Widespread drought conditions so far in 2012 are clearly a large contributor to the current weakness in the cattle complex. There are numerous reports of early marketings of feeder cattle and cow liquidation which leaves no doubt that the drought is impacting cattle inventories and flows. However, the magnitude of these changes in cattle numbers is not clear yet so it is difficult to assess just how much impact might carry over into 2013. It is always difficult to determine drought impacts as they happen because one is never sure what would have happened in the absence of drought. Later, with the benefit of hindsight, the drought impacts may be more obvious. Adding to the difficulty this year is that most of the data is being compared to drought impacted numbers from last year so it is difficult to determine how conditions this year compare to a more normal average. There are two upcoming reports that may help clarify the situation although drought conditions will continue to change and drought assessment will be a dynamic process over the next months.
The July Cattle on Feed report is expected to show decreased June placements compared to last year. This follows the May report where placements exceeded the expectations for large placements. The unexpected increase in May was attributed mostly to drought forced early placements. June placements are expected lower partly because of one less business day this year. The question of drought impacts will not be whether June placements are lower than last year but how much lower? A decrease of 4-5 percent is needed to account for one less day so a placement value down 4 percent or less is really equal to or greater than last year and clearly significantly larger than expected. In the absence of drought this year, a double digit decrease in June placements would be likely. The most likely case is a decrease in the range of 5-10 percent which would indicate smaller placements than last year but larger than would have occurred without the drought. It seems clear that more cattle are entering feedlots earlier than anticipated and it will impact feedlot marketings late in 2012 and into 2013. It is still not clear just how significant those changes will be.
The mid-year Cattle Inventory report will also be issued this week (courtesy of a one year reprieve from elimination by USDA-NASS). The July 1 beef cow inventory is expected to be down year over year but the question is how much will it be down? Has the drought been severe enough to already show significant herd liquidation? Beef cow slaughter is down nearly 10 recent for the year to date compared to last year and is down 12 percent compared to 2010. Would cow slaughter have been even lower without drought this year; probably, but it is not clear how much.