Drought is playing a significant role in the cattle cycle as calves are pushed into feedlots at a faster-than-desired pace, according to the USDA’s Livestock, Dairy, and Poultry Outlook report.
Two years of drought have deteriorated pasture and forage conditions, taking the pastureland condition index for 2022 to its worst start for the grazing season since the series began in 1995, the report said.
BEEF COW CULLING CONTINUES
Furthermore, drought and higher operating costs encouraged the rapid culling of beef cows in the first quarter to levels not seen in decades, the USDA said. Also, based on USDA, Agricultural Marketing Service reports for actual weekly slaughter under federal inspection, April showed the highest number of beef cows slaughtered for the month since 1996; there were more than 5 million more beef cows on Jan. 1, 1996, than Jan. 1 this year.
Subsequently, the outlook weakens for the potential 2022 and 2023 calf crops, further reducing potential feedlot placements year over year in late 2022 and early 2023, the report said.
As the drought continues, more calves are placed into feedlots sooner than normally expected, 2022 marketings are pulled forward into the second and third quarters, partially offsetting an expected decline in marketings in late 2022, the USDA said.
However, the forecast for cow and bull slaughter is higher, more than offsetting the net decline in 2022 fed cattle marketings, the report said. As a result, the forecast for 2022 beef production was raised 132 million pounds to 27.8 billion pounds.
2023 PRODUCTION SEEN DOWN
Based on anticipated tight cattle supplies, 2023 beef production is projected to decline 6.8% from 2022 to 26.0 billion pounds, the USDA said. It will mark a second year of lower production following the record set in 2021, although the decline from 2021 to 2022 is fractional at this point in the forecast cycle.
That will be the lowest production level since 2016, the report said. With lower expected beef production contributing to higher expected prices, aggregate domestic beef disappearance next year was expected to decline almost 7% to the retail equivalent of 55.1 pounds per capita, compared with 59.0 pounds this year, the lowest level since 2015.
The third-quarter 2022 fed-cattle price forecast was raised $1 per cwt, but the fourth-quarter price was lowered $2, for an annual forecast of $162.80, $0.20 lower than last month’s forecast.
2023 cattle prices were expected to increase for a second consecutive year, approaching 2014’s record levels, a year when the cattle inventory was the lowest since 1952. The average annual feeder steer price was expected to reach $198.00 per cwt, $35, 22%, higher than the 2022 projection.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $140.50 to $140.57 per cwt, compared with last week’s range of $140.00 to $144.52. FOB dressed steers, and heifers went for $219.57 to $219.77 per cwt, versus $219.21 to $225.67.
The USDA choice cutout Monday was up $2.11 per cwt at $264.28, while select was up $1.21 at $244.23. The choice/select spread narrowed to $20.05 from $19.15 with 90 loads of fabricated product and 35 loads of trimmings and grinds sold into the spot market.
The USDA reported that basis bids for corn from feeders in the Southern Plains were unchanged at $1.55 to $1.65 a bushel over the Jul futures and for southwest Kansas were steady at even the Jul, which settled at $7.86 1/4 a bushel, up $0.07 1/2.
The CME Feeder Cattle Index for the seven days ended Thursday was $153.05 per cwt down $0.41. This compares with Friday’s May contract settlement of $153.40, down $0.72.