* More feedlots, packing plants may fail
* Cattle, beef prices to remain high
By Theopolis Waters
CHICAGO, March 4 California's recent rains brought only short-term relief to the state which is suffering its worst drought in a century, leaving cattle rancher Kevin Kester to stick to his strategy of salvaging as much of his operation as possible for his three children to have a future in the cattle business.
"We have a plan to hang on for another 60 days. If we don't have any significant rainfall by the end of April then we'll be forced to sell off everything we have," said Kester, the 58-year-old owner of Bear Valley Ranch in Parkfield, California.
Last year Kester held off buying new steers and sold off 20 percent of his 700 beef cows on the 20,000-acre spread that has been in the family for five generations.
A plodding, steady rain is needed to heal California grazing pastures scarred by historic drought, draining the state's pool of beef cattle that ranchers elsewhere need to help restore the U.S. herd, which is now at the smallest since 1951 at 87.730 million head, livestock industry sources said.
They said fewer cattle from the Golden State will result in more feedlots and packing plants going out of business in the roughly 2-1/2 years it takes for a young calf to reach market weight.
While scarce supplies will help ranchers reap a windfall from record-high cattle prices during that period, shoppers face even higher beef costs.
In January, the average retail beef price was $5.35 per lb, just off a record high of $5.41 set last November, and up from $5.21 in January of 2013, according to the U.S. Department of Agriculture.
Separate USDA data showed California has the 18th largest beef cow herd in the country at 600,000 head. Texas tops that list with 3.9 million beef cows.
"Even though California does not rank among the top 10 beef cattle producing states, if this drought persists it will be a drag or certainly slow the pace of nationwide herd growth," said Colorado-based Livestock Marketing Information Center director Jim Robb.
Robb predicts the state could lose 100,000 head of cattle by the end of the year if the dry spell continues.
The government's drought monitor issued on Feb. 27 reported most of California is in extreme or exceptional drought, including remnants of a dry spell that gripped the U.S. Plains in recent years that sent feed costs to record highs in 2012 and forced ranchers to downsize their herds.
Abundant spring rains last year brought down corn prices, but not enough to halt the slide in cattle numbers that recently has been exacerbated by harsh wintry weather.
Last week, the shortage of slaughter-ready cattle drove their price to an all-time high of $152 per hundredweight (cwt), topping the previous record of $150 in January.
The silver lining in the cloud hanging over California's cattle industry is that a scarcity of cattle nationally has kept prices high, allowing ranchers to at least turn a modest profit that might help them later, said Malorie Bankhead, a spokeswoman for the California Cattlemen's Association in Sacramento.
"Then it comes down to where will the cattle be that they can use to replenish their herds down the road," she said.
Some of California's drought-displaced cattle wind up at packing plants while a few are sent to neighboring states to graze on leased pastures until conditions in California improve. Still others can be found in feedlots as far east as Texas with the possibility of never returning.
"When ranchers have to make the difficult decision to reduce their herds, if selling calves early isn't enough to cope with the drought, then they have to reduce their breeding stock which in turn reduces the amount of cattle that they will have in the future," said Bankhead.
Seeing some of his neighbors and friends throwing in the towel leaves Kester troubled about the fate of the state's $1.75 billion beef cow industry and the longer-term implications for the rest of the country.
"If we don't start growing and getting more cows into the inventory in the next 24 months, we will continue to see, one by one, processing facilities as well as feedlots closing and companies consolidating. That's not good for consumers in the long run," said Kester. (Reporting by Theopolis Waters; Editing by James Dalgleish)