A Rabobank analyst says the fall calf market is potentially the most vulnerable as a result of the pandemic
Worsening dry conditions in parts of the United States’ key cattle producing areas are being watched carefully by producers and economists.
Don Close, senior animal protein analyst with Rabobank Agrifinance, said June 17 that conditions weren’t yet severe enough to prompt cow herd liquidation but that could occur if weather patterns persist.
The U.S. beef cow herd stands at 30.5 to 31 million head, numbers Close said bode well as the industry comes out the other side of the pandemic.
“I think that’s a comfortable level to keep our existing infrastructure in place, that we won’t go through one of those gut wrenching endeavours that we went through (in) 2013, 2014 that we were closing plants, we were closing feed yards. That should provide a good enough volume of cattle to keep the system functional.”
Those herd numbers are 1.4 million head fewer than in 2002, a 4.4 percent decline, according to Canfax figures.
Canada’s beef cow herd stood at 3.66 million head at the start of 2019, a 21 percent decline since 2002. The most recent statistics show numbers continue to fall, and U.S. numbers may fall as well.
The U.S. Drought Monitor said last week that drought is intensifying in most of Texas and Oklahoma. Large parts of the Midwest are also in moisture deficit and in the High Plains, eastern Colorado, southern Kansas, Wyoming, the Dakotas and parts of Nebraska are in conditions of extreme drought, the monitor reported.
Close said he expects a contraction in the economy and no longer suggests that it will be short or shallow.
“With the damage that has been done to the market because of the virus, I don’t think we can be making that comment anymore. I think we need to be looking at a very conventional correction that will probably last 18 months to two years,” Close told those on a webinar organized by the National Cattlemen’s Beef Association.
He said his deepest concern is for the fall calf market. The backlog of fed cattle, built up because of slaughter plant slowdowns and temporary closures related to worker illness, has created a pen space problem. There is no room for incoming feeders because fats are still on site.
“If that goes on through the summer, I think that’s going to leave some vulnerability in the calf market as we go to late summer and fall,” said Close.
The Canadian Cattlemen’s Association and Alberta Beef Producers have voiced similar concerns. There are more than 100,000 fat cattle awaiting processing, so the problem with pen space is also an issue on this side of the international border.
U.S. fed cattle slaughter was down 40 percent in April compared to year-ago numbers but Close said plant recovery to about 95 percent of normal processing levels “has been nothing short of amazing.”
However, he believes regaining that last five percent will be difficult because of changes made in plants to protect workers, as well as continued higher worker absentee rates.
Close said U.S. steer carcass weights are running at about 50 pounds heavier than a year ago, an expected outcome from more days on feed. Similar carcass weight gains have been noted in Canada.
Heavier weights and ramped up slaughter pace will mean “we’re going to have a lot of product available,” said Close. Cattle feeders on both sides of the border continue to lose money per head but he predicted better times for feeder operators later this year.
Derrell Peel, an extension marketing specialist in Oklahoma, said simple survival is the main goal during pandemic-driven market volatility. He advised producers to consider all options to mitigate risk, including forward selling, retained ownership and, if facing drought, early weaning and sourcing supplemental feed.
“We’re clearly on the defensive right now. We’re focused on how to get through this,” said Peel. “Longer term, there is lots of reason to be optimistic about our potential.”