So, where is the cattle industry today, and what do we know
about the impacts of this year's drought?
The midyear cattle
inventory report from USDA indicated that beef cow numbers had
dropped by an additional 3 percent over the past year. Since
2006, beef cow numbers have dropped by 8 percent due to much
higher feed prices and the long drought in the southern Plains.
The 2012 calf crop is expected to be down about 2 percent over
the past year, and also down 8 percent from 2006.
Hurt said this year's drought likely means further decreases
in cow numbers over the next 12 to14 months.
"The impacts of the drought are just beginning to show up in
some of the national data," Hurt said. "We do know the direction
but not the final magnitude of those impacts. The cattle
industry is negatively affected by feed costs and lack of
availability of forages. Higher corn and soybean meal price have
dropped the value of calves and feeder cattle that will
eventually go to the feedlots. Lack of pasture is also causing
some early movement of cattle," he said.
Since feed prices started rising in mid-June, corn prices
have increased around 60 percent and soybean meal prices are up
25 percent, Hurt reported.
"Forage conditions have been horrible across the Midwest,"
Hurt said. "At the end of July, pastures that were in
‘very-poor' and ‘poor' condition totaled from 82 percent to 98
percent for the states of Indiana, Illinois, Arkansas, Missouri,
Iowa, Kansas, Nebraska, and Colorado (USDA:NASS).
"There have been many reports of producers forced to feed hay
that was intended for this winter's forage supply. Those
producers are hoping for late-summer rain that may restore some
pasture this fall. If that does not come, a deeper liquidation
of cows can be expected," he said.
Hurt reported that in the wake of high feed prices and
uncertainty regarding forage availability, calf and feeder
cattle prices plummeted. Oklahoma steer calf prices were $173
per hundredweight in mid-June and collapsed to $138 by late
July. How much loss of value is that? A $35 per hundredweight
decline on a 550-pound calf is nearly $200 per head reduction in
value. Multiplying that across a national calf crop of 34.5
million head totals a potential decline in value of over $6
billion. Hurt said it is still too early to count the actual
damages, but this illustration shows it is likely large.
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Reduced value of calves and feed uncertainty will most likely
result in further declines in cow numbers this fall and winter.
National slaughter data so far during this drought indicate only
modest increases in cow slaughter. However, most Midwest
producers have had hay to feed, helping them to avoid panic
liquidation. How the drought unfolds in coming months will
influence how much cow liquidation occurs. More rain and thus
grass will reduce liquidation. Continued drought will increase
fall and winter cow culling.
"The largest negative financial impacts of the drought will be felt
by cow-calf producers and by feedlot managers who did not have feed
prices locked in at the lower spring levels," Hurt said. "Assuming
most large feedlots are primarily hedged on feed and feeding
margins, this means that moderate- and small-sized family feedlots
are the primary category that suffered large losses. Some of those
family farms may also have large losses from crops, especially if
they did not have crop insurance, and thus could be in financial
difficulty," he said.
Hurt said the message for cow-calf producers is to hold on to the
cows if possible.
"The short-term losses of the next 12 to14 months will be
replaced by large profits in late-2013, 2014 and 2015. These
anticipated ‘golden' days are based on continued reductions in per
capita beef supplies, which will mean higher and higher retail beef
prices; on an expected return to more normal crops in 2013 and
beyond; and record-high calf prices and profits in late 2013 and
beyond. The problem for some producers in a weakened financial
condition is that they have to survive the pain in the short run to
secure the prize in the long run," Hurt said.
Hurt said the message for family feedlot managers is "risk
Any thoughts of industrywide expansion are pushed off for another
year to late 2013, when pastures are restored and feed prices drop,
Hurt said. The exception is for producers in areas of the country
that have abundant forages. For them, buying cows sold this fall
from distressed owners appears to be a strategic move.
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental