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High input, low return posing challenges for T&D Region beef cattle producers

High input, low return posing challenges for T&D Region beef cattle producers

U.S. Marine Corps veteran Jim McClain grew up working in the tobacco fields where his father was a sharecropper, an experience that inspired him to own his own land one day.

While his military career came to a close in the early 1990s, McClain's career in agriculture was just beginning.

In 1991, he and his wife Linda purchased the 600 acres near North that is now The Flying Leatherneck Ranch. There the couple farm Coastal Bermuda hay and Black Angus and Black Baldy cattle.

The couple started with 300 head of cattle and 150 acres of hay.

Today, they have more than doubled the size of their hay operation, growing on 350 acres. They have downsized their cattle operation to about 50.

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The biggest challenge in the cattle business over the past several years has been prices, McClain said.

"The price the grower gets does not pencil out," he said. "It costs me more to grow the animal than I get for having done so. The profit is not to the grower -- it is to the people in the middle and the grocer. It certainly is not to the grower."

"I am getting literally pennies on the dollar for a grown cow," McClain said. "We are talking about a full-grown animal that you get 40 or 50 cents a pound for. When you go the supermarket and you buy that same animal, the cheapest cut of meat is several dollars a pound as opposed to what the grower gets."

On top of this, input costs are high.

"The vet bills and the other bills associated with growing animals for me, there is just not enough profit in it to make it a viable business venture at this point," McClain said.

For McClain, the hay business is primarily his success story.

"I get considerably more for my hay than I get feeding my hay for my cows," McClain said, noting his hay goes primarily to the equine market, which is over $3 billion a year in the state.

"We sell really high-quality hay," he said. "It is well-fertilized, well-limed and it is weeded. I can't grow enough."

McClain reserves his hay for his base customers and for those who order and reserve it.

Overall, 2020 is bringing with it a great deal of unpredictability for beef producers in The T&D Region and beyond, according to livestock experts.

The coronavirus (also known as COVID-19) is wreaking havoc on markets, creating a speculative and uneasy environment.

"The outlook for beef producers in South Carolina is one that possesses a great deal of uncertainty," said Bernt Nelson, Clemson Cooperative Extension farm management specialist and livestock economist. "Cattle producers, as decision makers, are facing short-term prospects that do not look positive."

The year 2020 has a "lot of obstacles at play that will make it difficult for beef markets to rally," Nelson said.

One of these is the coronavirus fears.

Nelson said live cattle futures (April 2020 Live Cattle) have fallen from $127.90 per hundredweight on Jan. 15 to 111.825 through early March. This is a 12.6% decline since the coronavirus discussions ramped up.

Nelson did note the price drop has come during a typical seasonal demand drop-off as prices are expected to increase as "grilling season" approaches.

Feed has also been impacted by the coronavirus as prices received by farmers have been slightly greater than last year.

At this time in 2019, the December corn price was $3.66 per bushel. Today, the December contract is trading at $3.85.

Soy meal was at $295.5 per ton. The 2020 December contract is  trading at $316.00 per ton.

"Our feed prices are up slightly while our market prices have dropped," Nelson said. "This is not the relationship we want to see."

McClain says he is not personally concerned about the virus or its impact.

"There are far more people dying from the flu and other heart diseases," he said, noting though the threat is out there, life won't stop because of the coronavirus.

"I am confident the administration is doing all they can do to keep us informed."

Nelson said "the sleeping giant" of cattle markets, both domestically and globally, is demand.

"This year, there are an incredible number of variables involved with demand," he said. "Beef supply has not changed a whole lot, demand has become volatile and uncertain, and so have cattle prices."

One of these variables is the generally positive market for beef.

"With a strong economy comes more money in citizens' pockets," Nelson said. "Choice or prime beef is a product that possesses a higher price because of its quality. When Americans have more money, they buy more beef."

Nelson explained beef supply is currently at a high in the cattle cycle, which is used to describe the expansion and contraction of the beef industry over time.

Six years ago, he said the cattle cycle hit a low of about 88.243 million head in the state. The peak was seen last year at about 94.804 million head and has gone down slightly into 2020.

"Producers are starting to decrease output," Nelson said, explaining that packers in many ways are the driver of the beef markets.

Packers are companies that purchase, slaughter and process the cattle from the producer.

"These packing companies purchase animals according to their profit margin rather than relying solely on the demand of the consumer," he said. "Just because the consumer wants to eat a lot of beef doesn’t mean that a packer is willing to purchase cattle from the producer in a way that makes both the packer and the producer money."

The packer wants to purchase cattle on the low end from the producer and sell the product on the top end to the next entity in line, the retailer," Nelson said.

