U.S. beef herd liquidation may be one of the largest ever
The largest liquidation ever could be under way in the beef industry. USDA’s Livestock Slaughter report, released Sept. 23, shows the nation’s beef producers sent 22.8 million head to be commercially slaughtered from January through August, a 1% increase from the same period a year ago. For August, commercial slaughter was 5% above July levels, at 3.1 million head.
Mark Nelson, economist with the Kansas Farm Bureau, predicts cattle numbers will be even tighter next year and in 2013. The liquidation that is occurring now is the largest or one of the largest drought-based liquidations ever, he adds.
Heifer numbers are also lower; the nation’s beef producers retained 5% fewer heifers in 2010 than in the previous year, according to estimates by USDA.
Nelson says that if current conditions—high corn and hay prices as well as severe drought in the Southwest—persist and liquidation occurs into the fall, the breeding herd could decline by as much as 7%. "This would be a loss of 2 million head of beef cows," he adds. "This is huge and could mean a reduction in cowherd numbers that this country hasn’t seen since the early ’60s."
Monthly cattle slaughter in Texas rose to 629,600 head in August, a 7.7% increase over a year ago. Slaughter rates were also higher compared to last year in Arizona, California, Colorado, Georgia, Nebraska, North Dakota, Oregon and Wisconsin.
La Niña has been blamed for the severe drought in the Southern Plains, particularly in Texas. After a brief hiatus, La Niña returned in August. These conditions are expected to strengthen and continue into the Northern Hemisphere for the rest of 2011 and early 2012, according to the National Oceanic and Atmospheric Administration’s Climate Prediction Center.
Tight supplies. "Cow numbers continue to shrink," says Glynn Tonsor, livestock economist with Kansas State University. He expects continued tight supplies of both feeder cattle and calves over the next 12 months. "That means the value of calves and feeder cattle will be historically high," Tonsor notes.
Some in the corn industry refer to the mass liquidation as "demand destruction" and, indeed, lower numbers of cattle will reduce the amount of corn going into feed channels.
Price resistance, a rally in the U.S. dollar and expected or better-than-expected harvest yields have already pressured corn prices substantially lower over the past month. The December corn contract lost 74¢ between Aug. 23 and Sept. 22.
"If 50¢ falls off the corn price permanently, feedyards would be willing and able to pay more for feeder cattle based on expected returns," Tonsor says. For now, though, the outlook remains tight on both calves and feeder cattle.