Cattle markets continue to get stronger. Folks are starting to wonder about recent placement patterns, which will finish sometime this summer and are typically the largest supplies of fed cattle of the year—also known as the summer doldrums. August is typically when we have our largest beef production. Will we have a wall of cattle to work through this summer?
Last week, cattle feeders were trading at $142-144 live and $226-228 dressed. Packers bought 102,000 head the week before, with around 20 percent bought with extended delivery time. Packer margins are starting to get thinner but are still respectable.
Derrell Peel, Extension economist at Oklahoma State University, said: “Feedlots certainly have individual incentives to keep feedlots as full as possible. Utilization of pen space and feed mill capacity are important economic factors. Unexpectedly large placements in November and December of 2021 pushed monthly feedlot totals slightly higher coming into 2022. Those placements largely consisted of lightweight feeder cattle because increasingly, that is what is available.
“Feedlots have been borrowing against the future to hold feedlot inventories as high as possible to this point, and the ability to do that will decrease in the next few months. The estimated supply of feeder cattle, calculated from Jan. 1 inventories of steers over 500 pounds, other (non-replacement) heifers over 500 lbs. and calves under 500 lbs., with current feedlot inventories subtracted, was at 25.54 million head, down 2.6 percent year over year.
“The recent lightweight feedlot placements will take longer to finish and will hold feedlot inventories for a while, but there simply are not enough feeder cattle to maintain feedlot inventories for too many months. … Stated another way, there are only 1.74 million head of feeder cattle available to the cattle currently in feedlots. This is the lowest supply of feeder cattle to feedlot inventories on record. Barring significant drought-forced early placements or some other disruption in cattle markets, feedlot inventories should show a much more noticeable decline in 2022.”
So where are those feeder cattle going to come from? The Daily Livestock Report said that cattle flows in North America are developing once again, some atypical patterns. About mid-2021, Canada shifted to importing significantly higher volumes of U.S. feeder cattle and outpaced 2020 by about 25,600 head, a 22 percent increase. Early in 2022, that trend is continuing, with the early weeks of the year about three times higher than 2021 volumes. Canada has been battling significant drought in the Prairie Provinces, which is very likely playing a key role in sending feeder cattle south.
Mexico has also changed cattle flows in and out of the U.S. Last year, the U.S. shipped 54,800 head of beef cattle to Mexico, a three-and-a-half-fold increase compared to 2020. January numbers have continued that trend. The weekly data shows that cattle exports to Mexico are up 10,800 head compared to last year.
USDA’s Foreign Agricultural Service expects Mexico to expand its beef production in 2022, citing improved cattle productivity through genetics. Mexico has also invested resources into cold chain infrastructure, particularly along the U.S. border, which will help support higher trade volumes. In the last year, the U.S. has been importing larger volumes of beef from Mexico, which has helped boost total beef exports from Mexico. Mexico is becoming a big player in global beef production.
Feeder cattle imports from Mexico were also down 25 percent from 2020. Mexico is developing a world-class beef industry on our southern border, and they need fed cattle to fill their pipeline. Mexico is expected to increase beef production 3.3 percent in 2022. The country’s cattle feeding industry is now competing for domestic feeder cattle. One of the greater challenges for the Mexican cattle feeding industry is that they must import a large portion of their feedstuffs.
This is becoming remarkable—we send feeder cattle to Canada, and I’m told the Canadians are making the feeder cattle markets in the Northwest. The cattle are fed and returned to U.S. beef processing plants.
Then the beef business booms in Mexico, and we are starting to send fed cattle south of the border for processing, and they send us beef. The U.S. would typically buy a million-plus feeder cattle from Mexico for U.S. feedlots and processing.
This whole supply chain is becoming very dynamic, and cattle and beef are traded freely throughout North America. It’s all about capacity and transportation at the end of the day. Now this country of origin debate is going to get interesting. Remember, we need more moisture, so don’t give it up. — PETE CROW
