Normal weather pattern to ease drought conditions
The apparent transition of La Niña to a normal weather pattern should mean a lessening of the drought conditions in the Southern and Southwestern United States, but drought conditions persist in these areas and farther south in Mexico. The result is continuing year-over-year increases in U.S. feeder cattle imports from Mexico. Those increases were 22 percent through March 10, 2012 (cumulative total of weekly USDA, Agricultural Marketing Service (AMS) data, AL_LS625). A more normal corn crop is anticipated this year, which should help reduce cattle feeding costs this fall and in 2013.
As often happens when feeder cattle prices reach high levels, veal calf slaughter declined rapidly during the last 2 months. December 2011 and January 2012 exhibited year-over-year declines of 6 percent overall, with the largest declines in bob vealers and non-formula-fed 150- to 400-pound calves. Even though veal production accounts for only about half of 1 percent of total U.S. beef and veal production, these declines reflect the value of live dairy calves at today’s feeder calf prices, which are more than 20 percent higher year over year.
Total cow and bull slaughter continues to account for over 20 percent of federally inspected slaughter, but it appears to be declining from higher shares observed last year and earlier this year (USDA, AMS, Daily National Carlot Meat Reports). A decline in beef cow and bull slaughter this time of year is consistent with seasonal patterns, but may also indicate an end is in sight to the heavy cow slaughter of the last few years and to the liquidation phase of the current cattle cycle.
There have also been reports of feeder heifers selling at premiums to same-weight steers. If the premiums were not isolated incidents, accounted for by differences in quality or body condition, this could be a sign that heifer retention for cow-herd replacements is underway. If heifer retention increases significantly—barring droughts or other abnormalities—the smaller numbers of heifers available for feeding would exacerbate the shortage of feeder cattle for placement in feedlots that is expected for several years, perhaps into 2015 or beyond.
Fed cattle prices in the upper $120s per cwt and breakeven levels in the $130s will likely result in negative margins for cattle feeders for the next few months. With feeder cattle prices escalating more rapidly than fed cattle prices, breakeven levels may also continue to climb upward. Breakeven levels for cattle to be marketed in May 2012 are already projected in the $136-plus per cwt range (High Plains Cattle Feeding Simulator, http://www.ers.usda.gov/publications/ldp/LDPTables.htm).
Fed cattle prices at current levels imply retail prices which will average above the most recent $5.09 per lb for January 2012 Choice retail beef (http://www.ers.usda.gov/data/meatpricespreads/). It remains to be seen whether retail consumers will curb their demand at these levels; there are signs that these high prices are already prompting resistance.
Live and dressed weights of fed cattle are increasing counter-seasonally due in part to the favorable weather for feeding cattle during the last several months. Another factor is likely the extra weight gain from extra time on feed due to reduced steer and heifer slaughter as packers try to bring down fed cattle prices.