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This Year's Drought Weighs Heavier on Beef than in 2011

This Year's Drought Weighs Heavier on Beef than in 2011
Drought is hammering feeder cattle markets; forage conditions will determine how soon feeder cattle prices resume their march to record highs.

Drought is hammering feeder cattle markets. Forage conditions will determine how soon feeder cattle prices resume their march to record highs.

Early this week USDA's National Ag Statistics Service reported 57% of U.S. pastures and range as poor or very poor. Cattle attempting to graze on pastures in such poor condition require significant supplemental feed.

At this time last year, the massive drought centered in the Southern Plains resulted in a national poor and very poor rating of about 35%. At the time, widespread deterioration in crop and pasture conditions made 2011 the worst U.S. drought since 1988. Now this year has that distinction.

Forage conditions will determine how soon feeder cattle prices resume their march to record highs.

Expected 2012 national average corn yield estimates have fallen almost weekly.

"As 2012's second quarter progressed, drought shifted from eroding calf prices to hammering them," says Jim Robb, director of the Livestock Marketing and Information Center, Lakewood, CO. "On a monthly average basis the 500- to 600-pound steer calf price in the Southern Plains crumbled from about $182 per cwt. in May to about $145.50 in July. By the end of July, year-on-year gains in calf and yearling prices had disappeared."

Down pressure may be easing

The rate of decline in calf and yearling prices has recently moderated. A few markets reported slight upticks last week.

"The fundamental sign-posts that the decline in calf prices has ended will be forage related," notes Robb. Of course, the answer this year depends on Mother Nature. Three areas Robb urges producers to watch over the near-term are:

The amount of drought damaged corn harvested for forage (green chop, silage, baled)

Development of Southern Plains wheat and small grains pastures (moisture availability, planting progress and temperatures)

Prospects for fall/winter forages in winter grazing areas, like parts of California

Regionally, and even nationally, lightweight calf prices could bottom quickly if the forage situation improves. But an actual rebound in calf prices could take a while.

"High costs-of-gain will make cattle feeders more interested in yearlings than freshly weaned animals," explains Robb. "On a per cwt. basis, Southern Plains calves could bring a very small premium compared to yearlings this fall."

Robb currently expects 500- to 600-pound steers to average 5% to 7% below 2011 in this year's fourth quarter. In the Southern Plains that means average quality five to six weight steer calf prices in the $140s per cwt.

For the year, Robb expects calf prices to average 9% to 10% over last year.

2013 prices depend on feed costs

Looking ahead to calendar year 2013, Robb thinks calf and yearling price patterns could unfold quite differently than this year.

"If more normal weather occurs in 2013, the highest calf and yearling prices would likely come in 2013's second half," says Robb. "First half 2013 calf and yearling prices will likely be less than this year's first half prices.

"Feeder cattle supplies continue to tighten. Normal weather and better grazing conditions in the second half of 2013 could lift prices above 2012's," he says. "In fact, calf prices in the fall quarter of 2013 are expected to be well above 2012's and could easily eclipse 2011's record high."

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