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US cow herd to shrink further from 72-year low

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Lingering drought, which could be stoked by the "slight probability" of La Nina weather pattern, has undermined hopes for a rebuilding of the US cow herd from a 72-year low, threatening long-term beef supplies, the US Department of Agriculture said.

Investors had widely expected that official data in February showing that US cow herd started 2013 at 38.515m head, the smallest since 1941, would mark a lowpoint, noting that the statistics also showed farmers increasing heifer numbers, taken as a sign of plans for herd rebuilding.

However, drought – which the USDA said "is continuing in most of the western US, particularly in the Southwest", even as eastern states cope with moisture which delayed heavily spring sowings – may be forcing producers to tear up these proposals.

Nearly 85% of Texas, the top beef state, is in drought, official data show.

Indeed, the poor condition of pasture in many states, coupled with falling margins for cow-calf producers as herd rebuilding plans stall, is encouraging ranchers to turn to slaughtering animals.

'Beef supplies hit for several years'

From the start of April to May 25, cow slaughter rates were running 10% higher than a year before, led by a jump of 17% in beef cow liquidation.

"First-half 2013 total commercial cow slaughter is projected to be 3% above first-half 2012 slaughter and could be the largest number slaughtered since nearly 3.5m cows in 1996," USDA analyst Rachel Johnson said.

"This high cow slaughter, combined with high heifer slaughter, implies a further decline in the national aggregate cow inventory", beneath the low seen at the start of this year.

It would also signal "potentially reduced supplies of beef for several years into the future", with the herd reduced, besides the prospect of farmers focusing on herd rebuilding if conditions improve.

In fact, Ms Johnson pointed to data from official meteorologists "leaning towards a slight probability for a weak La Nina", pointing to the role of a stronger version of the weather pattern in being linked to the 2011 drought in the southern US.

Feedlots scrimping?

The comments come as livestock markets prepare for a monthly USDA cattle on feed report on Friday which is expected to show a year-on-year drop in placements on feed last month, reversing a stronger trend in March and April.

"The March and April increase in placements likely reduced availability for May placements," in clearing a "backlog" of feeder cattle, Paragon Economics and Steiner Consulting said.

US cattle imports from Mexico have slumped, by 42% so far in 2013 up to early June, from drought-raised levels a year before.

Furthermore feedlots remain in the red, thanks to high near-term grain prices, curtailing their appetite for taking in stock to fatten.

However, expectations of a decline in feed costs later in the year, assuming hopes for huge US harvests are realised, have raised hopes of a return to the black.

"With harvested forage prices and feeder cattle prices declining, cattle feeders see hope for positive margins," Ms Johnson said.


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