Drought conditions out West, particularly in California, were extreme last fall. But much larger rainfall up to now and a huge snowpack in the Sierra mountains mean that most ranchers will enjoy ample water supplies this year. However, those relying on aquifers will be less well off, as aquifers take years to recover.
Sustained moisture is critical to ending herd liquidation and for beginning the process of herd rebuilding in earnest, says Andrew Gottschalk of HedgersEdge.com. A comparison of recent data versus the same period in 2022 provides a view of an improved drought situation, given recent moisture. That said, 53% of the cattle inventory remains in areas posting varying degrees of drought. The feeder cattle and calf markets are entrenched in the next phase of this bull market. Feeder cattle and calf prices are trading at the low end of their respective up-trending channel versus fed cattle prices. Significant price gains have yet to be realized for feeder cattle prices, he says.
The nationwide drought is and has been impacting inventories and has been having the greatest impact on states with the largest numbers, says Katelyn McCullock, for Livestock Marketing Information Center (LMIC). The Jan. 1 cattle inventory report showed that Oklahoma showed an 11.5% year-on-year decline in cattle numbers, while North and South Dakota showed 6.4% and 6.6% reductions, respectively. Iowa, Ohio and Mississippi were all down 5.5% or slightly less. California, Arizona and New Mexico were steady. Increases were only in Missouri, Hawaii and states with more dairy animal numbers, she says.
There is a difference between what is occurring in the beef herd and the dairy herd, says McCullock. Beef cows that have calved were down 3.6% from 29.983 million head to 28.918 million head. While dairy cows that have calved were up 0.3% from 9.377 million head to 9.403 million head, all cows and heifers that have calved were down 2.6% from 39.360 million head to 38,320 million head. This is the sharpest drop in beef cow numbers and all cow and heifer numbers in over 20 years, she says.
As noted, the decline in beef cattle numbers has helped lift prices so far this year. The average price of a 600-750 pound Georgia feeder steer the week before last was $185.36/cwt, which was up 21% on the same week last year. The average price of a 700-750 lb. Oklahoma City steer the week before last was $190.40/cwt, which was up 19% on the same week last year. Not to be outdone, live-fed steer prices the same week averaged $163.72/cwt, up 14.3% on the same week last year. This represented an $8.47/cwt advance in four weeks.
The latest Cattle On Feed (COF) report confirmed that feedlot numbers are declining and that cattle feeders can expect firm to higher prices for much of the year, apart from the normal summer dip. Placements of cattle into feedlots in January declined 72,000 head or 3.6% versus a year earlier, marking the fifth successive month of lower placements. The cumulative decline in placements since last September was 559,000 head.
The COF report also indicated there were 26,093 feedlots in the U.S. in 2022, This was 1,027 fewer than reported in 2021. The smallest category reported, less than 1,000 head, declined by 1,000 to 24,000 feedlots. Each feedlot size category with fewer than 7,999 head declined in number between 2021 and 2022. Each size category over 8,000 head either had the same number or grew in number over the year. Two more feedlots with over 50,000 head were reported in 2022, to make a total of 80 feedlots. Feedlots in this largest category marketed 35.2% of all fed cattle marketings in 2022, up from 34.6% in 2021. There were 2,093 feedlots with 1000 head of capacity or more, and they had a total capacity on Jan. 1 of 17.100 million head, the same as the year before.
Front-end fed cattle supplies will begin to decline sharply relative to last year during May, said Gottschalk. Provided estimated marketing levels are achieved, the decline from the March 1 estimate to the July 1 estimate is projected to be 217,000 head. This is in sharp contrast to last year and the previous five-year average, when front-end supplies increased 78,000 head and 279,000 head, respectively. Thus, the composition of the projected supply will improve from previous years, he said. That’s why cattle feeders will enjoy strong prices this year. — 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.)
