The red ink projected for cattle feeders with little risk management opportunities ahead is likely to significantly dampen placements in March and through summer. The fallout of fed cattle prices is expected to result in negative margins, even though feed costs are expected to be lower. This pessimism in cattle feeding has led to reluctance in buying cattle to fill pens. Coronavirus has also limited auctions, with some suspending auction sales or instituting more restrictions on day of sale.
The combination has resulted in auction receipts in March declining 43 percent nationally. Video auctions and direct sales also saw significant declines from a year ago, and total receipts fell 47 percent. Movement of livestock across the north and south borders has also slowed in February.
Mexican feeder cattle imports decreased 6.8 percent from last year, and Canadian feeder cattle imports trickled to 58.3 percent below a year ago. Seasonally, March placements typically rise from February placement levels. February placements were sharply below a year ago even with one extra day due to leap year.
March placements are expected to decrease significantly, flattening the seasonal increase. Placements through the rest of the summer are likely to be below a year ago as the trends above are unlikely to change without significant improvements on the public health front.
One of the key factors moving forward will be pasture and range conditions. Good forage conditions will allow cattle to gain weight outside the feedlot and buy time, which at this point looks like a pivotal hedge/risk management option. If drought becomes an issue, it will force placements into feedlots even if economic conditions for feeding animals is weak. Cattle feeding returns are expected to be negative until fall 2020. Producers selling feeder animals in a drought market will likely face prices sharply below a year ago.
Nearly half of U.S. in drought
The weekly Drought Monitor provides a comparison of conditions in key cattle- and lamb-producing regions of the U.S. As of April 9, 2020, the total area of the continental U.S. experiencing any drought conditions (D0-D4, abnormally dry to exceptional drought) was 25.5 percent, which is up 7.4 percent from the same week a year ago. Currently, areas experiencing moderate (D1) to exceptional drought (D4) have risen to 14.9 percent in one year.
Compared to last year, the Western states have a larger area experiencing drought conditions with 47.4 percent, compared to 25.6 percent in 2019. Most of the drought is rated as abnormally dry (D0) to severe drought (D2) with no extreme (D3) or exceptional (D4) drought reported in the region.
In Colorado, Utah, Nevada, California, and Oregon, substantial portions of each state are undergoing some degree of abnormally dry to severe drought conditions. The central parts of Idaho and Washington, along with the northern parts of Arizona and New Mexico, are experiencing drought conditions, but less than half of each respective state is being affected. Montana and Wyoming are experiencing minimal drought conditions.
In the High Plains region, 15.8 percent of the area is experiencing drought conditions, up from 10.5 percent the same week last year. A bulk of the drought in the area is classified as abnormally dry or moderate drought. The dryness in the region is primarily occurring in the southern and eastern parts of Colorado and southwest Kansas. Nearly three-quarters of Texas is not experiencing drought conditions, but Texas has one of the few areas of extreme (D3) to exceptional drought (D4). All of the nation’s extreme and exceptional drought conditions (0.22 percent) are currently in southern Texas.
USDA will release range and pasture conditions in May through the Crop Progress report. Last year range and pasture conditions rated poor and very poor totaled 8 percent at the start of May with the five-year average ranging from 15-20 percent. Based on the current drought picture and its effect on cattle-producing regions, range and pasture conditions are likely to see a high percentage rated poor and very poor. — Livestock Marketing Information Center
