While the country's overall drought footprint has shrunk, the long-lasting drought across the Central and Southern Plains remains well entrenched. Cattle producers in the region continue to wait for a break in the drought to begin herd retention after they began a deep cow cull in 2010. USDA's Economic Research Service (ERS), in its latest "Livestock, Dairy and Poultry Outlook," says precipitation over the next two months will set the stage for the summer grazing season.
ERS says rains would encourage herd retention and support feeder cattle prices. Improved pasture conditions would also encourage producers to keep more heifers out of the slaughter mix as they begin to rebuild herds. "If corn prices decline as forecast (as a result of more normal precipitation) and pasture conditions improve, prices for feeder cattle could receive an additional boost," it says.
"On the other hand, continued drought could again force feeder cattle into feedlots prematurely. These premature placements would likely increase beef supplies during the latter part of 2013 and into 2014. Increased supplies would likely exert downward pressure on fed cattle prices, which, along with increased feeding costs from longer feeding periods required by lighter weight placements, would likely reduce cattle-feeding profit potential," adds ERS.
Regarding beef demand, ERS says, "Consumers have shown some resistance to the high prices, primarily by increasing consumption of ground products, that has led to higher prices for ground products relative to steaks and other pricier cuts."
ERS says U.S. beef exports the first two months of the year were around 1% above the previous year and said it expects exports in the second quarter of the year to rise by around 4% compared to 2012. But it expects beef exports the last half of the year to decline to result in a year-over-year decline of 1%.