A "turning of the tide" in feeder cattle sales looks another sign that US cow numbers may fall further from their 72-year low hit at the start of the year, and squeeze beef output ahead, the US Department of Agriculture warned.
The USDA, expanding on a report last week in which it cut its forecast for US beef supplies by 315m pounds over 2013 and 2014, flagged the continuing dent to US cow inventories from slaughter rates which for both beef and dairy animals have run ahead of year-ago rates.
The elevated liquidation rate - of a US cow herd that started 2013 at 38.515m head, the smallest since 1941 – reflected drought which has dried up pasture and continued to encourage producers to get shot of animals rather than pay up for feed costs which, for now, remain elevated.
Futures in soymeal, a major feed ingredient, hit $545.10 per short in Chicago last week, within $10 a short ton of their record high, with prices of spot corn returning above $7.00 a bushel too.
"As the drought continues in the western and south western states, cow slaughter has remained at relatively high rates," USDA analyst Kenneth Mathews said.
Just 13% of pasture in Texas, the top beef state, was in "good" or "excellent" condition as of Sunday, down eight points on the week, with the proportion 23% in Nebraska, 22% in Kansas and zero in the major dairy state of California, historically weak figures.
'The tide turned'
However, in an unexpected shift, a parallel run of increases in sales of feeder cattle – those ready for fattening – reversed.
"Weeky feeder cattle sales volumes were generally above year-earlier levels, averaging close to 2% above year-earlier sales," Mr Mathews said.
"However, the tide turned during June when weekly sales volumes declined by more than 15% year-over-year."
The USDA attributed these dynamics to "inventory changes, which could foreshadow future declines in cow inventories, feeder cattle supplies, and, ultimately, beef production".
For now, however, beef output may be placed for an increase, thanks to a knock on effect of feedlots focusing on heavy feeder cattle in their intake, a move which reduces exposure to high feed costs.
Indeed, prices of 750-800-pound feeder steers have proved buoyant despite elevated corn prices and lower values of fattened cattle.
"These heavy-weight placements will be on feed for relatively short periods and will likely be ready to market during the July-October window, or later if similar heavy placements were made in June or after."
The prospect of larger-than-usual numbers of heavier feeder cattle becoming ready later in the summer and into autumn "could increase beef production" over this period, and "has exerted downward pressure on both fed cattle prices and wholesale beef cutout values".