The heat is on

Jul 29, 2011

It has been a mixed bag in the cattle markets this past week. Superior Livestock Auction’s big Video Royale Sale in Winnemucca, NV, produced some excellent prices for all classes of cattle. Five- to six-weight calves for fall delivery were trading well into the $150-plus range and yearlings for immediate delivery remained strong.

However, the drought situation in the southern half of the U.S. has been forcing massive liquidation, with early-weaned calves trading well below their northern counterparts. Auction markets in Oklahoma and Texas are running at capacity and have been telling producers not to bring any more cattle to market for a couple weeks. Trucks are backed up and the cattle marketing pipeline is at capacity for now.

According to some USDA reports, the volume of feeder cattle going through southern markets is 56 percent higher than a year ago and over 200 percent higher on cow and bull sales, many of which will go directly to slaughter. Feed is in short supply, but stock water is even shorter in the southland. We’ve had some reports of spotty rain in some areas but this drought situation is very serious for southern cattle producers.

Ironically, the West and many northern states are in about as good a shape as anyone could ask for. There is lots of water and it’s been cooler than normal. However, the cool weather has slowed hay production in many areas. Hay prices are awful high at this point, trading between $200-300 per ton in some parts of the south. I’m told that there has been a bumper crop of mesquite beans, which cows love, and I suppose some are burning cactus to get something for cattle to eat.

Derrell Peel at Oklahoma State University Extension said in his weekly report that prices for slaughter cows, bred cows, and cow/calf pairs have dropped sharply in the past two weeks. This is likely a temporary situation due to the bottlenecks at the markets and shipping such a large volume of livestock. Producers have been forced to sell because they are out of options. However, those with alternatives, who can postpone marketings, may find a better market in the weeks ahead.

One thing this business didn’t need was additional cow liquidation.

Many of these cows are going to slaughter and cow slaughter in the drought areas is 16 percent higher than a year ago. The most recent two weeks of data shows cow slaughter in the drought region is up 35 percent for the period. Beef cow slaughter year-to-date was down 2.7 percent but Peel suggests that gap will be closing quickly.

This situation has forced some yearling cattle into feedlots earlier than normal, so it will distort typical feedlot placement patterns. The last cattle on feed report showed June placements 4 percent higher than a year ago and I would expect July placements to be a big number, too.

There has been a lot of unexpected cow slaughter this summer and according to USDA’s mid-year cattle inventory report, we’ll certainly have the smallest producing cow herd ever. The report showed that beef cows were down 1 percent to 31.4 million head, nationwide, and replacement heifers were down 5 percent, according to the report.

Beef production should be fairly strong this fall but market analysts are expecting beef production to be down 3-4 percent in 2012, which will help to maintain this high market.

We’re starting to hear reports that this recent heat wave is also affecting the corn crop and analysts tell us they have lowered their yield expectations. We should have a good corn crop compared to past year’s, but we may not have a big enough crop for current demand. We’re told there are only three weeks worth of old crop corn left.

We have also learned that Brazil is importing a large portion of U.S. ethanol production, which is perplexing since Brazil is the world’s largest ethanol producer. Sugar prices are much higher and it appears that the cane is going to produce sugar, not ethanol. It appears to me that the government’s ethanol program and their plan for using it to achieve energy independence has flown out the window. — PETE CROW