Meat Market

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"Now the drought of fifty-seven was a curse upon the land." — Texas Trilogy 3: Bosque County Romance by Steven Fromholz, sung by Lyle Lovett

In 2011, after ranching for more than 16 years in East Texas, 57-year-old Ronnie Bartley, done in by drought, divorce and rising feed costs, sold off more than half his herd of hundreds of cattle. Facing bankruptcy, he laid off his two best employees — his sons, both in their thirties — who've had to change careers and leave the cattle industry.

Maybe, like many of the people in Dirgin and across the state who've lost their livelihoods as a result of the drought, they'll head into the oil fields. Or, as Bartley once did, work for the local power plant that — in normal weather — is cooled by nearby Martin Lake, which is looking severely dry itself these days.

The truth is that despite recent rains and increasingly distant memories of Central Texas wildfires, the 2011 drought has taken a more drastic toll on the U.S. beef supply than many people realize. The U.S. Department of Agriculture reported on January 3 that "80 percent of the rangeland and pastures in Texas remain in very poor to poor condition." Meanwhile, during the worst of the drought over the summer, more than 80 percent of Texas cattle ranchers had to cull or liquidate their herds. And this year isn't looking any better.

Tough news for a state which has long prided itself on its image as cattle country, and where, in fact, cattle ranching accounts for an enormous portion of our state's total agriculture industry. It exceeds the value of all other Texas crops — from cotton to corn — combined.

And tough news for consumers. Thanks to the drought, far more cattle than normal have been sold off, and the drought means that no new stock can or will be brought in until the pastures, and ranchers' finances, recover. The resulting low supply eventually led to record costs for both live and feeder cattle: Futures for both have been trading at record highs of $120 and $130 per hundredweight respectively. (Unfortunately, of course, the ranchers who sold off so many of their cattle or got out of the business aren't able to benefit from this sudden price rise.)

Record costs are being passed on to grocery stores and restaurants and the people who go to them. What economists call "forward contracts," or advance sales, are already trading higher than that for 2012. Many experts in the industry are predicting that this trend — like the drought — will only get worse in the year ahead.

Increasingly, U.S. meat is being exported to places where buyers are more willing to pay the higher prices. "Right now, 49 percent of that beef is leaving our country," Bartley says, headed overseas to ever-growing beef markets like Japan and Europe, making our limited domestic supplies even more expensive.

It's not only prices that change. There will be fewer offerings available of higher-grade meat, some predict.

So if you've never fixed barbed wire, or dodged piles of manure, or tossed a bale of hay, don't be too quick to think that ranching in Texas is just somebody else's hardscrabble life that has nothing to do with yours.

Even though most of the restaurants and grocery stores the Houston Press contacted about their beef prices didn't want to say a lot, many industry officials say there's probably no way to avoid higher prices and fewer choices. And once prices go up, it's rare that they go down.

The drought of 2011 that's expected to extend into 2012 and even, some say, longer, is about to hit you right in your burger with all the fixings.

The short, clipped, noncommittal statement from Kroger is virtually identical to that from H-E-B: "Certain aspects of local commodities such as produce and cattle have been affected by the drought," reads the e-mail.

"The drought has contributed to changes in the cattle landscape and prices; however, other industry factors such as sourcing and competition have also been influential," it continued. "Heading into 2012, Kroger will continue to offer an assortment of quality beef at the competitive prices that our shoppers know us for."

Neither grocery store would consent to an interview by phone, preferring instead to e-mail their statements on sharply rising beef prices through their respective PR agencies. But this was at least an improvement on their competitors: Fiesta, Randalls and its parent company, Safeway, did not respond to requests for comment. Their silence speaks volumes about the issues these stores are preparing to deal with in the coming year.

The grocery chains' silent treatment mirrors the strategy of many large restaurants, whose proprietors have remained mum when asked about their own plans for the rising beef prices.

Chipotle has been one of the very few national restaurant chains to address the cattle crisis. CFO Jack Hartung admitted to Businessweek last July that Chipotle plans to increase menu prices at most of its restaurants this year.

