Drought effects continue to diminish in the United States except for some areas in the Southeast and Southwest. However, most of the northern half of Mexico remains under drought conditions, resulting in a 22-percent year-over-year increase in year-to-date (weekly AMS data through May 5) imports of Mexican feeder cattle into the United States. Corn planting and emergence in the United States is well ahead of last year and the 5-year averages. Similarly, 88 percent of winter wheat is in fair-to-excellent condition leading to a decline in wheat prices. With wheat prices below corn prices, feeding with wheat could alleviate some of the pressure of high corn prices on cattle-feeding profit margins.
Federally inspected (FI) slaughter of beef cows has declined steadily since last fall when beef cows represented as much as 60 percent of total (weekly) FI cow slaughter. The cow-calf sector is enjoying high prices for both cull cows and feeder cattle and, despite record-high input costs, is one of two sectors of the cattle/beef industry experiencing positive profit margins—the other being beef packers, since early this month. Feeder cattle prices have dipped from their 2012 record levels of February and March due to declines in stocker calf spring/summer grazing demand and increasing cattle-feeding losses, but they are expected to increase later this year and in 2013.
Cattle feeders continue to experience negative feeding margins due to higher costs of feeder cattle and feed. Feed-grain prices are expected to moderate slightly through the spring and summer of 2012, but feeder cattle and soybean meal prices are expected to increase during the same period. Without a significant improvement in fed cattle prices and lower feed and/or feeder cattle prices, feeding margins will not improve. The situation does not appear likely to improve until later in 2012 or early 2013 when new-crop corn prices decline. Weaker corn prices are likely to be accompanied by relatively high protein-meal prices because of an apparent shift from soybean acreage to corn acreage, leading to the expectation of higher supplies of new-crop corn and associated price declines. Another factor offsetting lower new-crop corn prices is anticipated increases in feeder cattle prices over the remainder of 2012 and throughout 2013 in response to the tightest feeder cattle supplies in decades.
In hindsight, cattle and beef prices appear to have reached a seasonal spring high early this year, consistent with recent and anticipated weather patterns and their effects on weight gains by cattle in feedlots through the past mild winter. While seasonal price patterns would typically be lower during the summer, the highest prices for 2012 are anticipated to occur during the second half of the year. Based on normal seasonal price patterns, wholesale beef markets appear to have weathered the bovine spongiform encephalopathy (BSE) and lean finely textured beef (LFTB) storms of March and April 2012 without serious price damage. An exception is the market for 50-percent lean trim. Although short-term impacts are negative, the future outcome for LFTB and 50-percent lean beef trim demand and prices is uncertain and will depend on how consumers respond to LFTB. Prices for 90-percent lean beef have increased steadily since reaching a low in September 2011. Otherwise, price impacts as a result of the April 23 BSE event have been limited primarily to most live and feeder cattle futures price contracts declining by their daily allowable limit on April 24, 2012, followed by a quick recovery. In the meantime, packer margins have improved to show positive returns for the first time since last September. Retail beef prices continue near their highest levels, averaging $5.05 per pound for Choice beef and a record $4.70 per pound for allfresh beef in April.