Nelson said that what this means is that the cattle inventory is slowly contracting.

"Regardless of how many animals are available in the inventory, packers are going to purchase based on their ability to make money," he said. "If the packers can increase their profit margin by slowing production, that is what they will do. At the end of the day, the packer is the one that puts money into the hands of the producer."

Another variable facing the cattle market is trade.

"There are currently so many global trade headlines, it can be overwhelming to try and keep up with them all," Nelson said.

Perhaps the biggest thing impacting beef in 2020 is African swine fever, Nelson said.

ASF is a disease affecting hogs, the number-one protein source consumed by in China. It is estimated that ASF has caused a 20% decline in the Chinese hog population, and other speculative sources have released estimates as high as 39%.

"China cannot produce pork fast enough to make up for this loss and will have to seek outside markets to make up for this loss," Nelson said, noting that while beef is in high demand, it also takes more time and money to produc. In light of this, he believes countries like China suffering from ASF will continue to prefer pork and poultry over beef.

"Those impacted by ASF need meat products and fast."

"It scares the hell out of me," McClain said when asked about the ASF, noting how the disease has "decimated" countries such as China. "That is a real threat. That is much more of a threat to the farmer."

Another issue with trade is opening of U.S. to Brazilian beef imports.

"The initial response from many cattle farmers is negative with respect to the idea of importing another product when U.S. beef producers are struggling with profitability," Nelson said. "In addition to that, many are not convinced that Brazilian beef is safe. While this goes into effect immediately, there are still obstacles to allowing Brazilian beef into the market."

While much is out of the control of local cattle producers, one thing that they do have control over is the preparations needed for warmer weather.

"Many cattle producers are calving," he said. "Avoiding marginal body conditions and maintaining good body conditions in these animals is really an important factor in keeping animals healthy to breed back for next year."

"In a time where prices are lower than we want them to be with input prices rising, it becomes increasingly important to be sure losses aren’t compounded because a cow won’t be able to produce a calf for the next season," he said.

Like many sectors, the cattle industry in the region has generally stabilized after seeing a rather significant decline since the mid-1980s due to rising operation costs that forced many farmers out of business.

Dairy

Norway dairy farmer Allen Riddle, a fourth-generation dairyman, milks about 800 to 900 cows on 1,300 acres.

Feb. 2, 2020, marked 50 years on the farm for Riddle.

Each year, Riddle embarks on another venture in the dairy business, and 2020 will be no different.

It is a year he approaches with some optimism despite a number of global issues surrounding trade, tariffs and the new wild card: the coronavirus.

"I think things (milk prices) have improved probably around $3 a hundred (weight)," Riddle said. "It is right around $20 and I am actually keeping the bills paid right now."

In fact, he received his best milk check this past January.

Riddle, who works on the farm with his son Josh, says higher prices can be credited to a general slowdown or stability in milk production, which is helping keep supplies low.

"I really think the Mexican deal is helping," he said. "They are buying a lot of dairy products from us, and I think the tariffs are off of Mexico right now. They are back buying a lot."

Just when things have begun looking up on the trade and tariff front, Riddle says the coronavirus has put a wrench into things, specifically with China.

"We are hoping when the coronavirus comes down, the Chinese will be looking for powdered milk and products like that," he said. 

But the virus has already hit home for Riddle in terms of input costs. A chemical he typically orders for weed control was not available due to China closing the factory that makes the chemical because of coronavirus.

"I was able to change to a different brand, but I was trying to buy it in a 250-gallon container," Riddle said. "It is cheaper like that, but I had to get it in 2-1/2 gallon containers."

Riddle understands if the coronavirus situation continues, more issues could arise along the same lines.

Riddle, who admitted he is not a big fan of government payments, said he has been helped by the market-facilitation program. Market facilitation has helped with milk prices affected by disruptions in the dairy market from tariffs.

Dairy farmers like Riddle have seen challenging times the last decade as milk prices have hovered below feed expenses, making profit margins slim to none.

Prices for milk last year moved upward of $18 per hundredweight, which was up about $1.50 from 2018 prices.

But analysts say it has not been enough to overcome financial losses over the last couple of years when milk prices got as low as $13 per cwt in March 2018. Milk prices were as much as $24 per cwt in 2014.

According to the U.S. Department of Agriculture Economic Research Sector's Livestock, Dairy, and Poultry Outlook, the all-milk forecast for 2020 has been lowered to $19.25 per cwt, about 15 cents lower than previous forecasts.

Milk production is expected to drop in the coming year, and imports of butter and cheese are also expected to be lowered while exports of skim milk powder is expected to increase, according to the report.

Domestic demand in milk is expected to continue on a low, continuing a trend from 2019, the report states.

