State’s cattle herd growing, but ranchers still face challenges

Three cowboys guided a bull through muddy Northeast Texas pastures while other healthy red cattle grazed contentedly near full tanks — man-made ponds that had dried to dust during the prolonged drought six years before.

Rains have helped ranchers rebuild the state’s herd, the nation’s largest, after being decimated by painful culling needed to survive the dry spell that finally played out in 2011.

On Jan. 1, Texas’ cattle numbered 11.7 million, up 600,000 from 2011, the fewest since 1958, according to USDA statistics. Before the drought began in 2010, the overall count had stood at 13.3 million. Numbers are important. Beef cattle account for half of the state’s agricultural earnings.

But there are still major challenges for ranchers.

While the industry enjoyed bumper profits in 2014, the market hit turbulence last year, with prices in “free fall,” said Ken Lieber of the Fort Worth-based National Finance Credit Corp. of Texas, a specialized lender to the industry that is owned by a co-operative, the Texas Livestock Marketing Association.

Slackened export demand, a strong dollar, collapsing oil prices, a down stock market and competition from pork and poultry combined to lower what buyers would pay for live cattle.

“We saw some $500 per head losses in the feedlot sector,” Lieber said.

The cattle industry is composed of four sectors: cow-calf producers, stockers who then take a 500-pound calf and add another 250 pounds or more, feedlots that “finish” cattle to slaughter weight and, finally, the packing plants.

“There were $300 to $400 losses on the stocker side. Those are huge losses which impacts what you do going forward,” Lieber said. “If they lost all of that on one turn, they’ll have to draw from other assets or they’re done.”

The more efficient cow-calf producers, he predicted, can make a living this year.

“The only ones strapped now are those who got in during 2014 and paid higher prices for breeding cattle,” Lieber said.

A volatile market

The difficult times are reflected at the Fort Worth Stock Show, which ends Saturday.

The price of replacement commercial Hereford heifers — breeding-age females — dropped a whopping $1,000 a head at a Stock Show auction on Jan. 31, falling to an average $2,232 from $3,234 last year.

Stock Show spokesman Matt Brockman said the prices reflected the dramatic change in market conditions.

“Prices continue to be extremely volatile because of problems in global financial markets, the energy sector and unrest in the Middle East,” said analyst Kevin Good at Colorado-based Cattlefax, a highly regarded beef industry information service.

Good predicted that the cow-calf producer will be profitable in 2016 “but less so than during the last two years.” The packing industry, which has become more efficient, should do a little better while feedlots, he said, might make “a little money but it won’t cover last year’s losses.”

A diversifying strategy

Some operations hedge their bets in these difficult times by selling future contracts, which lock in prices.

But sprawling Broseco Ranch in Mount Pleasant, 165 miles east of Fort Worth, follows a strategy of diversification. It participates in several sectors — cow-calf, stocker and feeding — instead of working only one phase of the industry and relying on future contracts to weather market volatility.

“It’s another opportunity to capture profit,” said Tom Woodward, a former Texas AgriLife extension livestock specialist who now manages the operation.

Instead of future contracts, Broseco figures one or more sectors of its operation stand a good chance of being profitable. The cow-calf phase historically has been the least profitable since the producer is relying on one crop a year. The stocker phase has been profitable seven out of 10 years during the past three decades, and the feeder phase is highly cyclical, he noted.

So instead of selling off all of its yearlings, the ranch weans, vaccinates and gets them used to feed.

“We’ve been producing these ‘preconditioned’ calves for 30 years,” Woodward said, noting that the herd’s genetics have been honed with the help of three prized Red Angus bulls to produce quality, marbled carcasses. Its Angus calves fetched the highest bids at a Stock Show auction late last month, he said proudly.

Scale helps. Broseco can sell in truckloads of 100 head — often via video sales — while small operations might have to suddenly truck four or five newly weaned animals to a sale barn at a higher expense per calf, which could lose 10 percent of its weight by the time it’s sold. That can mean losing $50 on a $500 animal.

“When prices were high, everyone was not worried about efficiency,” Woodward said.

Drought was a ‘double whammy’

Broseco was not immune from challenges, during or after the drought.

With the tanks dry, Woodward rented pipe and pumps to carry water a mile from two lakes on the ranch, but that didn’t help parched pastures. “Not only do you not grow grass for summer grazing, there’s no hay for winter — a double whammy.”

Broseco ended up selling 20 to 25 percent of its breeding herd, a painful but strategically necessary decision, he said.

Marketed were not the oldest cows, but the 3- to 7-year-old females.

“You don’t want to do it, but they bring more value, and you hope the older ones will continue producing calves.”

Woodward’s ranch gets about 40 inches in an average year. In the past 12 months, it got twice that. But this wasn’t good news.

“That’s a lot of water but it didn’t rain during the growing season,” Woodward said.

Half of the precipitation fell in February, March and April, and the remainder in October and November. Unlike in West Texas, where one solid spring rain can carry a ranch through the year, in East Texas summer rains are needed or grass dries up.

Like many others, the ranch has diversified into hunting.

It has a game-fenced area for white-tail deer, and has stocked its two lakes with Florida bass for anglers paying $300 a day. And while the operations are successful, they do not churn enough revenue to cover losses in a bad year, he said.

But this year, Woodward predicts, Broseco will be profitable overall despite low market prices.

“Cattlemen are optimists,” he said. “We are back to our stocking capacity with a younger herd than what we had through the drought in 2011. And if we get rain spread out, it’ll be all right.”

This story was originally published February 4, 2016 at 6:00 PM with the headline "State’s cattle herd growing, but ranchers still face challenges."