The merciless Midwest Drought of 2012 has hammered U.S. corn crop prospects. That in turn, has a lot of cattle feeders in Texas wondering how many cattle they can place in their feedlots—and for how long.
That was the word at the 2012 Cattle Trails Wheat and Stocker Conference in Wichita Falls, Texas, put together by Oklahoma State University and Texas A&M. The big meeting alternates between Texas and Oklahoma each year and drew a big crowd to Texas—but it wasn't a jovial group this year.
What happens in Texas feedlots with fed cattle eventually backs up to the feeder, and finally to the stocker cattle operations.
Stan Bevers, professor and Texas AgriLife Extension Service economist, Vernon, said the Midwest drought is hitting a Texas and Southwest cattle industry that already endured the historic 2011 drought. Rains have been extremely isolated in Texas this year, as well, and many entered August with temperature readings above 110 degrees—even warmer in Texas for 2012 than a year earlier.
Bevers urged producers to be on alert for USDA's upcoming Aug. 10 supply and demand report. He said at least 3 billion bushels of corn has "just vanished" from the Midwest Drought. He added that it will be interesting to see if USDA goes below 500 million bushels of U.S. carryover for corn when its report is released. That would be an extremely tight carryover for the 2012-2013 marketing year.
But Bevers has done his own number crunching and based on abandonment figures, he said he would not be surprised if U.S. corn carryover is under 200 million bushels—perhaps even as low as 125 million.
Either way, with Omaha cash corn prices at more than $8 per bushel on the day of the July 31 conference, there was nobody gathered in the Multi-Purpose Events Center that did not expect cash corn would go well above $9 per bushel soon.
With feedlots overwhelmingly dependent on steam-flaked corn to feed millions of cattle in the Texas Panhandle and the Tri-State Region each year, that quickly affects the bottom line.
Byproducts are costly
Even corn byproducts are expensive.
Paul Colman, chief operating officer and partner, Frontera Feedyard, Muleshoe, Texas, said cattle feeders, like himself are facing four big challenges: the feeder cattle supply, roughage supply, corn supply, and the domestic/world economy.
"We thought the cost of roughage was high last year," Colman lamented. "But it doesn't compare to this year."
He noted last year, corn stalks were $120 per ton delivered to Muleshoe during the Texas drought. This year, those same corn stalks were $155 per ton on the day of the Wichita Falls conference. That's the real impact the 2012 Midwest Drought is having.
Colman, who is chairman of the National Cattlemen's Beef Association cattle marketing committee, said 70% of the entire U.S. cowherd is now being impacted greatly by either extreme or exceptional drought—the two worst categories.
Bevers emphasized that the United States grows half of the world's corn, so don't expect corn imports to solve the Midwest Drought dilemma.
"Decreased U.S. corn production will have an impact for at least 15 months," Bevers said.
What are the strategies?
Some may switch to feeding wheat. But that would surely cause the price of wheat to increase dramatically. In fact, in any case, Bevers won't be surprised by $9 per bushel wheat too.
Colman said other strategies may be early weaning of calves or shipping them north—or both—if homes can be found for the cattle.
Some analysts, in fact, say Nebraska could overtake Texas as the No. 1 cattle feeding state soon.
The economy impact
Dr. Larry Sanders, professor and Extension economist, Policy and Public Affairs, Oklahoma State University, Stillwater, said the economy will have an impact on what consumers buy.
"Unemployment remains stuck at over 8 percent—that's our biggest problem right now," Sanders assured. "And it looks like it will be several years before we can work our way out of that—no matter who you vote for."
While the nation's unemployment rate is stagnant in the 8.2% to 8.3% range, Oklahoma's unemployment is only about 4%, Sanders noted, and Texas is far under the national figure as well.
Hydraulic fracking to recover oil has resulted in lots of hiring, Sanders noted. Some fast food outfits are even starting to pay young men much higher wages to try to keep them from going to work in the oilfields.
If it weren't for the Southwest and great Midwest Drought, Sanders actually would be pretty optimistic.
"We're breaking records in agriculture on what we are selling to the rest of the world," Sanders said on a positive note.
But there's just no short-term fix to the overall U.S. economy.
"The U.S. will survive—it will just take time," he concluded.