And in a report from December, Market Vision President John Barone warned industry media outlet Nation's Restaurant News that the drought has resulted "in less overall beef, even less choice-grade beef and higher prices in 2012." He added: "This situation may not improve in 2013."

One solution is, of course, not to eat so much beef. But changing habits isn't something that comes easily to most Americans, whose love affair with U.S. beef — and inexpensive U.S. beef, more importantly — borders on a sense of entitlement.

We are a nation accustomed to paying $1 for a Big Mac. We demand meat with every meal. And although its consumption levels have dropped off since beef's peak in the 1970s — before the no-red-meat health craze set in — beef still represents one-third of the average American's total meat consumption. So many of us — 95 percent, actually — are beef-eaters. We eat more than 20 billion pounds of beef per year (that's 70 pounds of beef per year, per American).

In a deeply ironic twist, bargain giant Walmart is actually responsible for a small portion of the increased beef costs across the entire grocery sector: Its 3,800 stores in the United States committed to stocking only higher-grade, higher-cost USDA choice beef this past year instead of its previous select beef. This switch has already begun to drive up the cost of the already greatly decreased choice-grade supply in the nation.

Ronnie Bartley, an orphan who, by his own admission, has no other marketable skills, can't imagine doing anything other than ranching. "I'm not a cowboy," he likes to tell people. "I'm a cow man."

As the soft-spoken rancher sits with a cup of black coffee at the local community coffee shop in Tatum, a Dairy Queen packed with his fellow ranchers, Bartley sounds like a man hard-pressed by life lately. "What we're dealing with now is something that's completely out of our control," he says.

"I always wanted to be a cattle rancher," he says. It was a profession he, like others around here, always admired. So he got a job at the local power plant upon graduation and worked his way up to a supervisor's position, winning himself a wife and saving enough money along the way to one day make a leap into cattle ranching. He finally did in 1995 — just as Texas was going through another tough, two-year drought. But he endured, all the while working to build a business he could one day pass on to his sons.

Within only 15 years, his line of credit at the local agriculture bank increased from $12,000 to $750,000, and as his credit grew, so did his acreage. But then the drought hit once again, and by June 2011, Bartley was forced to make some decisions.

"I began to liquidate," he says. "And I liquidated some more in July and again in September." September marked the worst of the summer, when nearly 90 percent of the state was experiencing "exceptional" drought as measured by the Drought Monitor and the National Oceanic and Atmospheric Administration. And Bartley's cows were getting skinnier faster than he could sell them for a profit.

"I can put $250 into a cow as long as she raises me that 600-pound target-weight calf," he explains, sketching a balance sheet in the air. "My target on a financial statement is 700 calves at 600 pounds." With the drought, he says, he's down to only 400 calves at 520 pounds, a sorry weight for what would normally be a plump feeder calf. If he gets a good price for them at auction — maybe $1.05 a pound these days — it still won't cover the cost of the feed and hay he's put into them.

And due to the drought, the ranchers are almost completely out of any hay they would normally grow themselves on their own land. Instead, they're forced to buy hay from Mississippi and Alabama at a sharp premium: Prices careen wildly from $70 to $100 a bale — and that's when it can be found at all. It's even more expensive to put the cattle on feed, which can cost in excess of $10,000 a month.

So Bartley has come up with a different plan.

He's sunk the last money he has — $180,000 — into purchasing a few more bales of hay as well as seed to grow more hay on his own land. "I took and went to plowing, planting and praying," he says. And while he waits to see if his grass will grow, Bartley worries ceaselessly, about himself and about far larger concerns.

Although Bartley claims that the business has been a blessing to his family, at times it's seemed like more of a curse: His wife left him after the long hours took their toll on the marriage. She also took along half his money in the divorce settlement, money that he could have used to keep a few of those cows he's had to sell in the drought or to buy more hay for his hungry herds.

"If the drought continues, we're gonna have a world full of starving people," he says. "Texas is by far the largest beef producer in the nation. Who's gonna feed these people if I can't?"

