Drought has been particularly cruel to the beef
cattle industry. A multiple year drought in the Southern Plains has
been followed by a devastating Midwestern drought in 2012 that is now
forecast to continue into 2013. Brood cows remain the last major
livestock industry that is land extensive. So, when dryness causes wide
stretches of land to be unable to support cow grazing, producers have
to buy feed or send the cows to town.
The 2012 drought began in the Eastern Corn Belt in
the spring and early summer, but migrated westward in the late summer
and fall. Today the drought conditions still cover 62 percent of the
lower continental U.S. according to the U.S. Drought Monitor. The
central Great Plains has become the epicenter with Nebraska having 95
percent of the state in the worst two drought categories. In addition
to Nebraska, six other states have more than 50 percent of their area
in the worst two drought categories: Kansas, Oklahoma, Colorado,
Wyoming, South Dakota, and Iowa. These states represent 30 percent of
the nation’s beef cows.
While some important beef cow areas have gotten
relief from the drought, others have a discouraging outlook. Improved
moisture conditions began in August and have continued into the fall
in the Eastern Corn Belt and the Southeast. However, the forecast is
for the drought to continue and possibly intensify into the winter for
the area of the country that is west of a line roughly from Chicago
Illinois to Lubbock Texas.
Beef cow numbers are likely to be two to three
percent lower in the upcoming January inventory report. The mid-year
estimates were already reflecting a four percent decrease in the
national beef cow herd, and that was before the impacts of the 2012
drought began to be felt. The implications are for continued cow
reductions until feed and forage supplies are restored. USDA is
currently reporting 55 percent of the nation’s pastures and ranges in
“poor” or “very poor” condition, the lowest two categories.
Negative returns for feedlots have continued with
losses over $200 per head, according to Kansas State University. High
feed prices, a small calf crop, and excess capacity in feedlots have
all contributed to these large losses. Placements of calves in
September were down 19 percent from a year-ago. Significantly, this
was the smallest number of cattle placed in 1,000+ head capacity
feedlots since USDA began the current series in 1996. The low
September placements follow about a ten percent reduction in placements
in both July and August.
As a result of the slowing placements in the past
three months, the number of cattle on-feed dropped to three percent
below year-ago levels on October 1. Cattle on-feed will play a role in
rationing the short corn supply. The current three percent reduction
in on-feed numbers contrasts with only a one percent expected
reduction in on-feed numbers in USDA’s grain consuming animal unit
calculations for the 2012/13 marketing year. Cattle on-feed represent
23 percent of the total USDA grain consuming animal units.
The cattle on-feed numbers were supportive to the
overall expected reduction in per capita beef supplies of about three
percent through the first-half of 2013. As a result, finished cattle
prices are expected to continue to rise this year and into 2013. For
the just completed third quarter, steer prices averaged near $120 per
hundredweight. Prices are expected to be near $125 for the final
quarter of 2012 and $130 in the first quarter of 2013. Spring prices
may peak in the higher $130’s with the second quarter average in the
mid-$130’s. Record high cattle prices will be in store for 2013 with
prices now expected to average in the very low $130’s compared to an
expected record this year near $122.
Calf prices, however, will be slower to recover
due to high feed prices which will continue to depress calf prices
until feed prices begin to moderate. That moderation could begin in a
small way with lower soybean meal prices in the spring of 2013,
assuming reasonable South American soybean production. Further
declines in feed costs could occur with a better grazing season in the
spring and summer of 2013 and a return to larger U.S. corn and
soybean crops next year. A more abundant feed supply in the
second-half of 2013 could result in a robust price recovery for calf
and feeder cattle prices. Replenishment of feed supplies would also
begin beef cow expansion in late 2013.
