May 17, 2013

Macroeconomic trends are pushing the geographic centre of the domestic cattle herd to the north and west, and with overcapacity in the traditional packer strongholds in the Southern Great Plains, the next year or so may see more beef plants shut down in that region, says Glynn Tonsor, assistant professor of agricultural economics at Kansas State University.

Much of the herd's relocation is prompted by the severe drought conditions of 2011 and 2012, the ramifications of which are still being felt by producers. The percentage of cows in states with "poor" or "very poor" pasture conditions more than doubled in the past 12 months, Tonsor pointed out. In the states of Colorado, Kansas, Montana, Nebraska, North and South Dakota and Wyoming, where 34.3% of retained heifers were located as of January 2013, nearly 60% of the pasture is rated "poor" to "very poor."

By contrast, 11.3% of retained heifers were in the states of Arizona, California, Idaho, Nevada, New Mexico, Oregon, Utah and Washington in January, where less than 35% of the pasture is rated "poor" or "very poor."

Those states to the north and west also tend to have wider operating margins, Tonsor says, so there are promising areas for growth.

The herd has "easier access to feed" in areas to the north and west of its traditional centre, "and so those plants in the south might be more vulnerable," Tonsor said. He also said sometime in 2013 or 2014 would be the most likely timeframe for more companies to announce shutdowns.

Tonsor made his observations as part of the second Beef Cattle Economics webinar of 2013. This macroeconomic series is in its second year, sponsored by Merck Animal Health with partners Kansas State, Beef magazine, Drovers and Meatingplace. The next quarterly Beef Cattle Economics webinar is scheduled for August 13.