Tuesday - U.S. Drought Monitor Forum

1. Drought Impacts on
California’s Beef
Cattle Industry
Justin Oldfield, Vice President, Government Affairs
California Cattlemen’s Association

2. 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

3. 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

4. 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

6. 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

8. BusinessIncome& CostsAffected 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

9. Sustainable GroundwaterManagement 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

10. 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

11. 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

12. 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.)

13. 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

15. 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

16. Questions