Dry conditions are spreading to the North and West and expanding in the Southeastern United States, causing consternation among crop and livestock producers as far north as the Corn Belt and increasing the flow of lighter cattle off pastures. Drought-induced feeder cattle exports from Mexico are entering the United States at a higher rate than they were at this point in 2011. Although well below 2011 levels year-over-year, weekly estimates of federally inspected other (beef) cow slaughter have also increased from mid-April lows.
While yearling and fed cattle markets have been steady-to-higher in recent weeks despite negative cash margins for cattle feeders, prices/markets for lighter and younger calves are becoming unsteady at best, reflecting the rapidly deteriorating summer pasture conditions. Cow prices have also begun to slip somewhat as postcalving- season culling gets under way and pasture and hay conditions deteriorate.
Projected cattle feeding costs through August 2012 range from the low $130s per cwt to the low $140s. At current fed cattle prices, these costs indicate margins that are well into negative territory, with projected losses of over $200 per head (High Plains Cattle Feeding http://www.ers.usda.gov/publications/ldp/LDPTables.htm).
Wholesale Choice beef cutout values have again increased, approaching previous record levels of almost $200 per cwt. However, prices for 50-percent lean beef are again approaching the low levels reached just after the publicity concerning Lean Finely Textured Beef, and AMS-reported weekly 5-day moving average byproduct values have slipped by more than 5 percent since early May. Processing beef prices also may have reached a temporary peak and could decline over the next quarter, although the longer term outlook for all beef remains positive due to declining inventories and prospects for lower feed grain prices this fall.