INTERVIEW-US cattle industry is struggling as herd shrinks

Thu Feb 7, 2013 6:21pm EST

* Outlook for cattle business bleak, says NCBA leader
    * Break in drought could help revive sector

    By Theopolis Waters
    TAMPA, Fla. Feb 7 (Reuters) - The abrupt closure of Cargill
Inc's beef processing plant in Plainview, Texas, this month
could signal consolidation in the beef packing industry due to
the cattle herd shrinking to the smallest in over 60 years, an
industry leader said on Thursday.
    "We are probably going to see some consolidation, economics
will dictate that," said Scott George, incoming president of the
National Cattlemen's Beef Association, told Reuters in an
interview at the organization's annual gathering.
    NCBA is the nation's largest cattle organization and many of
its members have struggled the past few years as drought
shriveled pastures, high prices for feed and fuel have increased
cattle production costs, and a recession hurt beef sales.
    Even with historically high cattle prices this past year of
more than $125 per hundredweight, cattle producers have lost
money. Many have responded by reducing their herds. 
    When agribusiness giant Cargill, one of the nation's largest
beef processors, announced the closing of its Plainview beef
plant it blamed the dwindling cattle herd and soaring feed costs
following the worst drought in half a century.
    The company also cited an over capacity in beef processing
in the Texas Panhandle, where Cargill operated two of the four
beef processing plants there. 
    "That (closure) has a domino effect because the feedlots
that were supplying that plant are now faced with escalating
costs to move their cattle to another harvest facility," said
George.
    An inventory report from the U.S. Department of Agriculture
on Feb 1 showed that the U.S. cattle herd in 2012 shrunk for the
sixth straight year, standing at 89.30 million head as of
January 1, the smallest since 1952. 
    "We're seeing some shrinking but we're also seeing other
people in areas that see an opportunity to raise a few cattle
and that's a positive," said George.
    Drought that lingered in the southwestern United States for
more than three years spread to the Midwest last summer, spiking
the price for corn at the Chicago Board of Trade to an all-time
high of $8.43-3/4 per bushel and doubled the cost for hay.
    "The overall assessment of the industry is that we're
struggling, that's all there is to it. The drought is having a
huge impact on us," said George, who raises cows and calves on
his ranch in Cody, Wyoming.  
   "It's rather bleak but we've never seen such high prices for
the cattle, so, there are opportunities out there if a guy has
grass and moisture and can run cattle," said George adding that
he remains "cautiously optimistic" that the country's beef
sector would recover moving forward.
    Profit margins, at least in the cattle feeding industry,
could shift back to a profitable mode if weather improves, he
said. Motivated by a potential turnaround, producers are being
particularly creative in how they are maintaining their cattle
in the hope of "riding out" another year, said George.
    "Farmers and ranchers are eternal optimists; they always
think it's going to be better next year. That's a good thing to
have because otherwise you get discouraged, throw up their hands
and walk away," he said.

 (Editing by Bob Burgdorfer)