Adverse weather conditions are and have always been one of the biggest risks facing those in production agriculture. Whether it is drought or floods, frigid temperatures or searing heat, livestock and crop producers have to deal with weather extremes that can have a significant impact on their bottom lines.
Adverse weather conditions have certainly played a part in this year’s live cattle market. Early July saw extremely high temperatures in parts of cattle feeding country, which caused cattle feeders to sell due to concerns about heat stress on their cattle. The temperatures fortunately moderated quickly. But this was just one example of how weather can impact feedlot performance and costs of gain.
A much bigger impact on cattle feeding up north began last winter and continued into this spring, first with a brutal winter and then widespread and devastating flooding. The lingering effects continue to impact the number of cattle on feed in the region. All the northern states that report monthly cattle on feed (COF) data—Iowa, Minnesota, Nebraska, and South Dakota—continue to have fewer COF than last year. Their combined COF total on July 1 was down 175,000 head from July 1 last year. This is equivalent to losing approximately 3.5 days of fed steer and heifer slaughter supply in the region, says Andrew Gottschalk of HedgersEdge.
This is why market-ready cattle there continue to sell at a sizeable premium to cattle down south. Cattle up north the week before last sold at $113-116 per cwt live, versus $111 per cwt live down south. This is why the 5-area average live price for the week was $113.02 per cwt. This was down only 35 cents from the prior week, despite prices down south being $1 per cwt lower. Dressed prices up north were higher than the prior week, so the average of $183.00 per cwt was up 13 cents on the week before. Such premiums are likely to remain intact the rest of this year.
USDA’s latest COF report showed that feedlots 1,000 head or larger had 11.485 million head on feed on July 1. This was 1.8 percent or 198,000 head larger than a year ago and the highest July 1 inventory since the data series began 1996. But Nebraska’s 2.300 million head was down 100,000 head on last year and put its numbers only third largest. In contrast, Texas at 2.840 million head had 100,000 head more on feed than a year ago and Kansas at 2.360 million head had 120,000 head more on feed. In addition, Iowa had 60,000 fewer cattle on feed, Minnesota had 10,000 head fewer and South Dakota 5,000 fewer.
Meanwhile, corn and soybean growers know how much changing weather can impact production and crop prices, and their ability to plant crops, as occurred this spring. Now USDA has weighed in on the issue in regard to longer-term weather changes. Unchecked climate change could mean that the weather hurting growers this year will become increasingly common and result in lower production of corn and soybeans and skyrocketing prices, it says. The federal government in turn would face much higher costs in terms of crop insurance.
These points emerge from a new report from USDA’s Economic Research Service (ERS). If greenhouse gases are allowed to continue to increase, U.S. production of corn and soybeans, which are more susceptible to extreme heat during their growing season, could decline as much as 80 percent in the next 60 years, says the ERS report.
As a result, corn and soybean prices would skyrocket in that period, as would the cost of crop insurance. The cost of insurance to the federal government could rise to $7.6 billion a year for corn and $3.3 billion for soybeans. By comparison, USDA had spent about $300 million on insurance for the 2019 crop year as of July 15. The cost of the crop insurance program will increase with global warming, says Andrew Crane-Droesch, an ERS research economist and one of the authors of the report.
Last year was the fourth warmest year on record since 1880, according to a February report by the National Aeronautics and Space Administration, along with the National Oceanic and Atmospheric Administration. The hottest year was 2016, followed by 2017 and 2015. Data from the Environmental Protection Agency shows that gross U.S. greenhouse gas emissions rose 1.3 percent from 1990 to 2017. But emissions rose 3.4 percent in 2018, attributed to a surge in the economy.
The ERS study examined five climate models using three projections of emissions. They ranged from one where there is no mitigation of emissions to keeping them at current levels. The models used by ERS show that growers are in for more difficult springs as climate change gets more severe, says Crane-Droesch. That’s not good news for livestock producers who depend on a reliable supply of corn and other grains. — 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.)