3 minute read
MARKET UPDATE
from 2021 Fall Directions
by NCBA
Drought Conditions and Weather Forecast Drive Continued Liquidation
By Kevin Good, CattleFax Vice President of Industry Relations
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Liquidation of the nation’s beef-cow herd seen in 2019 and 2020 continues. The July 1, 2021, USDA Cattle Inventory report showed the current U.S. beef-cow herd is 650,000 head smaller compared to July 1, 2020. The La Niña weather pattern, which developed in mid-2020, continued in 2021 and is forecast to extend into 2022. It is a major reason why the beef-cow herd continues to experience liquidation. This is especially true in the western third of the U.S. as well and the Northern Plains where the drought is most severe.
Presently, nearly 30 percent of the U.S. beef-cow herd is in moderate or worse drought conditions. Yes, there were several years that were worse, particularly during the mega drought cycle between 1998 and 2013 (a timeframe when the beef-cow herd liquidated every year except two). But historically, the percentage is high and would suggest that the cow herd will continue to liquidate until weather conditions improve.
Liquidation is continuing even though calf values are trading $20/cwt higher moving into the fall run compared to the past two years, and for the average cow-calf producer, would offer some level of profitability. Unfortunately, if you are located in a region with limited moisture, the lack of feed and the high price for roughage is more than offsetting the stronger calf values as the decision-maker for keeping or culling females. Year-to-date in 2021, beef-cow slaughter is running 10 percent above last year’s high numbers and well above the five-year average. Elevated cow slaughter is noted in not only the drought effected regions but also in regions like the Southeast that had adequate moisture. This would suggest that factors other than drought have played a role in producers’ decisions to cull more cows through the first half of the year. Producers could be motivated by the highest summer cull-cow values since 2016. Utility cow prices are averaging more than $70/cwt this summer. Furthermore, pandemic challenges, processing availability and market volatility have exhausted some producers.
Year-to-date, the implied U.S. beef-cow culling rate is at 11.2 percent, substantially higher than last year. By comparison, this year is larger than 2012, but less than levels in 2010 and 2011. Those three years were in the middle of a massive cow herd contraction and drought cycle that was nearing its end. From 2009 to 2014, the U.S. beef-cow herd declined nearly 2 percent annually. The 2020 and 2021 drought is young by comparison, but obviously, it is taking its toll.
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The number of heifers in feedyards and the number of heifers in the slaughter mix are elevated. In 2019, 2020 and year-to-date in 2021, the percent of heifers in the fed cattle slaughter mix is higher than 37 percent. Historically, a percentage of 36 or higher indicates liquidation of the cow herd due to lack of heifer replacements, below those numbers indicate some expansions.
Moreover, the number of heifers moving in the country through auctions and video sales is also elevated. Many of these heifers were intended to be bred this year, but as weather conditions deteriorated producers had to make the tough decision and send replacement quality heifers to town to preserve their dwindling supply of feed resources.
All these factors would suggest the beef-cow herd liquidation will continue through 2021. In addition, with the current weather forecast for La Niña to continue and with the amount of heifers that have already moved from the county into feedyards, it is very likely that more beef-cow herd liquidation is in store for 2022. This will be primarily in regions of the country that are being adversely affected by drought. At the same time, due to greatly improved calf values, producers in some regions of the country with adequate feed resources are expected to keep back heifers and start expanding in response to profitability.