Cattle-Fax: It’s not all doom and gloom

While this year's drought has profoundly affected the cattle outlook, Cattle-Fax analyst Kevin Good presented some signs of hope Friday during the Cattle Industry Summer Conference in Denver. 

The drought, of course, spread this year to cover much of the Northern Plains and Corn Belt, after parching the Southern Plains last year. Drought conditions ranging from moderate, or D1 on the U.S. Drought Monitor, to D4 or exceptional drought, now encompass an area containing 70 percent of the U.S. cow herd. Areas under the most severe D3 and D4 categories account for about 28 percent of the cow herd, which Good says is about equal to this time last year when the severe conditions were centered over Texas. The 2011 drought resulted in liquidation of about one million cows from three states.

Since June 1, the drought has caused a $159 increase in the cost of feed for finishing a steer, a price reduction of $168 per head for 550-pound calves, $151 reduction for 750-pound yearlings, $107 per-head reduction for finished cattle and $147 per head reduction for utility cows.

Good says climatologist Art Douglass, who advises Cattle Fax on weather trends, believes the next few months will bring wetter conditions to the southern third of the U.S., while central and northern areas will see some relief but not enough to significantly benefit crops.

Dry conditions will drive yearlings into feedyards earlier than usual this summer, but high corn prices will keep producers looking for alternatives for growing calves, and calf placements likely will be strung out over several months. Good expects overall placements into feedyards to lag behind last year's for the next few months.

While cattle-on-feed inventories currently are up about 3 percent over a year ago for 1,000-head-plus feedlots, Good points out that inventories in smaller feedlots are well below last year. At the same time, feedlots are keeping cattle longer and feeding them to heavier weights, so actual harvest numbers are likely to drop 3 to 4 percent below year-ago levels over the next few months.

As for corn prices, Cattle Fax expects a range from $6.50 to $8.00 per bushel for the foreseeable future. The recent rise in prices has caused a pull-back in ethanol production, ethanol exports and corn exports, and Cattle Fax expects corn prices to peak early, and potentially drop back somewhat by harvest time. They anticipate a high price in the range of $8.25 to $8.50 per bushel.

Cow slaughter is higher than expected this year, but will fall short of last-year's high levels by about 300,000 head. Cattle Fax expects cow slaughter to decline another 570,000 head next year and 630,000 head in 2014 when, if weather allows, we could return to an expansion phase.

The higher relative value of the U.S. dollar has slowed beef exports in recent months, and demand for lean beef in the wake of the LFTB debacle has driven imports higher. Steer and heifer slaughter are running about 5 percent lower than last year, but slaughter weights are up by 19 pounds. All this balances out to an increase in per-capita beef supplies to about 57.8 pounds this year compared with 57.3 pounds for 2011. Cattle Fax expects per-capita beef supplies to drop to 56.3 pounds during 2013.

Corn prices have, however, hit poultry producers even harder than ranchers, and total per-capita meat and poultry supplies this year are the lowest since 1991. Higher prices for competing meats should help support beef demand over the next couple years. The wholesale beef demand index for January through June is up 5 percent, Good says. The restaurant performance index also has been trending upward. As a result, prices for most beef cuts have increased. Compared with a year ago, 90 percent trim is up 11 percent, chuck and round up 2 percent, rib up 7 percent and loin up 11 percent. Loin prices had declined 9 percent between 2006 and 2010 as the recession trimmed demand for high-priced middle meats.

As supplies tighten, Cattle Fax expects prices for all classes to generally trend upward over the next few years. High corn prices will pressure calf and yearling markets, but short supplies and continued strong beef demand should help balance that effect, supporting an outlook for prices next year equal to or somewhat higher than this year.