Feeder Cattle Supplies Continue to Tighten

By Donald Stotts, Oklahoma State University

Drought conditions have had a significant effect on feeder cattle supplies, with feedlots expected to feel a noticeable pinch in the months ahead as they will be unable to maintain current inventories.

Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist, explains that feedlots have not placed the large numbers of lightweight cattle that will stay on feed for many months, as was the case last year.

"While lightweight placements will increase seasonally the next couple of months, the weight distribution in feedlots suggests that feedlot inventories will pull below year-earlier levels and stay below for many months," he said.

The latest Cattle on Feed report indicated that the Sept. 1 feedlot inventory was 99 percent of the total at the same time last year. This represents only the second time in the last 28 months that feedlot inventories have dropped below year-earlier levels on a month-to-month basis. The only other time was a brief May 1 decrease.

"At 10.637 million head, the Sept. 1 report was still 4.5 percent greater than the same period in 2010," Peel said. "In fact, except for the slight decrease from last year, the Sept. 1 inventory is the largest since 2006. This is remarkable given that the total calf crop has decreased every year since 2006. The last annual increase in the calf crop was in 1995."

The 2012 calf crop is projected at 34.5 million head, a decrease of 6.8 percent from 2006 and a decrease of 2.3 percent from last year.

"Additionally, feeder cattle imports are expected to drop, if not immediately then certainly in the next few months, contributing to the inability of feedlots to maintain animal inventories," Peel said. "Throw in a projected lessening of widespread drought in 2013 and increased heifer retention combined with a still smaller calf crop will further reduce feeder supplies."

Increased imports of feeder cattle from Mexico and Canada partially offset decreased U.S. calf production. The increase in feeder cattle imports from 2010 through the year to date in 2012 equals roughly 40 percent of the decrease in calf crop during the period.

So far in 2012, imports of feeder cattle are up about 287,344 head, a 35 percent increase mostly caused by increased imports from Mexico. At the current pace, Mexico could contribute an additional 220,000 head of cattle by the end of the year. However, agricultural economists expect Mexican cattle imports to slow in the coming months.

"It appears that much of the increase in Mexican cattle numbers since 2010 is the result of drought impacts," Peel said. "In 2011, 34 percent of the year-over-year increase in Mexican cattle imports was heifers, representing 14.7 percent of total cattle imports and the largest imported heifer total going at least back to 2001."

For the January-July 2012 period, the number of imported heifers was in excess of 268,000 head, more than was seen in all of 2011 and representing 27 percent of the year-to-date import total compared to last year.

"The increase in heifers represents 67 percent of the year-over-year increase in imports and suggests herd liquidation in Mexico," Peel said.

Imports of cattle originating in several drought-stricken Mexican states have increased sharply this year. The other 33 percent of increased Mexican cattle imports in 2012 is steers less than 200 pounds.

"Nearly 84,000 head of these pee-wee steers have already been imported in 2012, compared to a scant 232 head for the entire year in 2011," Peel said. "These ultra-lightweight steers typically would have been imported over the next several months but are already part of the increased total so far this year."

Report data indicates there has been no increase in 2012 of imports of the typical Mexican feeder steers weighing more than 200 pounds.

"Although the herd health status of Chihuahua – the largest source of Mexican cattle imports – has no doubt temporarily limited imports from that state, the overall picture is that Mexican cattle imports have been augmented by drought impacts in the short run and will be followed by sharply reduced imports on the back side of the drought," Peel said.

In addition to imports, other factors such as replacement heifers entering the beef cow herd and reduced calf slaughter have had limited effects on feeder cattle availability; however, Peel contends placement patterns explain most feedlots’ abilities to maintain inventory with declining numbers in recent years.

For the year 2011, total feedlot placements increased 1.8 percent. Within that, all placement weight categories decreased except for a 20 percent increase in placements of cattle weighing less than 600 pounds. Peel lays much of the blame on the historic drought of 2011, but cautions that the situation is quite different in 2012.

"Total placements for the January-August period are down 3.9 percent compared to the same period last year," he said. "Moreover, placements of cattle less than 600 pounds are down 8.8 percent and placements of cattle weighing between 600 and 700 pounds are down 10 percent compared to the same period last year. In fact, it is only an increase of 6.8 percent in placements of cattle weighing more than 800 pounds that limits the total decrease to less than 4 percent."

Peel contends that the short supply of feeder cattle, masked by the impacts of two years of drought, is finally catching up with the U.S. cattle industry.

Cattle and calves are the number one agricultural commodity produced in Oklahoma, accounting for 46 percent of total agricultural cash receipts and adding approximately $2 billion to the state economy, according to National Agricultural Statistics Service data. NASS data indicates Oklahoma is the nation’s fifth-largest producer of cattle and calves, with the third-largest number of cattle operations in a state.