Drought Impacts on California's Beef Cattle Industry

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Federal Disaster Assistance Programs

Drought Impacts on Californias Beef Cattle IndustryJustin Oldfield, Vice President, Government AffairsCalifornia Cattlemens AssociationCalifornias Cattle Industry$3.3 billion in total cash receipts, does not include sales of beef#4 agricultural commodity in CaliforniaBeef cattle operations12,600 (1-99)2,000 (100-499)800 (500-999)1,200 (1000+)600,000 beef cows statewideFeed deficit stateNot vertically integrated

Industry SegmentsCow-calf producers Maintain cow breeding herdsPasture basedStocker/Background YardPurchases calves to raise to ~700-900 lbs.Largely annual yearling operations for both steers and heifersPasture & feedlot basedCattle FeederPurchases calves or stocker cattle depending on marketFinish cattle on hay and protein (grain) rationFeedlot basedPackerPurchase and harvest cattle at ~1,300 lbs.California lacks large scale processing facilities

Resource Base & UseRanchers own or manage 34 million acresCalifornia dependent on public & private landsMore extensive cuts on faced on federal landsAlmost all surface waters cross public & private rangeland2/3 of federal & state listed species live on private rangelandOngoing research demonstrates importance of grazingImprove wetland & vernal pool habitatReduce fire loadsImprove habitat for wildlife speciesMimic historic grazing herds

Resource ChallengesShorter grazing seasonsUnproductive stock pondsWith 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 yearlingsReduction in forage baseRecent transition of rangelands to permanent crops

Business Income & Costs Affected by DroughtShorter grazing seasonsEarlier weaned calves350 lbs. Steer ~$1,190600 lbs. Steer ~$1,800Net loss of ~$610/steerIncreased costs for supplemental forageAlfalfa ~$180/tonOther Hay ~$220/tonLargely exportedInability to maintain replacement heifersTax liability associated with additional incomeSmallest national beef cow herd since 1953

Sustainable Groundwater Management ActCalifornia groundwater law based on correlative rightsSome adjudications currently existImplementation:Formation of groundwater management agenciesDevelopment of groundwater management planLaw impacts only high and medium priority groundwater basins reflected in Department of Water Resources Bulletin #118Control is meant to be done locally and ensure sustainable yieldEnacts state backstopQuestions remain regarding future adjudicationClean up legislation likely this session

Return on InvestmentCapital intensive with a small returnRisk oriented businessIncreased requirements by banks to loan cash35% value in liquid assets required to purchase property or fund capital expenses Without incurred costs, 3 year average to payoff cowIncluding cultural costs, 4 5 year average to payoff cow

Return on Investment cont.Without incurred costs, 3 year average to payoff cowIncluding cultural costs, 4 5 year average to payoff cowLivestock theft accounts for:Additional debt without collateralLoss of a long-term investment if debt has been servicedLoss of liquid capital & ability to service annual operating expensesLoss of leveragable assetLoss of cull value

Noninsured Crop Disaster Assistance Program (NAP)Annual service fee is required, not to exceed $1,875, waiver availableCovered disasters include droughtPlanted feed & native pasture available for coverageCoverage period established by grazing seasonPayments made on losses in excess of 50 percent of expected productionRequires actual loss to be documented by at least two experts (ag commissioners, UCCE extension agents, etc.)Livestock Forage ProgramAnnual Gross Income (AGI) cannot exceed $900,000Payments 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 NebraskaPayments 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

Taxable Gaines DefermentAuthorized under IRS Code 451(e) & 1033(e)Applies to sales in excess of normal business practicesPrinciple business must be agriculturePostpone 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 Questions