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High feed prices shrink beef supply

Feedlot, packer losses expected to continue


Capital Press

The U.S. cattle supply is shrinking as a result of high feed costs and serious financial losses in the feedlot sector, the latest USDA cattle on feed report confirms.

On-feed numbers on Oct. 1 were down 3 percent from the same time last year, and that's a pretty big drop, said John Nalivka, owner of Sterling Marketing, a Vale, Ore., economic consulting firm for the red meat industry.

Placements of cattle into feedlots declined drastically in September, dropping 465,000 head or 19 percent from September 2011, and were the lowest September placements since the reporting series began in 1996.

Marketing of fed cattle was also down, 12 percent below a year ago and the second lowest since the series began in 1996.

High feed prices, a smaller calf crop and excess capacity in feedlots have all contributed to large losses in feeding cattle for slaughter, according to market watchers.

Feedlots lost some money in December 2011, but have been losing money steadily since April. The worst losses came in mid-July, when feeders were losing as much as $270 a head. Losses for the week ending Nov. 3 were almost $33 a head, up from about $56 per head the week earlier, Nalivka said.

Feedlot losses are expected to continue, due to high corn prices and excess capacity in feedlots competing for feeder cattle and keeping that price high. Feeder cattle weighing 700 to 800 pounds are selling in the mid-$140s per hundredweight, he said.

Packers are also losing money, about $76.50 a head for the week ending Nov. 3, up from about $45 per head the week earlier. Packers have been losing money steadily since August, after suffering losses from September 2011 through mid-April. Further reduction in cattle slaughter, cutting plant utilization, will harm packers further, he said.

Total beef production in September was down 9 percent from a year ago, but adjusting for two fewer days of slaughter compared with September 2011, the difference is closer to 5 percent, Nalivka said.

He expects slaughter reductions to continue into next year, but said the industry is picking up some of the reduction in slaughter numbers with an increase in fed cattle weights.

Despite severe drought in the Midwest and talk of major liquidation, cow slaughter is down 13 percent year to date.

"The cow-calf guys are still doing well enough they're not going to liquidate the herd, instead they've bought hay," Nalivka said.

Even though calf prices fell pretty hard this summer, his estimates have cow-calf producers making about $158 per head for the year, not much different than 2011, even with a 12.5 percent increase in cost of production.

Last fall, it appeared some heifers were being retained for breeding, and this year has seen a 6 percent drop in heifer slaughter. But under current conditions, unbred heifers will be the first to go to slaughter, and an increase in that number could start showing up in next month's report, he said.

While severe drought in the Southwest during 2011 led to significant herd liquidation, putting the U.S. beef herd at a 60-year low, Nalivka expects it to drop even further, decreasing by about 1 million head or 1.5 percent in the Jan. 1 count.


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