Cow/Calf Producers Getting Squeezed

As margins get squeezed, cow/calf producers may have stopped growing their herds.  Some may have begun to shrink them again.

It’s too soon for cow/calf producers to begin shrinking their herds, but feeder cattle prices have dropped dramatically from their peaks just a few years ago.  And there are parts of the country where exceptional drought has gripped fields and pastures.

The ongoing drought in southern California is old news, but those who haven’t been watching, another area of extreme drought has built up in the Southeastern states.  The US Drought Monitor from the National Oceanic and Atmospheric Administration shows the area in detail.

NOAA said the drought-stricken areas of the Southeast remain warm and dry with precipitation near zero.  The National Weather Service medium range forecast calls for continued warmth and dryness over much of the interior US, which is good for the harvest but not good for winter wheat development or for winter pastures.

Market sources say there is little evidence cow/calf producers have begun to reduce herd size, but it’s possible the Jan. 1, 2018, herd size will differ little from the Jan. 1, 2017, count.

 

HEIFER SLAUGHTER UP

 

There is evidence of increased heifer slaughter, however, and heifer slaughter will be where and downward shift in cow herd size starts, market sources said.  Just as a decrease in cow slaughter heralded a bottom in a declining herd, an increase in heifer slaughter could be an indicator that cow/calf producers have lost interest in further herd building.

Federally inspected heifer slaughter shows a definite increase beginning in early July.  While it’s probably too soon to say this is evidence that producers now are out to prune their herd sizes, it does show that more females are finding their way to the feedlots.

 

MONETARY RETURNS DOWN

 

The USDA, in its latest World Agricultural Supply and Demand Estimates report, said it expected quarterly prices for fed steers this year to average $119.94 per cwt, down $2.00, or 1.64%, from the October projection of $121.94, and down $28.18, or 19.0%, from last year’s $148.12.

And things don’t improve next year.  The WASDE report estimated 2017 fed steer prices to average $102 to $110 per cwt, down 8.93% to 9.09% from the October estimate of $112 to $121.

Market sources said the Southeast drought has not gone on long enough for cow/calf producers to throw in the towel.  Hay can still be purchased and hauled in, and for many, the losses have not gotten to the point of extreme pain just yet.

For many small cow/calf producers in the Southeast, calf sales are meant to cover taxes and other expenses on land they would not sell anyway.  As long as the cash flow covers these expenses and feed can be obtained somehow, little will be done about the herd size.

Besides, many of the cows in these herds will go to some other US producer even if they are sold, so the net change is negligible.

 

CASH CATTLE MARKETS QUIET

 

Cash cattle markets Tuesday were quiet after trading last week at mostly $105 per cwt on a live basis and $158 dressed. Cattle sold the previous week at mostly $105 live and $162 to $164 dressed.

The USDA’s choice cutout Tuesday was $0.81 per cwt lower at $183.11, while select was up $0.91 at $168.63.  The choice/select spread narrowed to $14.48 from $16.20 with 134 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $125.95 per cwt, up $0.57.  This compares with Tuesday’s Nov settlement at $126.60, up $0.57.