Source:  Rita Jane Gabbett, MEATINGPLACE.COM, 5/31/11

USDA surprised the cattle market in May when it reported cattle placements in U.S. feedlots in April were up 10 percent from a year ago, more than twice market expectations.

Dry pastures and strong feeder cattle prices are likely bringing more cattle into feedlots earlier, livestock analysts have suggested. Ranchers have been forced to reduce their herds, selling off cattle to both recuperate costs and reduce necessary inputs, according to a Texas Farm Bureau report.

Meatingplace asked Oklahoma State University Extension Livestock Marketing Specialist Derrell Peel for more insight into the drought situation.

What cattle states do you see as most affected by the current drought conditions?
This drought really started in 2010 in Louisiana and northeast Texas and late in the year and so far this year has spread across most of Texas and surrounding areas, including parts of Oklahoma, Kansas, Colorado, much of New Mexico and part of Arizona.

What evidence do you see of ranchers reducing their herds due to the drought?
Most of the area described above is in federal slaughter region 6. Beef cow slaughter in this region is up over 10 percent year to date compared to last year.  Nationally, beef cow slaughter is down over 4 percent year to date compared to year ago levels. Given the economic signals to expand the cow herd, we look for a decrease in beef cow slaughter this year.

The slaughter data suggest that cattle producers in the Southern Plains are being forced to liquidate cows at a time when their intentions would be to reduce cow slaughter and build herd numbers.

What are the short-term impacts on cattle feeding and marketing and feeder cattle and fed cattle prices?
The most recent cattle on feed report showed that April feedlot placements were up 10 percent compared to last year. This is despite the fact that overall feeder cattle supplies in the U.S. continue to dwindle. Most of the increase in placements was in the states of Texas, Oklahoma and Kansas and most were lightweight feeder cattle under 600 pounds.

One of the contributing sources to those placements was drought-forced movement of calves that were marketed early from retained ownership or stocker programs or early-weaned calves from cow-calf operations. At this point, there is no way to know just what percent of the placements were drought-related.
These lightweight feeders will be marketed in the fourth quarter of the year instead of into 2012 had they stayed out in the country longer. This has several implications. The expected decrease in beef production in the last part of this year will be smaller than previously projected and thus may temper fed cattle price forecasts slightly in that period. Also, there will be even fewer feeder cattle available in the last half of the year, which will add support to feeder cattle prices going forward.

What do you see as the longer-term implications on the cattle and beef industry from the drought?
There are roughly 8 million beef cows in the drought area. If the drought results in significant liquidation of cows in that region, the net impact will likely be to offset or more than offset any herd expansion in other regions, resulting in no growth or another decrease in the total beef cow herd this year.

This will prolong the period of tight supplies at least another year into the future.  We are already looking at 3 to 5 years to rebuild the herd and the drought could push that out even further.

What should beef processors expect over the next 6 months in terms of prices and cattle availability?
The drought is increasing slaughter cow availability in the short run and will contribute to short term increases in fed cattle available into the last part of the year. The repercussions of the drought in terms of both fed cattle supplies and prices will be mostly pushed into next year.

The decreased availability and price support of cull cows will occur very quickly whenever the drought conditions ease. There are signs that the La Niña weather pattern that is responsible for this drought may be weakening and conditions could improve over the next couple of months, at least to the extent of squeezing down the size of the drought area. Of course, that remains to be seen.

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