Beef Cattle Price and Production Patterns in Relation to Drought in New Mexico

Abstract

Understanding the fluctuations in monthly and annual cattle prices plays a key role in supporting the sustainability of New Mexico’s (NM’s), United States (US), beef cattle industry under variable environmental conditions. The goal of this study was to provide an improved understanding of NM’s beef cattle production systems in terms of prices and production patterns and related drought impacts. The main objectives were to evaluate monthly and annual prices patterns for heifers and steers (cattle) and calves, the relationships between annual cattle prices and inventory and drought, and the effects of drought on ranch net return. Drought events were assessed using the Self-Calibrated Palmer Drought Severity Index (SC-PDSI). The generalized autoregressive conditional heteroscedasticity models and their exponential version were used to investigate the effects of drought and cattle supply on cattle prices, and the effects of drought on ranch net return. Spectral analysis and timeseries decomposition were used to identify the cycles of the annual price and numbers of cattle and calf. Coherence analysis was used to examine the relationships between inventory of cattle classes and drought. The results indicated that prices of cattle and calf usually drop in October through January and peak in April. The inventory of replacement heifers and steers were negatively related to cattle prices, while the inventory of calves was positively related to calf prices. Cattle and calf prices showed negative linear relationships with droughts. Annual cattle and calf prices showed 6- and 10-year cycles, while their inventory showed 6- and 8- year cycles, respectively. Our finding suggested that a rancher can still earn some net return when drought falls within the “Abnormally Dry” category of the US Drought Monitor. However, a rancher with a large herd or ranch size can endure drought more than a rancher with a medium herd or ranch size and reach the breakeven point. Specifically, the net return ($/head) is expected to increase (or decrease) by $62.29, $60.51, and $64.07 per head if the SC-PDSI increase (or decrease) by one unit in all large and medium ranch sizes, respectively. The effects of drought on ranch net return that we identified need further improvements using additional data. Due to NM’s location and the diversity of its rangeland, understanding the response of cattle prices to drought and beef cattle supply based on these findings can be used to help NM’s ranchers and those in other similar regions make informed ranch management decisions. These findings can also support the development of improved understanding of beef cattle production systems regionally.