Texans bridle at US dairy herd buyouts
Pilot Point, Texas — The battered steel door swung open and a 505-pound heifer came bucking into the paddock. As the rain and hail thundered down on the tin roof above us, a skinny cowboy cracked his whip at the frightened beast, yelling ``Hyaa, hyaa!'' and jumping onto the fence when the heifer darted too close. The auctioneer chanted out prices, too fast for these city ears to understand, but not too fast for the men sitting in the front row. Every now and then one would raise his hand until, finally, the auctioneer's voice fell silent. The heifer sold for $260, or about 52 cents a pound.
Trey Hamlett, a young, sandy-haired ranch manager at Skyview Ranch, shook his head slowly. ``I can't afford to sell at these prices,'' he said.
Mr. Hamlett may soon get a reprieve, however. After a favorable court decision -- and with the possibility of agricultural damage in the Soviet Union -- cattle prices on the futures market have been rallying.
Hamlett came to the livestock auction in this town of 2,211, some 60 miles north of Dallas, ``not to sell, just to get a feel for the market.''
A month ago, cattle prices plunged after the government announced details of a program to reduce the number of dairy cattle by 1.55 million, from a total of about 16 million dairy cows and heifers, over the next 18 months. The ``whole-herd buyout program'' is supposed to reduce milk production by 12.3 billion pounds and save the government some $2 billion to $3 billion in costs of buying and storing surplus milk.
The government is paying 14,000 dairy farmers to send their cattle to slaughter and stay out of the business for at least five years, and presumably for good.
The prospect of all those cows, calves, and heifers coming onto the meat market sent cattle prices plummeting -- more than 20 percent in some places.
In the last week, however, the tide has turned for cattlemen. On Tuesday and Wednesday, traders bid up cattle prices up the maximum allowed in a day.
In part, that was caused by the fire at the nuclear power plant in the Ukraine. In 1984, the Ukraine produced 22 percent of the Soviet Union's meat and 23 percent of its milk. Traders speculated that the Soviets may have to import meat.
``In a very basic sense, the Soviet nuclear mishap jolted everyone back to reality,'' says Dale Durchholz, research director at G. H. Miller in Chicago. ``It created enough commotion that brokers started saying, `What am I doing being negative on meat prices when prices are already low?' ''
Cattlemen also won a case in the courts. On Wednesday, a federal judge in Lubbock, Texas, ordered a preliminary injunction on the marketing of dairy cows under the whole-herd buyout program. He told the US Department of Agriculture (USDA) to come up with an orderly marketing plan by June 1.
``It was the lack of such a plan that drove prices down,'' says Darrell Wilkes, spokesman for the National Cattlemen's Association, which filed the suit.
The Cattlemen's Association says many dairy farmers brought their herds to market as soon as the program would permit, which was in April. The cattlemen wanted a plan that would smooth out the flow of dairy cattle into the meat market.
At time of writing, the association was waiting for the judge to clarify his position. But Mr. Wilkes believes the decision will mean that the distribution will be more even. ``The downward effect on prices will be minimized,'' he says.
Mr. Durchholz predicts cattle prices will increase in the next two months.
Whether the buyout plan will hurt the cattlemen in the long run -- or help the dairy farmers remaining in the business, who will theoretically make more money if there is less competition -- is a matter of dispute.
About 30 percent, or 450,000, of the dairy cattle would have gone to market anyway under the normal culling process. And 200,000 more would have been marketed because of farmers leaving the business.
Congress ordered the USDA to buy 400 million pounds of red meat, which, cattle ranchers and dairy farmers agree, more than covers the remaining cattle going to market because of the buyout program.
Dairy farmers worry the program ``is no more than a short-term relief,'' says Neal Bjornson at American Milk Producers Inc. ``Sure, it'll improve incomes for dairy farmers; but poor conditions in other parts of agriculture will mean other farmers will switch to dairy.''
Others, including rancher Hamlett, say the cattlemen's problems are more fundamental than the buyout program. Americans are eating less red meat. Better feeding makes for bigger, meatier cattle, which expands the meat supply even while the number of cattle has been shrinking. Low prices, coupled with high debt and falling land values, have meant lean times for cattlemen.
Even if the buyout program doesn't have a lasting effect on the cattle business, a temporary drop in prices is a dilemma for many Texas ranchers. They are running out of feed for cattle and have to decide whether to spend money on more feed or sell at low prices.
Mr. Hamlett is in better shape than many other ranchers. His ranch sold about three-fourths of its heifers before the price dropped. And because his ranch has heifers, which can be kept and bred -- as opposed to steers or bulls, which have to go into the beef market -- he can send them to Kansas for the summer when he runs out of wheat to feed them.
``I'd rather do that than take a beating on the market,'' he says. He doesn't have a lot of time to play with, however. ``My note's due on May the 15th, so I have to make some kind of decision whether I'm going to try to send them north'' by then, he says.
Cattlemen also face a sterner set of bankers in Texas. With loans to the oil and real estate industries going bad, banks here aren't inclined to take on more risk in the agricultural sector.
``There'll be people who, if they don't make their note, won't get more money from the bank next year,'' Hamlett says. ``Or even if they're able to eventually pay off their note, the bank won't loan them money again because they've lost this year or a couple of years in a row.''
He quickly points out that his ranch is not in that position. Even if things get tougher, he says -- and here he echoes what seems to be a deeply felt Texan reaction to adversity -- ``we'll make it.''
His voice is nearly drowned by the din of the rain. ``We're in here to stay,'' he says.