Posted: Thursday, February 21, 2013 12:00 PM
Depleted Mexican inventory will take time to rebuild, analyst says
Tight feeder cattle supplies have plagued the U.S. feedlot industry in 2012 and led to excess capacity in the feedlot and processing sectors -- and it's going to get worse because of conditions in Mexico, according to a report by Rabobank.
Mexico's contribution to U.S. feeder supplies is often overlooked, said Don Close, Rabobank's vice president of food and agribusiness research for animal proteins. But it's going to be felt this year, following two years of drought that caused a surge of exports to the U.S. and a decline in Mexican cattle and cow numbers.
In 2012, imports from Mexico accounted for 10 percent of U.S. cattle on feed nationwide but up to 30 percent of cattle on feed in the Texas, Oklahoma, Arizona, New Mexico and California region.
Historically, Mexico's feeder cattle exports as a percentage of the beef cow herd were only 5 percent, just the residual of its domestic supply. In 2011 and 2012, those shipments swelled to 20 percent, at about 1.45 million head, he said.
In addition, Mexico's cattle inventory has dropped to 20 million head, down from 30 million in the early 1990s. Despite that steady decline and the 2011 drought that forced Mexican ranchers to give up their herds due to poor pasture and range conditions, Mexico's feeder shipments continued to the U.S. at an unsustainable pace.
"Mexico preserved exports by digging deeper and deeper into its calf crop to sustain numbers," Close said.
Those exports were supported by the export of spayed heifers and more cattle accessed from further south in the country. But a sharp decline is expected this year, because of Mexico's depleted inventory and reduced retention of potential replacement heifers, he said.
Historically, 90 percent of Mexico's feeder exports to the U.S. were steers. That shifted this past year, with heifers at more than 25 percent of exports due to the drought.
The projection is for a radical decline in the availability of Mexican feeder cattle this year, and historical cycles show that following a peak year of exports, it takes three to four years for the country to rebuild numbers to historical peaks, he said.
Considering the number of females that have been stripped from the herd, that recovery time will likely be lengthened, and the percent of decline in the post-peak years will likely drop more radically than in the past, he said.
That's going to make cattle feeding in the Southern Plains and the Southwest more difficult and lends credibility to Cargill's decision to close its Plainview, Texas, processing plant, he said.
Those feeders in the southern tier will be forced to be more dependent on the Southeast complex for feeder cattle and to migrate farther north into the central and Intermountain regions to compete for younger and younger cattle, he said.
Feedlots could look to Canada but that's not very realistic, as Canada's cattle industry was devastated by bovine spongiform encephalopathy and cattle availability is still limited, he said. Canada's industry is stabilizing and is using more of its calf crop and even importing some feeders from the U.S., he said.
Unfortunately, more contraction in both the U.S. feeding and processing sectors is inevitable, he said.
In the longer term, Mexico will rebuild its cattle herd, fueled by its own domestic demand for animal protein and its evolution into a large supplier for the U.S. cattle feeding industry, he said.