When cattlemen sold their already underweight herds at the height of the drought, the market was flooded with likeminded ranchers suddenly trying to dump any excess cattle all at once. The prices that packer buyers, feedlots and slaughterhouses paid for that glut of cattle were correspondingly low. Now that the slaughterhouses are no longer running over capacity and the ranchers have no more cattle to sell, that supply has dropped sharply and the demand — both domestically and overseas — is beginning to outstrip it.

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."

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."

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."

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.

"I think everybody's fear in the industry is that this weather pattern might persist like it did in the 1950s for five or six years," he said. "And this will accelerate the trend of declining cattle numbers."

The cattle industry went through a period this past summer in which the typical auctions were running 200 percent above capacity while ranchers rushed to liquidate their herds.

"Nearly all of our customers have reduced their cattle inventories by 25 percent," Mitchell says. "Some have done complete herd liquidations. It's just not economically feasible. And they're running out of stock water, drinking water for their cattle."

"There are lots of locations in Texas where rainfall was less than six inches for the whole year," Harris says. "And it rains 12 inches a year in the desert."

There's no way to battle the drought, only to endure it.

Irrigation is basically out of the question. It's too expensive for even wealthy cattlemen to stretch irrigation lines across their thousands of acres of land. Even if they were willing to part with the money, the water just isn't there. Cities large and small are drinking the state's reservoirs dry.

The little bit of rain the state has received in the last couple of months may seem like a blessing, but handled incorrectly it can become a tremendous burden. Ranchers like Ronnie Bartley worry about "green grass fever" in less experienced ranchers.

After a period of severe drought and then fresh rains — which bring along with them green grass — these inexperienced ranchers have the tendency to immediately restock their rangelands with new cattle. What's recommended instead is a complete resting of the pasture for at least one growing season, in the same way that a badly injured athlete would sit out the season. Playing — or grazing — again too soon can have disastrous and long-reaching consequences for a pasture's fragile root system, and can in fact completely destroy it. And once the grass is dead, there's nothing much left to do with the land.

"Millions of acres of land in Texas is cow country," says Bartley. "That's all it's good for. Ain't good for nothing else: just oil wells, gas wells and cow country."

Bill Hyman, executive director of the Independent Cattlemen's Association of Texas, has concerns of his own. "When it does rain," he says, "you're gonna see a lot of these folks having to go back to their bankers or their lenders and try to borrow more money, but every day the equity in their cow herd is being reduced. They may not have the equity to get any cows back."

There are a few loans ranchers can get from the government, both locally and federally, but — as Hyman puts it — "there's limited funds there." It's not enough to assist all of the hurting ranchers, many of whom will turn to selling or leasing their land as a last resort — if their land isn't foreclosed on by the banks to whom they, like Bartley, owe a lot of money.

"A lot of ranchers now are able to lease their property to other folks for hunting, horseback riding, bed and breakfasts," Hyman says. Bartley hates this and bemoans the fact that so much good cattle ranching land has been sold off over the years to people who won't even use it anymore. For his part, he plans to dig in his heels.

"I will be one of the last ones to stay," he says. "I'll be one of the last ones to be in the cattle business because that's what I do. That's what I believe in."

A few within the agricultural industry have suggested alternative livestock, such as goats. Goats, they reason, are able to thrive off much poorer food and in longer drought conditions than cattle. They don't take up as much space per acre as cattle. And countries like neighboring Mexico will buy our goat meat, they say. But most ranchers laugh this off, just as they did when some suggested ostrich ranching — which never really panned out — in the 1990s.

Experts like Hyman agree that goat-ranching isn't the solution some may think. Morgan Weber at Revival Market chuckles that maybe the beef shortage will cause more people to try lamb. Like goat, it's a very long shot. Even Weber knows it.

"If you're not involved in it on a daily basis on an intimate level, most people don't understand how much goes into raising a cow," he says. Folks will just have to get "more used to paying more for meat based on the accurate reflection of what it costs to raise the animals," Weber continues, before admitting that he knows that confused consumers' questions are looming on the horizon.

"They're gonna ask why our tenderloins are $38 a pound," he says. "They're not gonna understand." And they're not going to like it.

"The desire and demand for beef is too strong," he says. "But there's a ceiling — it's got to let up sometime. If it's the drought that does it, that's nature keeping it in check."

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