Drought Impacts on California's Beef Cattle Industry

Drought Impacts on California’s Beef Cattle Industry

Justin Oldfield, Vice President, Government Affairs

California Cattlemen’s Association

California’s Cattle Industry• $3.3 billion in total cash receipts, does not include sales of

beef

• #4 agricultural commodity in California

• Beef cattle operations

• 12,600 (1-99)

• 2,000 (100-499)

• 800 (500-999)

• 1,200 (1000+)

• 600,000 beef cows statewide

• Feed deficit state

• Not vertically integrated

Industry Segments Cow-calf producers

Maintain cow breeding herds Pasture based

Stocker/Background Yard Purchases calves to raise to ~700-900 lbs. Largely annual yearling operations for both steers and

heifers Pasture & feedlot based

Cattle Feeder Purchases calves or stocker cattle depending on market Finish cattle on hay and protein (grain) ration Feedlot based

Packer Purchase and harvest cattle at ~1,300 lbs. California lacks large scale processing facilities

Resource Base & Use• Ranchers own or manage 34 million acres

• California dependent on public & private lands• More extensive cuts on faced on federal lands

• Almost all surface waters cross public & private rangeland

• 2/3 of federal & state listed species live on private rangeland

• Ongoing research demonstrates importance of grazing

– Improve wetland & vernal pool habitat

– Reduce fire loads

– Improve habitat for wildlife species

–Mimic historic grazing herds

Resource Challenges• Shorter grazing seasons

• Unproductive stock ponds

• With a Mediterranean climate, California depends on two grazing seasons:

• Spring/Summer (mountain allotments, irrigated pasture)

• Fall/Winter (non-irrigated rangelands, low elevation allotments)

• Large influx of feeder cattle and yearlings

• Reduction in forage base• Recent transition of rangelands to permanent

crops

Business Income & Costs Affected by Drought• Shorter grazing seasons

• Earlier weaned calves

• 350 lbs. Steer ~$1,190

• 600 lbs. Steer ~$1,800

• Net loss of ~$610/steer

• Increased costs for supplemental forage

• Alfalfa ~$180/ton

• Other Hay ~$220/ton

• Largely exported

• Inability to maintain replacement heifers

• Tax liability associated with additional income

• Smallest national beef cow herd since 1953

Sustainable Groundwater Management Act• California groundwater law based on correlative rights

• Some adjudications currently exist

• Implementation:

• Formation of groundwater management agencies

• Development of groundwater management plan

• Law impacts only high and medium priority groundwater basins reflected in Department of Water Resources Bulletin #118

• Control is meant to be done locally and ensure “sustainable yield”

• Enacts state backstop

• Questions remain regarding future adjudication

• Clean up legislation likely this session

Return on Investment• Capital intensive with a small return

• Risk oriented business

• Increased requirements by banks to loan cash

• 35% value in liquid assets required to purchase property or fund capital expenses

• Without incurred costs, 3 year average to payoff cow

• Including cultural costs, 4 – 5 year average to payoff cow

Return on Investment cont.

• Without incurred costs, 3 year average to payoff cow

• Including cultural costs, 4 – 5 year average to payoff cow

• Livestock theft accounts for:• Additional debt without collateral• Loss of a long-term investment if debt has

been serviced• Loss of liquid capital & ability to service annual

operating expenses• Loss of leveragable asset• Loss of cull value

Noninsured Crop Disaster Assistance Program (NAP)• Annual service fee is required, not to exceed $1,875, waiver

available

• Covered disasters include drought

• Planted feed & native pasture available for coverage

• Coverage period established by grazing season

• Payments made on losses in excess of 50 percent of expected production

• Requires actual loss to be documented by at least two “experts” (ag commissioners, UCCE extension agents, etc.)

Livestock Forage Program• Annual Gross Income (AGI) cannot exceed $900,000

• Payments not to exceed $125,000 (Total ELAP, LFP & LIP)

• Payments made in accordance with U.S. Drought Monitor (sever, extreme, exceptional)

• Administered by the University of Nebraska

• Payments made monthly per animal unit or 60 percent of the actual feed costs

• $40.79/cow

• $30.59/yearling >500 lbs.

• New possibilities for collaboration between authors and industry representatives

Taxable Gaines Deferment• Authorized under IRS Code §451(e) & §1033(e)

• Applies to sales in excess of normal business practices

• Principle business must be agriculture

• Postpone capital gains with intent to purchase livestock within four years of the end of the tax year §1033(e)

• Defer income – must be under cash accounting - to the next tax year (disaster area declaration required) §451(e)

• Can be used on state return as well

Questions