Market Analysis: Cattle

The cattle industry or beef production in the State of California was number Four as a commodity for the 1997 crop year, exceeded only by milk products, grapes, and nursery products. As a state California ranks 5th in cattle numbers, the largest west of the Rocky Mountains. Prior to being impacted by the drought years, beef production was traditionally one of the highest ranking agricultural commodities in the State. The two principal sites for California beef production has been the rangeland found in the eastern foothills of the Sierra Nevada Mountain Range and the foothills and mountains of the Coastal Range; as well as in the feedlots located in areas along valley floors. The capacity of the two principal sites has been decreasing in recent years, and will probably continue to do so in the future.

 California’s shrinking rangeland has resulted from two independent pressures. The first is that technology, and changing economies, has allowed much more land to be brought under cultivation. Secondly, and of greater importance at present, is the parceling and subdivision of this land into units too small to be used for beef production, “sprouting” instead with vacation homes and permanent residences. This has resulted in a general inflation of rangeland prices (primarily in smaller acreage) to many times more than what could be justified by productive value. At this level, a return to investment of 1% to 3% is the most that could be expected during good price years and potentially negative returns during fair to poor years, such as those experienced during the drought in California during the mid-1990’s.

Higher real estate prices have caused higher operating costs, through inflated property taxes which could exceed the income producing ability of the land. Fortunately, California has enacted legislation (Williamson Act) which allowed a contractual agreement with counties to tax on the productivity of a property, rather than the real estate value of the land. Many feel that this legislation saved the industry from sure extinction, currently though, this act is being attacked by some political groups and faces an uncertain future.

There are three phases of production with reference to the raising of livestock from birth to final disposition as slaughtered beef. These phases are commonly referred to as Cow-Calf production, Stocker production and Feedlot operations. The Cow-Calf production phase begins with a range cow that has been bred to give birth to a calf during fall months just prior to the season of most nutritious forage production. During the first six (6) to eight (8) months of their lives, these calves will grow to a weight of 500 to 550 pounds while nursing their mothers. At this stage, forage growth will have slowed or stopped, and the calves are weaned. Since about 20% of the cow herd must be replaced each year, a sufficient number of heifer calves are retained for this purpose and the remainder, along with all the male calves (steered) enter the next phase of their lives. Most calves are sold at weaning time and moved to other parts of the country where the grass season is just beginning. Whether weaned or retained, they now enter the Stocker production phase.

The Stocker production phase involves putting a weaned calf on grass for another season, during which time it will gain another 200 pounds in body size. In actuality, it usually requires purchasing calves from the southwest and transporting them by truck, during which time they can “shrink” in weight by 6% to 10%, and 1% to 2% of them may die due to shipping stress. On arrival they are treated and vaccinated, and watched closely until determined to be healthy. Supplemental feeding is often necessary until the grass growth gets strong at which time they can be turned out to range. At the end of the grass season, they are again rounded up and readied to enter the final stage of production in a feedlot where the cattle are finished, or fattened, to the size and condition desired by beef consumers.

The Feedlot operation phase may resemble a factory more than a ranch. A Central California feedlot may feed out many or most of the local stockers coming down from the hills. But it is also the final home of feeder cattle from throughout the western United States, since California's feedlot capacity exceeds its overall range cattle production. Cattle are grouped in pens that allow 75 to 150 square feet per animal where all their needs are provided. Inspected and medicated as needed upon arrival, they are fed a scientifically balanced diet at least twice a day. Once or more a day a cowboy will ride each pen, evaluating every animal for the slightest hint of sickness or digestive upset. Those showing adverse symptoms are promptly treated, since every day of less than optimum weight gain is a direct loss of profits. After 3 to 5 months on full feed, the feeder steer has gained upwards of 400 pounds and has acquired a high degree of “finish” a high degree of intramuscular deposit of fat, which consumers associate with tender, flavorful beef. At this time, the cattle are sold to a beef slaughter plant, thus, completing the three phase cycle.

Beef has historically been the choice of meat by American consumers, with per capita consumption exceeding 100 pounds for many years. Unfortunately, the purchase of beef by U.S. consumers is very price sensitive with regards to disposable income. A general downturn in the U.S. economy through the 80’s and early 90’s resulted in an overall decline in per capita beef consumption to a present level of 65 to 70 pounds. The general consumer health trend towards the consumption of less fatty meat, such as chicken and fish, has also contributed to the decline in beef consumption.

In order to combat this problem, the beef industry instituted a self-financed research and promotion effort known as the Beef Checkoff Program to increase consumer demand.Although this program may help increase consumer demand, the competition for land, labor and capital vital to livestock production by non-agricultural sources still threatens to effect a continual decline in California beef production.

The following statistical data illustrates the historical data for the California Beef Industry as it relates to livestock production and income for cattle and calves; number of cattle operations; marketed from feedlots; and the number of cattle and calves slaughtered.

This data is more specifically described on the following graphs & tables:

Livestock Production and Income, California, 1983-97

California Cattle Operations and Inventory, Percentage by Size Groups

Cattle and Calves Marketed from Feedlots, California, 1983-97

Number Of Cattle And Calves Slaughtered Under Federal And State Inspection, California, 1983-97

Average Prices Received For All Beef Cattle

The statistical data previously presented illustrates the declining trend of the California Cattle or Beef Industry. In summary, the cost of doing business in California continues to place heavy burdens on the local livestock industry, especially cattle, due to the nature of the production process and related cost structure. As of the date of this report, the 1998 statistical data for the California Cattle Industry was not available, although preliminary data indicates similar continuing trends.

The economic viability of a cattle ranch is directly attributable to the carrying capacity, or amount of cattle it will support during a normal operating season, as well as the productivity or weight gain attributable to the cattle. Rangeland feed production is directly associated with the amount of rainfall an area receives during the winter. Previous drought conditions which have plagued California in the mid 1990's reduced the amount of feeds produced on rangeland properties, thus, lowering the carrying capacities and net returns to the rancher. Naturally, the result of this impact has been fewer cattle ranchers with the financial means of acquiring additional rangeland property. Although limited, the appraiser was able to find recent sales of comparable rangeland property in the immediate area of the subject property, as well as along the east side of the foothills of the San Joaquin Valley.

Recently, though, market demand has increased in the Central California Coast Range, spurred by rural speculators, developers, environmental groups, cattleman, as well as 1031 exchangers. Increasing real estate values in both the Bay Area and Southern California is placing positive pressure on outlying areas along the Interstate 5 and Highway 101 Corridors, as commuters continue to look at small rural communities with reasonable cost housing. As more of the Central Coast Range becomes subdivided by expanding urban centers, more pressure is placed on the remaining rural areas by buyers with environment agendas, or seeking recreational hunting, vineyard development, and even cattleman. This is especially apparent for large contiguous blocks of rangeland in the Central Coast Range. Market sales in the general rangeland areas of the Central Coast and foothills of the Sierra Nevada Mountain Range indicated a range from the low of $140 per acre to a high in excess of $600 per acre for native rangeland. Those sales consisting predominantly of large acreage cattle ranches in excess of 5,000 acres, indicate a tighter range from $140 to $350 per acre; while those sales consisting of smaller acreage parcels in the 1,000 to 3,000 acres or less, indicate a range of $350 to $750 per acre.