WASHINGTON – High feeding costs and low milk prices have driven year-over-year increases in federally inspected, weekly dairy-cow slaughter for most of 2012, according to the Livestock, Dairy, and Poultry Outlook report released last month by the US Department of Agriculture’s Economic Research Service. Although federally inspected beef cow slaughter has also increased, it has done so more erratically and primarily in a typical seasonal pattern since mid-April 2012.
Although beef-cow slaughter has generally remained below 2011 and 2010 levels, it has still been heavy relative to the Jan. 1 cow inventory. The drought-induced beef-cow slaughter that occurred in 2011 was heavier compared to the 2011 cow inventory. As a result, total federally inspected cow slaughter is below year-earlier slaughter for most weeks in 2012.
Since its May 2012 peak, slaughter cow prices have generally declined. While currently below that peak, however, they remain above year-earlier prices on a weekly basis.
Prices for feeder cattle in 2012, especially the heavier cattle, have been generally well above prices for corresponding periods in 2011. But in July, they decreased to levels about even with same-month 2011 levels primarily due to drought-reduced pasture availability and the impact of high feed costs on cattle feeding margins, which have been negative since April 2011.
Simultaneously, prices for lightweight feeder cattle began increasing relative to heavyweight cattle. This was partly motivated by the positive outlook for feeder cattle demand in 2013 and prospects for winter pasture. But demand for feeder cattle will depend on the final outcome of this fall’s corn harvest.
Heifer calf demand for both stocker programs and rebuilding cow inventories could increase if precipitation is enough this fall to enable cool season pasture development this winter and if prospects improve for pasture growth in 2013.
Retaining heifers for rebuilding cow inventories reduces the inventory of feeder cattle available for placement in feedlots, which would support feeder cattle prices. This would also likely reduce future fed cattle supplies and, ultimately, beef production, beginning 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, when cow inventories could again reach a level that would provide enough feeder cattle to produce supplies of beef at or above current levels.
Fed-cattle prices started increasing seasonally since July lows. Some current industry anecdotes suggest packers may be having difficulties finding enough finished cattle to meet their needs, which should be supportive of prices, except that packer margins will drop from the higher fed-cattle prices combined with static or declining wholesale values.
Fed-cattle prices could be pressured, however, if feedlot managers are not marketing finished cattle in as timely a manner as previously thought. Evidence supporting a possible buildup includes higher dressed weights, a larger number of cattle on feed for more than 120 days and higher dressing percentages.
Another indicator is the record number (since August 1996) of cattle on feed for 120-plus days on Aug. 1, which – in addition to any remaining calf-feds – may indicate larger than usual numbers of heavyweight fed cattle that could be marketed over the next few months. These numbers could be a result of the many heavy feeder cattle placed earlier this year and the large numbers of under-600-lb. feeder calves placed in late 2011.
A third indicator is the five-day average dressing percentage, which has been above year-earlier and recent historical levels for most of the summer and despite the driving forces of the drought, runs counter to the traditional logic associated with abbreviated feeding periods during periods of high grain prices.
Weekly wholesale cutout values have recovered somewhat since their lows in late- July/early August 2012 and are above year-earlier values. Still, improving fed cattle prices have pressured packer margins, which have recently deteriorated. Part of the reason for the improved cutout values is demand for some middle meats and other cuts helped move monthly retail Choice beef prices higher in July.
While Choice retail values improved slightly in July, the All-fresh beef price set another record at $4.71 per lb. But both retail Choice and All-fresh beef prices retreated slightly in August to $4.95 and $4.70. While demand for ground products appears to be providing ongoing price support to the All-fresh beef price of which it is a component, it does not seem to be sufficient to completely offset the negative pressure associated with the end of the summer grilling season.