Agricultural News
Rabobank Report Concludes Contracting Mexican Cattle Supplies Could Push Weaker Feeders Out of Business
Thu, 07 Feb 2013 11:11:31 CST
Over the last 30 years, Mexico has become an aggressive exporter of feeder cattle to the United States. The U.S. has relied so heavily on these imports to supplement supply that experts are now calling the levels of imported Mexican feeder cattle unsustainable.
According to a new report from the Rabobank Food & Agribusiness Research and Advisory (FAR) group, the availability of cattle for shipment is expected to post a steep decline in 2013, leaving the U.S. cattle feeding industry searching for ways to make up for this sharply reduced supply.
"Record high feeder and calf prices in the U.S., as well as a favorable exchange rate, were factors in a surge of exports to the U.S. over the last two to three years," notes report author Don Close, Vice President, Food and Agribusiness Research & Advisory, Animal Protein. "However, it was really the severe drought in 2011 that prompted such a notable increase in exports to the U.S. so that the levels became unsustainably high."
Radio Oklahoma Network Farm Director Ron Hays spoke with Close at the Cattle Industry Convention in Tampa, Florida. Close says the numbers are worrisome.
"If you go back as deep as the 1980s, the U.S. would typically get five percent of the Mexican calf crop. And, really, that shipment was nothing more than a residual of the Mexico market. As time has gone by, they've become an increasingly sophisticated supplier and a very-needed supplier network to the U.S. and the Southern Plains cattle feeding industry.
"As we finished up 2012, basically ten percent of the cattle on feed supply in the total U.S. would be of Mexican-origin. And if you look specifically, because of the freight advantages of the three-state TCFA area and Arizona and California, we've jumped up to as high as 25 to 27 percent of the total cattle on feed in that five-state area of being of Mexican import."
"We've had so much discussion of the contracting U.S. cattle supply, the drought impact, the economic impact in the Cattle Inventory Report released just a week ago. So, if you take the lowest calf crop we've had since 1958 and add that share of Mexican cattle, we're looking at some very serious contraction of available supplies."
A critical result of the drought-induced surge in feeder cattle imports from Mexico over the past two and a half years has been a substantial increase in the shipment of heifers. When U.S.- Mexican feeder trade began to gain steam, 90 percent of the cattle exported by Mexico were steers. By September 2012, spayed heifers accounted for more than a quarter of all shipments. Such an escalation in heifer shipments signals a depletion of total Mexican cattle supplies.
"We're going to see a depleted inventory, of course, but more importantly, there is going to be a sharply reduced retention of potential replacement heifers," says Close. "We'll undoubtedly see lower shipments of feeder cattle into the U.S. for the next two to three years, as well as challenges for the Mexican cattle industry related to rebuilding a supply that will bring exports to the U.S. on par with historical levels.
"We were 17 percent heifers in 2011 and that jumped up to 27 percent heifers in the total Mexican mix in 2012. So, with those replacement heifers stripped out of that Mexican inventory, that's the real indicator that they're just simply totally depleting their machine to rebuild any numbers. So, the drop and declining numbers this time will probably be more disruptive than the historical pattern."
Because the shipments of Mexican cattle have reached an unsustainable level and will inevitably decline, the critical question now is how will the U.S. cattle feeding industry make up for a reduced supply of feeder cattle from Mexico.
"Cattle feeders are going to need to change several aspects of how they procure cattle, starting with becoming more dependent on feeders from the southeast cow/calf complex," says Close.
As a result, southern U.S. cattle feeders will be forced to look further north and be more price-competitive in the central and western U.S., in spite of the freight disadvantage. With the U.S. cow/calf herd already at a 50-year low, such new competition is likely to force feeders with weaker supply sources or weaker operating finances out of the market.
Finally, it can be expected that the U.S. cattle feeders will be required to return to Canada for available feeder cattle numbers.
Historically, the Mexican cattle feeder exports into the U.S. show a five- to six-year cycle of spikes and drop-offs. Typically, Close says, those spikes are caused by drought. However, experts anticipate the current decline may require additional time to rebuild due to the increased heifer exports, which will make rebuilding herds a slower process.
WebReadyTM Powered by WireReady® NSI
Top Agricultural News
More Headlines...
