June 13, 2011

 

US drought to affect herd rebuilding

 

 

Drought situations have worsened across much of the Southern Plains and consequently affecting cattle market in this region, with producer intentions for herd rebuilding appearing to be sidelined.

 

According to the USDA figures for federal region six (which consists of Arkansas, Louisiana, New Mexico, Oklahoma and Texas), beef cow slaughter has increased 11% for January-April on year ago levels, with dairy cow slaughter also up 10%. With dairy and beef cow slaughter both up, this has meant 37,500 more cows have been processed in this region.

 

While total US beef cow slaughter across the US has declined 4%, and cow slaughter in the northern regions of the US is also down, this has not been enough to offset the increase in the south, with total cow slaughter jumping 1%.

 

Alongside an increase in cow slaughter, cattle on feed numbers were up 7% on year (as of May 1, 2011). With pasture conditions across the Southern Plains averaging 56.5% in the poor to very poor category (USDA), and feeder cattle prices 15% above year ago levels, US producers have been forced to turn off feeder cattle at lighter weights.

 

The slight increase in cow and fed cattle supply (also coupled with subdued demand in the lead up to the Memorial Day weekend), has placed a more bearish tone on the market. The 5-Market Steer Choice indicator has eased 15% since the beginning of April, although it should be noted US cattle prices are still approximately 12% above year ago levels.

 

For lean manufacturing beef, imported beef prices for 90CL cow beef so far this year have averaged 23% above year ago levels, despite prices recently easing from the record highs recorded at the end of March.

 

While it is expected cattle placements into feedlots are likely to ease moving into the second half of the year, a recovery in prices is largely dependent on consumer demand for beef, which appears to be waning due to an increase in gas prices that have impacted US consumers' disposable incomes.

 

The downside risk of cattle and beef prices in the US is likely to be limited moving into next year, as the continued liquidation of cattle numbers in the US will only see less feeder cattle and cows available, exacerbating an already tight cattle supply situation.

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