Widespread drought means fewer cattle, costlier beef

The U.S. cattle herd continues to shrink amid widespread drought with the Sept. 1 feedlot inventory count down 10,637 head, falling about 1% from a year ago, according to the U.S. Department of Agriculture.

This is only the second time in the last 28 months that feedlot inventories have dropped below year earlier levels on a month to month basis, according to  Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist.

Peel notes the slight decrease is actually “remarkable given that the total calf crop has decreased every year since 2006. The 2012 calf crop is projected at 34.5 million head, down 6.8% from 2006 and down 2.3% from last year."

Despite a shrinking herd, feedlots have been able to keep fairly steady inventories thanks to more imports from both the north and the south. Peel notes increased imports of feeder cattle from Mexico and Canada have partially offset decreased U.S. calf production.

So far in 2012, imports of feeder cattle are up about 287,344 head, a 35% increase and nearly all due to increased imports from Mexico. At the current pace, Mexico could contribute an additional 220,000 head by the end of the year. 

However, Mexican cattle imports are expected to slow in the coming months related to extreme drought south of the border.

As many as 1.6 million young cattle could come north this year, which is helping feedlot capacity today. But Mexican feeder imports might decline by 750,000 head or more next year, according to beef analyst Steve Kay publisher of Cattle Buyers Weekly.

Kay and other analysts say the drought is likely to have as far-reaching effects on the U.S. beef industry as BSE did in 2001.

The short supply of feeder cattle, masked by the impacts of two years of drought, is finally catching up with us, Peel said.

Consumers will pay more for beef because there will be less of it in the next two years. USDA consumption estimates for beef per capita in 2012 is 57.5 pounds, falling to 55.2 pounds in 2013.

Analysts say wholesale and retail beef prices were at, or close to, record levels coming into September as beef was becoming less competitive price-wise with pork and chicken.

More than half of all beef consumed is in the form of ground beef. The retail price has risen between 8% and 10% this year, according to the USDA.

Analysts say that cost will likely escalate in 2013 and again in 2014 as the herd shrinkage continues.