Texas ranchers may have culled half a million beef cows this year due to drought. That would be a 9 percent decline in the state’s herd, and devastating to those struggling to hold their operations together. The silver lining is that prices have been good, and analysts expect continued increases.
Futures prices in Chicago have gained 18 percent over the past year, and some analysts expect the price may go over $130 per hundredweight. Heavy culling of animals usually leads to a supply bubble and lower prices, but this year’s drought came when cattle inventories were already at historic lows. January’s inventory of beef cows was the lowest since 1958.
David C. Nelson, a global strategist at Rabobank, was quoted in The Wall Street Journal this week, "We're liquidating the future. The cow herd is our factory, and we're sending it to the slaughterhouse."
Texas A&M University economist David Anderson told Bloomberg this week, “We’re going to be talking about a historically large reduction in beef-cow numbers. If nothing changes, that’s tighter supplies and less beef and higher prices.”
Prices for cattle and beef are expected to remain relatively high next year as USDA says beef production will decline by 4.5 percent next year. That’s expected to drive retail prices higher, and worries many analysts who think beef could be priced out of the market place next year. Per-capita beef supplies could shrink to 55.6 pounds next year, the lowest since 1955.
Higher beef prices are usually good for feedyards, but rising grain prices have squeezed their margins this year. Corn prices have risen 36 percent on the Chicago Board of Trade this year, and the corn rally may not be over.
Meat costs are already rising faster than any other food group, which helped push global food prices to within three percent of the record reach in February, according to the United Nations gauge of 55 commodities. The meat component of the index has more than doubled since 2002 and is up 8.7 percent this year.
Still, drought remains the biggest story in cattle country, and its effect will be evident for years to come. The U.S. Drought Monitor has 88 percent of Texas in “exceptional” drought, and 98 percent of pastures are in poor or very poor condition.
Earlier this week the Texas and Southwestern Cattle Raisers Association said 84 percent of their members had reduced their herd due to the drought, and the average reduction was 38 percent. At least eight percent of respondents plan to sell all their cattle.