Drought impact felt in beef slaughter markets

by Meat&Poultry Staff
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WASHINGTON – The impact of the worst drought in 50 years is being felt across beef market, according to a report from the US Department of Agriculture’s Economic Research Service (ERS).

High feed costs and low milk prices are the primary factor behind year-over-year increases in dairy cow slaughter, according to ERS. Beef slaughter also is increasing but in a seasonal pattern.

Generally, beef cow slaughter has remained below 2011 and 2010 levels. However, it has been heavy relative to the Jan. 1, 2012, cow inventory, ERS said. Total federally inspected cow slaughter was below 2011 slaughter for most weeks in 2012. Additionally, slaughter cow prices have generally declined since their May 2012 peak. However, they remain above year-earlier prices on a weekly basis, ERS said.

Feeder cattle prices in 2012 have been well above prices for corresponding periods in 2011, ERS said. But prices declined in July to levels roughly the same as the comparable 2011 period. ERS said drought-reduced pasture availability and high feed costs have pressured cattle feeding margins that have been negative since April 2011. Prices for lightweight feeder cattle began increasing compared to heavier cattle, driven in part by the positive outlook for feeder cattle demand in 2013 and winter pasture prospects, according to ERS. However, final outcome of the fall corn harvest will determine the extent of demand for feeder cattle.

A positive outlook for winter pasture development and pasture growth in 2013 could boost demand for heifer calves for both stocker programs and rebuilding cow inventories, ERS said. Heifers kept for rebuilding cow inventories reduces the inventory of feeder cattle available for feedlot placement, which would support feeder cattle prices.

ERS said retaining heifers would also likely reduce future fed cattle supplies and, ultimately, beef production, starting in late 2013 or 2014. Any heifer retention over the next few years would likely have an adverse impact on beef supplies until 2015 or later. By then, cow inventories could be high enough to provide enough feeder cattle to raise cattle supplies of beef at or above current levels, according to ERS.

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