U.S. cattle herd fell to record low amid Plains drought, pricey corn

The total U.S. cattle herd at the middle of this year fell to a record low as high feed costs discouraged adding animals and severe drought in the Southern Plains forced ranchers to send more cows to slaughter.

As of July 1, the nation’s inventory of all types of cattle and calves fell to 99.69 million head, down 1.4 percent from the same date in 2010, according to a Dow Jones Newswires survey of analysts. That would be the smallest herd for that date since the U.S. Department of Agriculture began compiling a July 1 figure in 1973.

The USDA is scheduled to release its next twice-a-year cattle inventory report at 2 p.m. Central time July 22, along with its monthly Cattle on Feed report.

Cattle numbers have been declining for about five years, in part because the 2008-09 recession hurt beef demand, contributing to widespread industry losses. More recently, drought in Texas and other top beef states reduced the availability of pasture for grazing, while record corn costs caused producers’ feed costs to soar, offsetting the benefits of high cattle prices.

While cattle prices remain near all-time highs reached over the spring, “that has not proved to be enough to stop the ongoing liquidation of the U.S. beef cow herd,” livestock analysts Steve Meyer and Len Steiner said in a July 21 report. “For the moment… U.S. beef producers appear to be in no position to expand.”

In another closely-followed inventory figure, the 2011 U.S. calf crop is estimated to have declined 1.5 percent from 35.69 million head during 2010, according to analysts.

Prices for slaughter-ready cattle are up about 18 percent from levels a year ago, and hit a record at about $125 per hundred pounds in April, according to USDA data. Cattle commanded about $108.35 per hundredweight in major Plains markets yesterday.

Feedlot operators have cut purchases of young animals for fattening as high corn prices led to widening losses in recent months, analysts say.

During June, feedlot placements are estimated to have dropped about 6.6 percent from 1.628 million head in the same month in 2010, according to the Dow Jones survey. That would follow an 11 percent decline in May and mark a break from a trend of higher placements in most months going back to late last summer.

Justin Gleghorn, a broker and risk management consultant with Brock Thompson Trading, LLC, said it’s difficult, if not impossible, for a feedlot manager to lock in a profit on cattle bought now, based on current futures prices for livestock and grains.

Though cattle market fundamentals look promising as the end of 2011 nears, grain prices “are going to be problematic for cattle feeders, along with the increasing costs of fewer and fewer feeder cattle,” Gleghorn said in an e-mail.

“The inability to place and hedge a break-even animal is worrisome, and it appears that this situation may not correct itself any time soon,” said Gleghorn, who’s based in Amarillo, Tex. Cash market corn prices for buyers are “horrible, and look to get worse as grain supplies tighten,” he said.

Feedlots lost an average of $155 per head on cattle sent to slaughter last month, compared to a loss of $126 in May, according to Jim Robb, director of the Livestock Marketing Information Center. In June 2010, feedlots made an average profit of $18 a head.

In late trading July 21, Chicago corn futures for December delivery fell 8 ½ cents to $6.69 ¼ a bushel. Corn is still up about 90 percent from a year ago, reaching a record $7.99 ¾ in June, based on the nearby futures contract.

With tight inventories expected to keep cattle prices high through 2012, consumers probably face even higher costs for steaks, burgers and other beef cuts at the supermarket, analysts say.

During June, average U.S. retail beef prices rose 8.5 percent from the same month in 2010, after posting year-over-year increases averaging 10 percent during the first five months of 2011, according to Labor Department data.

Despite rising grocery prices, U.S. consumer demand for beef still appears to be holding up, and exports have been very strong, Gleghorn said. “But at some time I think we may price ourselves out of the domestic market,” he said.

The total number of cattle on feed as of July 1 is forecast to be up 2.7 percent from 10.07 million head a year earlier, based on the survey.

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