 40 percent of all agricultural sales. Accordingly, the price of beef has skyrocketed in just the last few years. For example, at the Missoula Livestock Exchange, 900-pound feeder Herefords - relatively young animals that will be sent to feedlots to fatten up before they are turned into hamburger - will sell for $2.00 to $2.50 per pound, meaning each animal will bring in about $500 more per head than they did a year ago. However, the boom in prices isn't leading to a boom in the industry. Due to the high costs of labor, equipment and land, most experts don't expect a sudden influx of new cattle ranchers to flood the inventory anytime soon. "Ranchers are taking in substantially more money, but everything on the ranch is higher - the costs of tractors, the costs of insurance," explained Missoula Livestock Exchange manager Craig Britton. "No matter what, sure, the rancher is doing better and he isn't in the squeeze that he was, but it's no home run yet. Say some kid wants to be a rancher and wants to be in the cattle business. You want to go spend $1 million on a ranch? It's just hard." During the busy season from the beginning of September to the end of March, 1,000 head of cattle are sold every week at the Missoula exchange. Ranchers from all over western Montana and eastern Idaho and Washington bring their animals in, and Britton and his staff sort them and sell them to buyers - usually feedlot representatives from places like Missouri and Iowa. "Missoula Livestock charges a commission to the consigner, the seller, and people come from as many as 10 to 12 states to buy cattle," Britton explained. "The way this place stays open is we charge 3 percent of what the animal brings, which is an average of about $30 a head, so a sale like tomorrow will take in about $30,000. But in the summer, we only sell about 100 to 200 per week, because all the animals are out in the woods, so we're open for five months taking in $3,000 to $6,000." The Missoula Livestock Exchange held its first "Coming off the grass" sale on Thursday. The preceding day was busy as ranchers from Gold Creek, Helmville and Plains drove their trailers up and unloaded animals. Among several other yearling heifers, Helmville rancher Dan Pocha was unloading his prize bull from this spring because it has a bad hip. "He cost me $5,000, and I'll probably get $1,400 for him," Pocha explained with a smile. "That's part of the business." Richard Thomas has a Hereford ranch in Gold Creek. Including calves, he and his wife Shirley manage over 400 head of cattle. "Hereford is the foundation to the nation," he answered when asked why he only raises Herefords. It's aging ranchers like the Thomases who make up the bulk of cattle industry management, according to Britton. He talks to ranchers every day, and he hasn't seen the influx of young blood that one would expect when a big price increase means increased profits. "There's no reward in it," Britton said. "High cattle prices make it so they can't because they can't afford to. I mean, a cow-calf pair when I was a young kid in the business was $250 a pair, and they're up around $2,500-$3,000 now. Then you gotta buy the ground." Lack of available grazing land and an aging labor force are two of the reasons why there hasn't been a corresponding increase in cattle production to go along with the price jump, according to Gary Brester, a professor at the Montana State University Department of Agricultural Economics and Economics. "Given that U.S. inflation-adjusted cattle prices have increased over the past 15 years and have been at record levels for the past several years, it is surprising that cattle inventory numbers continue to decline," he wrote in a recent paper on the U.S. cattle cycle and prices. "Historically, increased prices have triggered inventory expansions and producers respond to higher prices and profits by producing larger quantities. However, there may be several reasons why this has not occurred in the past decade." One reason is that most of the beef cow productions in the U.S. - mainly in the west, southeast and more recently, the southwest - have experienced at least one year of drought in the past decade, which has rendered increases in cattle numbers impractical. Another reason is that increasingly high feed and food grain prices have reduced the production of hay and increased hay prices. Hay, meanwhile, is a major cost driver for the maintenance of cow herds. "Third, agricultural labor has become relatively more expensive in recent years for a variety of reasons," Brester explained. He said that technological advances - such as wider combines and GPS positioning - have made it easier for the crop production sector but not for cattle producers. "Beef cattle production is relatively labor-intensive compared to raising crops," Brester said. "With crops I can substitute machinery for people easier than I can in the livestock business. When a cow decides to struggle having a calf at 3 a.m., somebody has to go take care of that." Brester also confirmed that the age profile of agricultural producers continues to increase. "Livestock production is much more physically demanding than crop production," he said. "Consequently, older agricultural producers are likely reducing their focus on livestock production and moving towards crop production." Restrictions on land uses, better subsidized crop insurance products and increased technological advances allowing for larger cows have also contributed to the absence of a big jump in cattle inventory. Brester said the high prices have come as a shock to many economists, including him. "I never saw thought I would see a $1.80 per pound for a calf, and now I'm hearing stories of $2.80," he said. "There are really crazy stories about bigger numbers than that. The short answer is there is strong demand for the product from the U.S. beef industry and not much of it to go around. And it's not like the government is doing something to make this happen. We are talking about individual, profit-driven ranchers making decisions. It's a good example of a market working without government interference." The cattle industry is still big business in Montana. "There are still more cows than people in the state," Brester said. "Depending on prices, cattle is 40 percent of Montana agriculture in terms of gross receipts. On average, the other 35 percent is wheat, 10 percent is barley and the rest is everything else. Wheat and cattle are a really big deal in the state, but wheat prices will be lower this year." Despite all the big numbers and predictions about the future, Britton at the Missoula exchange is an example of how the industry is still built on the honesty and hard work of individual ranchers. He's 71 and has been working in stockyards since 1959. He's seen it all. "There's no better people on the rock than the cattlemen," he said. "Really there aren't. They're as honest as the day is long. If you shake their hand, the deal's made. That's all there is to it." (c) 2014 The Missoulian |