Agricultural News
Beef Demand is Still the Key Despite Herd Downsizing Due to Drought
Mon, 23 Jul 2012 10:50:23 CDT
Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist, writes in this week's Cow-Calf newsletter that the U.S. beef cow herd continues to decline due to the drought, but tightening supplies will ultimately push prices back up.
The continued worsening of the drought has cattle markets on the defensive in just about every respect. Loss of forage and reduced hay production is causing early feeder cattle sales and additional cow culling. The signs of additional beef herd liquidation are everywhere; the mid-year total cattle inventory is down two percent while the beef cow herd is down three percent. Though beef cow slaughter is down over nine percent from last year, cow culling still exceeds heifer placement and the herd continues to decline. The July 1 beef heifer inventory is just even with last year, which indicates no significant expansion and the replacement heifers may yet be liquidated if the drought worsens. The July Cattle on Feed report included a scant two percent decrease in placements in June, which is really a 2.8 percent increase in placements when adjusted for the one less business day this June. Placements of cattle less than 600 pounds was equal to last year's drought enhanced level and suggests more drought forced placements this year.
The market price impacts of this year's drought have developed much quickly and have been much more severe this year compared to last. Partly that is because of a more widespread drought with fewer regional options, partly because of the dramatic impacts of the drought on corn prices but also because of a significant erosion in beef values in the past month. Choice boxed beef decreased eight percent in the past month, led by a nearly 17 percent drop in wholesale Ribeye prices and an 11 percent drop in wholesale Loin values. A weaker U.S. macroeconomic outlook combined with weaker beef exports is contributing to persistent sluggish growth in beef demand.
Notwithstanding the impact of the drought on the timing of cattle sales and on corn prices, it should be remembered that beef supply fundamentals remain tight. This should help limit drought impacts now and increase price recovery prospects later. Of course it depends on how long the drought remains and how severe conditions get. The estimated 2012 calf crop is down two percent and July 1 estimated feeder supplies are down 3.2 percent from last year. At some point after the worst of the drought impacts pass, tight supplies will push cattle prices back higher-but it depends on beef demand. The extent to which high corn prices will limit feeder cattle prices in the coming months will depend on beef demand and its impact on fed cattle prices. Right now it is the drought that dominates cattle markets but later it will be beef demand, both domestic and international, that will be the key to cattle prices.
WebReadyTM Powered by WireReady® NSI
Top Agricultural News
More Headlines...