Drought drags cattle markets
'Overall, we're going to see herd growth continue to decline'
By CAROL RYAN DUMAS
Two years of drought had a dramatic effect on the cattle industry, particularly in the cow-calf and cattle feeding sectors, and the impact will continue into 2013 and 2014.
What's ahead for the industry was the subject of a webinar last week on managing drought and disaster impacts, sponsored by the Agricultural and Applied Economics Association.
Unlike last year's drought in the Southern Plains, this year's drought devastated pasture and range conditions throughout the West and Midwest and sent feed prices skyrocketing, said Erica Rosa-Sanko, livestock economist with the Livestock Marketing Information Center.
If drought conditions persist into next year, it'll provoke more beef cow liquidation and further delay any retention of replacement heifers, she said.
"Overall, we're going to see herd growth continue to decline and basically be put back for another few years until we see what we consider normal conditions in pasture and range and feedstuff prices," she said
Cow-calf producers really suffered this summer, going from a projected return of $180 a cow to a $125 loss per cow. LMIC forecasts an annual return for 2012 of $57 per cow, she said.
"The 2012 drought basically eliminated any economic ability and incentive for cow-calf producers to expand or even consider expanding and retaining heifers," she said.
This year's drought furthered herd liquidation, which is expected to show up in USDA's Jan. 1 cattle report, she said. LMIC is forecasting fewer cows, a very modest or very disappointing retention of heifers, and even tighter feeder cattle supplies in 2013 and 2014.
Beef cow slaughter moderated this year compared with the prior year, but it's still moving downward. In addition, the industry is looking at probably the lowest calf crop since the 1940s and a very tight feeder cattle supply, she said.
That tight supply will be supportive to calf and yearling prices. The problem is this last year, feeders have had very significant losses. Going into 2013, particularly the first half, calf and yearling prices are not going to see the high levels they did in 2012 until feeders can improve their financial position, she said.
An overall decline in fed cattle this year was helped somewhat by higher cattle weights, bringing forecasted beef production down only about 1 percent. LMIC expects the drought will take a bigger toll on beef production ahead, reducing it more than 4 percent in 2013 and another 5 percent in 2014.
Year-over-year weight gains are not expected due to losses on the feeding side, high feed costs and available feed supplies, she said.
Beef and all protein prices are expected at record highs for 2013 and 2014, and relative to pork and poultry, beef will be expensive, she said.
"That will limit how far wholesale beef prices can move and that will trickle down into fed cattle prices and feeder cattle prices. Still, the outlook is positive, but that is a limiting factor to keep in mind," she said.
As for cattle prices, high feed costs and high break-evens on the feedlot will continue the volatility in calf and yearling prices and limit how high those prices can go, she said.
"Going into 2013, calf and yearling prices aren't going to move up much. Any year-to-year increase from tight supply is going to come in the second half of the year when the feeder side can regain some of the loss and get back in the black," she said.
But LMIC clearly sees a positive outlook, expecting calf, yearling and fed annual prices for 2013 and 2014 to post significant year-to-year increases with record prices, she said.
It also expects fed and slaughter cow prices to be fairly seasonal with not as much volatility as calf and yearling prices.
The caveat is feed prices and what's going to happen with pasture and range, she added.