Rebuilding the national cow herd will have an adverse effect on feeder cattle supplies and subsequent beef supplies because heifers retained for breeding are no longer available for placement on feed, reducing the subsequent number of cattle on feed and beef supplies from their slaughter. This effect will last until enough heifers have been retained for enough years to produce enough calves to be fed out and slaughtered to replace heifers that were retained and not placed on feed. Heifers retained for herd rebuilding in 2013 will be bred in 2014 and then will calve in 2015. Those calves could be slaughtered for beef in 2016 or 2017.

Throughout 2012, supplies of feeder cattle outside feedlots have been at historic lows since the series began in December 1995 (http://www.ers.usda.gov/dataproducts/livestock-meat-domestic-data.aspx#26184) and, with July 1, 2012 supplies 3.2 percent below the July 1, 2011 estimate, have averaged a 3.37-percent decline year over year for every quarter in 2012. While there is much discussion of a shortage of feeder cattle, cattle-feeding profits and packer margins near or below zero would seem to imply that the perception of a shortage is relative to total feeding and processing capacities rather than a confluence of supply and demand. Further, supplies of cattle on feed for more than 120 days this year are the highest July-1 supplies since records began in December 1995. Retail beef prices at or near record levels are not at levels high enough to support profits throughout the beefcattle market system.

Some locations in the Southern Plains have received enough precipitation to raise hopes for wheat pasture for feeder calves this fall and winter. However, prospects in most of the winter wheat area are not good, especially in the western winter wheat area of the Southern Plains. Should wheat pasture materialize, it could have a positive effect on heifer and cow retention, as well as provide a lower-cost option for growing feeder cattle to feedlot-placement weight.

Fed cattle prices have improved over the last couple of weeks, but the improvement has not been sufficient to put cattle feeding into the “profitable” range. According to the Sterling Profit Tracker reported in the Drovers’ Cattle Network (http://www.cattlenetwork.com/e-newsletters/drovers-daily/Cattle-feeding-marginsimprove-packer-margins-erode-165338486.html), both cattle feeders and beef packers are in negative territory. As of August 11, the USDA, Agricultural Marketing Service’s (AMS) weekly Choice cutout values have declined 8 percent since their mid-June 2012 weekly high.

The tradeoffs between the desire to place heavier-weight feeder cattle with high-priced corn and the necessity of removing lighter-weight cattle from droughtdecimated pastures and placing them in feedlots despite high-priced corn may lead to a bimodal distribution of fed cattle and finish/dressed weights. Since 2008, the proportion of first-half under-600-pound feeder cattle placements to total placements in 1,000-head-plus feedlots has increased steadily from 20.4 to 24.2 percent. Over the same period, the proportion of first-half over-800-pound feeder cattle placed declined steadily from 29.3 to 27.4 percent in 2011, then increased in 2012 to 30.7 percent. Over these same periods, first-half under-600-pound feeder calves increased from 2.085 million head in 2008 to 2.570 million head in 2012, while first-half over-800-pound feeder cattle have moved erratically from 2.985 million (2008), 2.870 million (2009), 2.980 million (2010), 2.945 million (2011), to 3.260 million (2012).

Pasture conditions were relatively normal during 2007-10, which would have increased the incentive to place higher proportions of the available over-800-pound feeder cattle. Further, the increasing proportion of under-600-pound feeder calves placed was consistent with declining corn prices from 2008 through 2010 during which first-half corn prices declined from $4.85 to $3.51. In 2011 and 2012, proportions of drought-motivated placements of under-600-pound feeder calves continued to increase despite corn prices of $6.05 in 2011 and $6.29 in 2012. The differences in prices between 500-to-550-pound and 750-to-800-pound Medium and Large No.1 steers at Oklahoma National Stockyards, Oklahoma City also reflected the relationships between corn prices and placement weights. Feeder-cattle price differentials averaged from $17.33 per cwt to $18.78 from 2008 through 2010 then widened to $20.98 in 2011 and $36.46 in 2012 where the widening price differentials reflect the increasing costs of feeding lighter-weight calves high-priced corn.

…And Beef Production

Estimated commercial steer and heifer slaughter for the first half of the year was almost 4 percent below first-half 2011, and estimated first-half commercial cow slaughter was 2.5 percent below year-earlier slaughter. Despite these declines, commercial beef production for the same period was down 1.6 percent. The disproportionately smaller decline in beef production resulted from federally inspected first-half 2012 dressed weights that averaged 2.1 percent above first-half 2011 weights for all cattle, including 2 percent above year earlier for steers and 2.4 percent above for heifers.

Increased cow slaughter led to an increase in the supply of 90-percent and other lean-beef supplies to the detriment of prices for those products. Although they have declined, both cow prices and lean-beef prices have remained relatively strong over the last couple of months. However, the price of 50-percent lean trim has declined to less than $45 per cwt partly in response to the continuing negative bias against using Lean Finely Textured Beef in ground beef products.

July 2012’s monthly retail price of $5.01 per pound for Choice beef—up 1.6 percent from June 2012’s $4.93—was only 1.6 percent below January but above April-through-June prices, reflects a continuing decline from January’s record of $5.09 per pound. At the same time, July’s monthly average retail price of $4.72 per pound for All-fresh beef reflects a new record less than 1 percent from June’s $4.71. All-fresh beef prices are not reflecting weakness in demand for middle meats as are the prices for Choice retail beef.