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Meat Market

You'll probably be paying more for your rib eyes and Whoppers thanks to the great Texas drought of 2011.

And the longer the drought continues, the harder it will be for cattle ranchers to recover. Restocking their land — if they still have any left after the rains return — can take two to three years due to the slow gestation cycle of buying calves, raising them into cows and then breeding more calves for sale.

"Six, ten years from now," Bartley predicts, "we won't be able to afford to eat a steak here in the United States if this continues on."
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Morgan Weber, a rancher who also owns the small Houston grocery store Revival Market with his business partner Ryan Pera, thinks that Ronnie Bartley's prediction of unattainably expensive steak in five or six years is "a little dramatic."

A lone cow waits for its turn across the auction floor at the weekly livestock auction in Longview.
Groovehouse
A lone cow waits for its turn across the auction floor at the weekly livestock auction in Longview.
Martin Lake, just down the road from Dirgin, has all but dried up. The drought forced its boat ramps to close by Easter of last year.
Groovehouse
Martin Lake, just down the road from Dirgin, has all but dried up. The drought forced its boat ramps to close by Easter of last year.

But the tenderloin, Weber says, "maybe that will become like foie gras or caviar." Weber, a rare grocer who's willing to speak openly about price fluctuations and plans for 2012, says that he can see a future where a cut of beef like the tenderloin "could become a rare occurrence" with a correspondingly "super-high price."

"Right now with our prices," Weber says, "if we pay $15 for a whole tenderloin and get it to that center cut section, we lose half of it — so we're already at $30 a pound. These days, we're now charging $38 a pound for nice tenderloin."

Unlike most grocery stores, Revival Market sells meat sourced exclusively from small-scale ranchers. Because of this, Weber says, he and Pera are able to weather the price fluctuations somewhat better than your average grocer. Their beef supplier is Premium Natural Beef, an Oklahoma-based company with ranching operations in Friona, Texas. These small ranches are mostly removed from the big ag system that treats cattle as commodities, as futures to be bought and traded. Just like the stock market, it's a system that can — and will — crash.

"The commodity system is not built to handle shocks like this [drought]," says Weber. "That whole system of buying calves at a sell barn and selling them back to fatten them up on a feedlot — that's a shock to a very fragile system."

"The whole beef industry in the U.S. survives on a stock or calf program. All these small ranches will buy 20 or 30 head of cattle, grow them up and sell them again — it doesn't matter what quality they are, because they're being ground up — profit margins are really slim."

But Weber isn't as concerned with the short-term pricing effects of the drought as much as he is about its lasting effects on the retail industry, about what will happen on the consumer end.

"I think it's worse than people realize," says Weber. "I think the long-term effects are going to be really bad. Prices rarely go back down — once people get used to buying a certain commodity at a specific price, even if everything goes back to normal, companies realize people are buying this at this price. It's never going to go back down that low."
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Each decade since Texas was settled by Spaniards in the 18th century has been marked by a period of severe drought. But the 2011 version is considered by experts to be the worst we've yet experienced, its effects only exacerbated by the past summer's wildfires that destroyed nearly 4 million acres of land — double the previous record set in 2005.

During the drought of 1883-1884, thousands of westbound settlers had just moved to the state a year earlier only to find it soon awash in dead, yellow grass. When their cattle followed suit and died too, many simply fled back to the East Coast.

In the 1950s, another multiyear drought ravaged the state. With grass and hay increasingly scarce, ranchers were forced to feed their starving cows molasses and prickly pear cactus paddles. By the time the drought ended in 1957, 96 percent of the entire state was a declared federal disaster area.

It's this drought from the 1950s that most Texas ranchers still remember, the one they thought would always be the worst. Ranchers represent an older generation, by and large.

The drought of 1995-1996 was particularly devastating to the cattle industry. A 1996 Special Industry Report from then-Texas Comptroller John Sharp stated at the time: "Drought, Mexican imports, overproduction, NAFTA, poor winter grazing, the high cost of feed and alleged anticompetitive concentration in the meat-packing industry all have been cited as at least contributing to the current problems faced by Texas' cattle producers since late 1995."

Despite these setbacks, the cattle industry rallied after the drought broke in 1997 and is now larger than ever. But the estimated amount that the cattle industry lost in 2011 alone due to the drought is almost equal to the dollar amount that the entire cattle industry made 16 years ago: A record $6.3 billion was made off cattle in 1995, while the very same industry lost well over $5 billion in 2011.

"The average age of farmers in rural communities is approaching 60 years old," says Mitchell Harris, CEO of AgTexas Farm Credit Services. Harris's bank was founded during the Depression to supply Texas farmers and ranchers lines of credit, and now operates in every county in the state. "There's a few people operating that are young," Harris says, "but there are more operating in their seventies." Although he's been through drought cycles before in his 40 years in the ag lending business, Harris is more worried now than ever.

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