The US beef industry this year has a lot riding on the weather. Two years of drought brought an incredible amount of herd culling, leaving producers with fewer cattle to go around if the drought should break.
The National Weather Service last week said 74.05% of the US was in some degree of drought ranging from “abnormally dry” to “exceptional.” Western Kansas and a portion of central California were especially dry.
DOMINOES ARE FALLING
Many cow/calf producers culled their herds aggressively as the drought progressed, resulting in fewer cows to produce calves that will be fed out in feedlots and slaughtered for meat, said Nevil Speer, independent consultant in Bowling Green, KY, in a telephone interview. This resulted in more cows being killed and more heifers going to the feedlots last year than would have been the case without the drought. All of which produced ample beef supplies.
But the gravy train is ending, Speer said. Dry fields left less winter wheat and pastures for grazing than normal, and many calves went to the feedlots rather than to pasture. Some already have been slaughtered, or soon will be.
The USDA shows fewer slaughter-ready cattle and fewer coming ready at the turning of the year, and the expected calf crop will not provide enough calves to make up for the shortfall, he said.
Plus, consumer beef demand remains strong, stronger than it was six or seven years ago, Speer said.
WHAT IF IT RAINS?
If the rains come, rejuvenating pasture land, it will be years before beef production gets back to normal, he said. And the first few years will result in less beef production even less beef production.
Under ideal conditions, it would take about two years of less beef production to result in more beef production. But things are never ideal.
A cow/calf producer has to consider if retaining heifers to be turned into cows isn’t a “cash trap,” Speer said. Producers have to believe the drought is really over before making the investment.
At that point, stocker and feeder cattle demand will go up, incentivizing producers to sell those heifers to a feedlot rather than keep them to turn into cows. If the heifers are kept, the cow/calf producer incurs what is called a “lost opportunity cost.” The heifer isn’t free.
Additionally, producers will have to consider higher interest and other costs, Speer said. Greener pastures will help, but the cost of money goes up. Feed costs also remain high.
One thing that will result from the transition from herd liquidation to growth will be increased beef imports, he said. More lean beef will come in from Australia, New Zealand and other places to replace the US cow meat that is no longer being produced.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $150.00 to $159.15 per cwt, compared with last week’s range of $155.46 to $158.80. FOB dressed steers, and heifers went for $245.58 to $248.28 per cwt, versus $243.77 to $248.27.
The USDA choice cutout Wednesday was down $4.05 per cwt at $282.89 while select was up $1.77 at $256.40. The choice/select spread narrowed to $26.49 from $32.32 with 110 loads of fabricated product and 28 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were steady at $1.90 to $2.10 a bushel over the Mar futures and for southwest Kansas were unchanged at $1.00 over Mar, which settled at $6.53 3/4, down $0.16 3/4.
The CME Feeder Cattle Index for the seven days ended Tuesday was $180.73 per cwt down $0.29. This compares with Wednesday’s Jan contract settlement of $185.22, up $2.52.