An even deeper culling of the nation’s beef cow herds is driving the feeder cattle, live cattle and futures markets. Drought is the main driver, as I wrote last month. So, I keep praying for rain, as I am sure all of you are. It is exceptionally dry across most of the western U.S. and tinder-dry in the Southwest, as evidenced by the spread of destructive wildfires in New Mexico and Arizona.
The immediate impact of the drought is that it keeps forcing all weight groups of feeder cattle into feedlots as pastures wither and hay prices soar. February saw placements total 1.848 million head, up 9.3 percent from the same month last year. March was even more of a surprise, as analysts had placements forecast at 92.1 percent of a year ago. Instead, they totaled 1.990 million head, down only 0.6 percent from last year. This meant the April 1 cattle on feed total in the latest Cattle on Feed report was 208,000 head larger than a year ago and was the highest April 1 inventory since USDA’s series began in 1996.
The larger than expected placements and cattle on feed total mean that front-end supplies of fed cattle have remained at record-high levels for this time of year and will remain large through the summer. As Andrew Gottschalk of HedgersEdge.com wrote recently, any significant price recovery is now likely deferred until the fall. The futures market picked up on this last Monday and sent the three nearby live cattle contracts down 300-335 points. These were the largest daily declines in a long time.
Feeder cattle prices have also been impacted by drought and the subsequent enforced placement. This, though, will lead to a longer-term positive, as the feeder cattle and calf supply outside feedyards on April 1 was estimated to be down about 838,000 head from April 2021. This will limit any price weakness, said Gottschalk. The supply is projected to be near the levels attained during 2014-15, which ended the previous herd liquidation cycle. Herd liquidation generally lasts for a period of three to four years. This year represents the fourth year of liquidation for this cycle, he said.
USDA’s Economic Research Service (ERS) in its latest Livestock, Dairy and Poultry report says drought, tight forage supplies and macroeconomic factors are forcing beef producers to cull deeper in their herds. Higher beef cow slaughter thus pushed non-fed cattle slaughter in the first quarter to its highest level in decades. ERS has raised its cow and bull slaughter forecasts for this year. A reduction in expected first quarter fed cattle slaughter will more than offset an expected increase in fed cattle slaughter in the rest of 2022, ERS says.
Based on higher non-fed cattle slaughter, ERS raised its 2022 beef production forecast to 27.7 billion pounds, just below 2021 volumes. Based on elevated fresh beef imports from Brazil and higher year-over-year volumes from North America and Oceania, its import forecast for the first quarter was also raised. Cull cow prices were raised in each of the quarters, while fed steer and feeder cattle prices were raised for late 2022 on tighter supplies.
In the first quarter of 2022, federally inspected (FI) non-fed cattle slaughter reached volumes not seen since the mid-1980s, ERS said. This is based on the USDA’s Agricultural Marketing Service’s estimated and actual weekly slaughter data through the week ending April 2. During this period, weekly FI non-fed cattle slaughter averaged more than 8 percent above year-ago levels. Specifically, through the first 12 weeks, weekly FI slaughter of beef cows and bulls averaged 18 percent and 15 percent, respectively, above last year, while dairy cow slaughter declined 3 percent.
Beef cow slaughter has outpaced year-ago levels, ERS said. Typically, cow slaughter would display this volume in the fourth quarter. However, higher feed costs, drought conditions plaguing much of the nation and historically high prices for cull cows have cow-calf producers making further cuts to their herds. The macroeconomic situation has also changed from last year, with higher fuel prices, feed costs and operating costs that may be affecting producer decisions as well, ERS said.
As reported by the U.S. Drought Monitor on March 29, over 69 percent of the country was experiencing some level of drought, compared with about 63 percent the same week last year. This put more than 61 percent of the U.S. cattle inventory in an area experiencing drought, whereas only 35 percent of the national herd was affected a year ago. Furthermore, 19 percent of the herd was in the worst two tiers of drought, versus just 10 percent in the same period last year. The last time this much drought covered the nation at this time of year was April 2, 2013, when almost 67 percent of the country experienced drought, ERS said.
I will thus repeat the mantra: Pray for rain. — Steve Kay
(Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