Based on recent price weakening and lower expected domestic demand, 2020 price forecasts for cheddar cheese and butter have been lowered to $1.835 per pound (-3.0 cents) and $1.960 per pound (-6.0 cents) respectively.

The Class III milk (cheese) price forecast for 2020 has been lowered to $17.35 per hundredweight. The Class IV milk (butter and powdered milk) price forecast has also been lowered to $16.90 per cwt.

Of some note for 2020, Borden Dairy initiated Chapter 11 bankruptcy. Borden Dairy produces fluid milk products, cream, buttermilk, dips, sour cream and other products.

The filing of Borden for bankruptcy was on the heels of Dean Foods Inc., which also filed for Chapter 11.

The bankruptcies follow a surge in popularity of non-dairy alternatives such as almond, oat and soy milk.

While the Southeast does not really produce Class 3 (cheese) or Class 4 (butter and powder) milk products, all the cheese commodities are tied into the Class 1 (liquid milk) price. This means cheese and powdered milk demand is crucial to supporting liquid milk prices.

Poultry

Olar poultry farmers Chad and Barry Brubaker of Brubaker Farms operate four poultry houses.

The farm, which raises poultry for Columbia Farms, plans to raise about 625,000 chickens this year.

Barry, who is the farm's manager, says poultry prices this year are average, with demand helping to keep "them suppressed."

Continued high input costs are also a challenge in poultry farming, meaning profits are kept to a minimum, Brubaker said.

As a result, there will be few changes on the farm in 2020.

"Prices are stable, so we keep things stable," he said, noting trade agreements are something the farm also will keep an eye on. "It (trade) affects it some."

In the short term, as winter becomes spring, Brubaker said there are some of the typical preparations done on the farm.

"We make sure they (chickens) have plenty of air and cool pads are working," Brubaker said.

On the macroscale, the U.S. Department of Agriculture Economic Research Service Situation and Outlook Report expects 2020 broiler production to increase as there is an expectation for a larger breeder flock, which means an increase in slaughter rates. This increased supply is expected to put downward pressure on prices.

With expectations for increased production in 2020, whole bird prices are expected to be relatively low in 2020 at 86.5 cents per pound -- 3% lower than 2019.

Boneless/skinless breast meat, which has typically been the most valuable part of the bird, has been lower than the five-year average. Higher leg quarters and whole leg prices due to increasing demand could help offset these prices, according to the outlook report.

Additionally, producer margins should benefit from redirecting chicken paws from low-value rendering to higher-value exports to China, the report states.

But the poultry market globally has improved due to better trade balance in key markets, according to experts.

Analysts say rising poultry demand will be seen especially from China as the country sees a reduction in its pork production due to African swine fever.

The table egg production forecast for 2020 is also forecast to have higher-than-expected productivity, as well as expectations for a larger breeder flock.

Many area poultry farmers contract with Pilgrim's Pride or Columbia Farms. The companies provide the birds, feed and veterinary services, while the growers provide the labor, housing, litter and utilities.

Generally, over the last five years, the region's poultry sector has stabilized in chicken farms after seeing a decline over the past few decades.

Swine

Pork production is expected to be about 4% higher in 2020 than in 2019 due to a projected increase in litter rates, according to USDA economic outlooks.

Hog prices in 2020 are expected to average $54.50 per hundredweight, about 14% higher than prices last year, reflecting strong processor demand for hogs, continued solid domestic pork demand, and U.S. pork exports growth of about 13% above volumes shipped in 2019.

Optimism from swine producers was that African swine fever in China would cause the U.S. pork market to boom, but trade disputes with China have cooled exports along with any potential uptick for hog producers, according to reports.

The ASF is not a concern to humans but severely impacts hogs.

The USDA has implemented a surveillance program for pigs to ensure the virus does not make its way into the U.S.

Domestic pork demand remains strong, according to the USDA.

Locally, prices for feeder pigs in February were $25 to $40 per head under 100 pounds. This is relatively stable from prices in 2019.

Swine's place at the T&D Region table continues to remain small as integration has kept many farmers from entering the business.

Texas-based Cactus Feeders, which purchased Orangeburg Foods in 2015, is the only significant swine operation locally.

Want to get a whole lot more from TheTandD.com?

Cactus Family Farms, a division of Cactus Feeders, breeds, gestates and weans pigs and then transports them to be grown and sold to packers. The company also provides farmers with feed and hogs.

Officials with Cactus Family Farms on John C. Calhoun Drive could not be reached for comment for this edition.

Contact the writer: gzaleski@timesanddemocrat.com or 803-533-5551. Check out Zaleski on Twitter at @ZaleskiTD.

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