WASHINGTON, August 6, 2012- Rabobank’s International Food & Agribusiness Research and Advisory (FAR) group released a report last week predicting continued pressure for cattle feeders in the United States.
FAR group's “U.S. Cattle Market Update: The Rain Isn’t Falling, but Neither is the Sky!” report notes that weather is the main driver for the beef industry for the second year in a row. The Lean Finely Textured Beef (LFTB) crisis, which upset normal seasonal price trends for the first half of the year, will be overshadowed by the drought’s effects on the second half of 2012, according to the news release.
“The U.S. beef complex has been driven by one emotionally charged issue after another, and given the escalating uncertainty of the weather there is no relief in sight,” said report author and FAR Animal Protein Vice President, Don Close.
The report notes that this year’s drought is more widespread, but not as severe as last year’s. In the Southern Plains where stocking rates are below normal due to the 2011 drought, grazing conditions have improved. Also, the group reports drought-forced placements are shifted geographically. June cattle on feed placements in Texas are 16 percent lower from a year ago, while Nebraska’s placements are up 24 percent.
“Drought conditions have eliminated any prospects of a U.S. herd expansion in 2012, although cattle producers are making efforts to retain heifers,” Close said in the release. “A decline in heifer placements is good for the industry in the long term. However, it means an even tighter supply of placements now for cattle feeders.”
Drought-influenced high placements of Mexican cattle have helped bolster cattle inventories, especially for southern U.S. feeders, noted Rabobank. However, while the Mexican cattle herd diminishes, the report predicts U.S. cattle feeders to face greater long-term tightening of cattle supplies.
“Currently cattle feeders are losing in excess of $250 per head on unhedged cattle,” Close said. “The live cattle to feeder cattle swap is not offering anything much better. To date, the precipitous decline in feeder cattle values has totally been absorbed by the surge in feed prices.”
On a more optimistic note, the report does report that fed cattle prices should have support as fed cattle supplies and carcass weights are expected to decline through the second half of the year.
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