U.S. weather woes continue | The cost of gain is going up due to rising feed prices
Widespread drought in the United States and rising North American feed prices will almost certainly result in more empty pens in Canadian and American feedlots this fall.
Anne Dunford, a cattle market analyst with Gateway Livestock Exchange in Taber, Alta., said the number of cattle on feed in Saskatchewan and Alberta could drop below 550,000 by Sept. 1, more than 100,000 head off the five-year average.
“If by Sept. 1, if we wake up and there’s 550,000 head of cattle on feed in Alberta and Saskatchewan, that’ll be one of the smallest (numbers) we’ve ever seen since we started keeping this data,” Dunford said.
“It could be one of the smallest (feedlot) inventories we’ve started the fall run with from a feedlot perspective. There’s going to be a lot of empty pens in southern Alberta.”
High feed costs and a reduction in feeder animal inventories have taken a toll on the feeding industry.
Costs of gain are up, margins are down and analysts are projecting a significant reduction in slaughter numbers on both sides of the border.
“Last year, it was so dry (in the U.S.) that the number of cows that went to (slaughter) was the largest we’ve seen since 1996,” said Dunford, who spoke last week at the 2012 Feedlot Management School in Saskatoon.
This year will be a different story, she said.
According to figures from the United States Department of Agriculture and Cattlefax, the U.S. cow slaughter is expected to decline by as many as 600,000 head to around 5.75 million head.
In Canada, fed cattle sales for 2012 are projected at 2.8 million, the lowest level since 1994 and 15 percent below 2010 figures.
Prices for feeder animals are also up compared to last year.
In late July, weekly prices for 550 pound steers in Western Canada were above $170 per hundredweight, about $20 higher than 2011 and $50 higher than 2010.
Dunford said rising feed prices are having a significant impact on cost of gain at Canadian and American feedlots.
In the four-week period ending July 25, Omaha corn jumped $1 a bushel to $7.50 (US) and Lethbridge barley peaked last week at around $285 a tonne.
Cost of gain is the cost associated with putting an extra pound of weight on a feedlot animal.
Analysts say a $1 per bushel increase in the price of U.S. corn increases the cost of gain, or COG, by approximately 15 cents per lb.
With corn at $8 (US) per bu., the cost of gain is estimated at around $1.25 per lb.
With corn at $5 (US) per bushel, prices that many analysts were expecting just a few months ago, the cost of gain would be closer to 80 cents per lb.
Those costs will dictate feedlot operators’ decisions as they enter the fall run.
Despite the rising costs, Philip Lynn, president of the Saskatchewan Cattle Feeders Association, said Canadian cattle feeders will likely enjoy a feeding advantage over their American counterparts.
“I think our cost of gain is going to be 10 to 15 percent less than the U.S. cost of gain, just because we’re barley based as opposed to corn based,” he said.
“But barley always rides on the back of corn,” he added.
“I think we’re going to be coming into some pretty challenging times with the numbers here.”
Feed costs are already prompting many cattle feeders to fast track their animals, empty their pens and cut their losses.
In the short term, that could result in more fed cattle moving to slaughterhouses.
But total slaughter numbers are expected to decline in 2012.
“We’ve got some short-term pain here but I also think we’re going to have some long-term gain,” Lynn said.
“There’s a lot of optimism within the cattle feeders…. It’s just a matter of getting rid of these cattle that are in front of us right now.
“We have a pretty heavy U.S. supply that’s being accelerated right now to cut (their) losses.”
Cow-calf producers on both sides of the border are expected to adjust their herd sizes accordingly.
In the United States, American beef producers will continue to scale back cow herds and are expected to enter 2013 with inventories of 29.9 million head, the lowest level in the past 40 years, said Dunford.
In Western Canada, producers might engage in some modest herd building over the next year or two, she added.
However, Statistics Canada figures suggest that the Canadian beef cow herd will shrink another one percent in 2012 to around 4.2 million head, the smallest number since 1994 and 20 percent below 2005 figures.