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(Bloomberg) — In the heart of U.S. cattle country, a four- year drought got so bad that Jim Sartwelle’s east Texas ranches looked more like dirt parking lots than pastures. At one point, to keep the animals fed, he bought two truckloads of grass cut from the side of a road in Louisiana, about 200 miles away.

All that changed when the rains starting arriving in March and kept falling. May was the state’s wettest month on record, and now there is more green grass than the cattle can eat. With the drought over, ranchers like Sartwelle are preparing to expand

U.S. herds that had shrunk to the smallest since 1952 and sent beef prices surging to records.
The grass is “knee- to belly-high everywhere you look,” said Sartwelle, 44. The fourth-generation rancher manages a 100- cow breeding herd with his father in Robinson and Sealy, Texas, that is down 20 percent since 2010. Now, with cattle prices high, Sartwelle wants to get his herd to where it was before the drought. “It’s time to start building numbers back,” he said.

First Step

While adding cattle can take more than two years, the revival of Texas pasture land is a key step in boosting supplies. The government last month estimated U.S. beef output will halt its four-year slide in 2015 and increase next year. Companies including Tyson Foods Inc. and Texas Roadhouse Inc. say a rebound in supply should eventually bring meat costs down.
The amount of pasture land in good or excellent condition in Texas, the biggest cattle-raising state, has doubled since the start of March to 71 percent as of May 24, the best weekly ratings since 2007 and more than the national average of 60 percent, U.S. Department of Agriculture data show. And more rain is forecast over the next three months.

‘Heightened Expectations’

“We have a tremendous amount of grass growing,” said Bill Hyman, executive director of the Independent Cattlemen’s Association of Texas in Lockhart. “Our stock tanks are full for the first time in quite a few years. The rains in the spring have heightened a lot of people’s expectations for the future.”

That’s because the drought hit Texas hard. The number of cattle in the state fell by a fifth in the decade through 2014, while the U.S. inventory at the start of 2014 was the smallest since 1952, USDA data show. Tighter supplies pushed cattle futures in November to an all-time high of $1.7275 a pound on the Chicago Mercantile Exchange.

More Supply

Conditions began improving this year, even before the rains. On Jan. 1, the national cattle supply was up 1.4 percent from the five-decade low a year earlier, government data show. In Texas, the herd of beef cows used for breeding was up 6.9 percent from a year earlier at 4.2 million head.

“We’re going to keep expanding and recovering a lot of the cattle we lost in the drought,” said David Anderson, a livestock economist at Texas A&M University in College Station. “This provides the fuel, the grass, for the cows that we already held back and some future growth.”

The USDA forecasts a 0.1 percent increase in domestic beef output this year to 24.339 billion pounds (11 million metric tons), with a further 0.9 percent gain next year.

Prices Peaking?

While prices remain higher than they were a year ago, they have been dropping. Cattle futures are down 7 percent this year, and wholesale beef has slipped 4.3 percent since touching a record $2.6559 a pound on May 19, USDA data show.
Steakhouse operator Ruth’s Hospitality Group Inc. said it saw “modest relief” in beef inflation during the first quarter, though prices are still expected to be up 3 percent to 6 percent this year.

Of course, while the rain left ranches with greener grass, it had tragic consequences in urban areas. Downpours were so heavy in the past week, flooding left at least two dozen people dead in the state — with at least 11 missing — and caused damage from Houston to Dallas. Cotton farmers in West Texas were forced to delay planting because the ground is too muddy, and the quality of the state’s maturing wheat crop is at risk.

Cheaper Meats

And after years of high prices, beef is losing market share to cheaper meats. Pork and chicken output will surge to records in 2015, and it may take several years for ranchers to respond with more cattle because hogs and birds reproduce faster. Calf gestation is nine months, with about another 20 months before the animals are big enough to slaughter.
“Beef at the retail level is still going to be relatively high here, probably for this year, anyway, and then some moderation probably by next year,” said Tim Petry, livestock economist at North Dakota State University in Fargo. “We’ll probably have a record supply of meat this year. It’s just that it won’t be beef.”

Still Expensive

Retail beef and veal prices will rise as much as 6.5 percent this year, more than any food group, after a 12 percent surge in 2014, the USDA said May 28. Restaurant owner Shake Shack Inc. doesn’t expect any relief in its beef costs until 2017, Chief Financial Officer Jeff Uttz said in a May 13 earnings call. Wendy’s Co., with more than 6,500 restaurants, forecast “a high beef-price environment” into next year.
“We’ll start seeing some benefit” from increased cattle herds in 2017, Dennis Leatherby, chief financial officer at Springdale, Arkansas-based meat processor Tyson Foods, said in a May 12 presentation.

Improving Pastures

While a boom in beef output isn’t expected just yet, Sartwelle said the improving pastures means cattle producers are “finally looking up.”

And pastures probably will stay green for awhile. The National Weather Service predicts “above-normal precipitation” in the central and southern Plains during the summer months. As of May 26, 82 percent of Texas was drought-free, the best ratings since August 2010, U.S. Drought Monitor data show. Dry conditions in Oklahoma have also nearly vanished since the start of the year.

“Folks are a little more confident” about expanding herds, said Sartwelle, who also is the national legislative director for the Texas Farm Bureau. “You’re more likely to do it with a barn full of hay than without.”

To contact the reporter on this story: Megan Durisin in Chicago at mdurisin1@bloomberg.net To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net Steve Stroth