Downturn in Beef Cattle Cycle is One of the Largest Ever

On September 30, 2011, in Production, by Debra Newman

Beef processors commercially slaughtered 22.8 million head of cattle during January through August 2011, a 1-percent increase from the comparable period a year ago resulting in a continuation of one of the largest liquidation of the U.S. beef herd, according to analysts interviewed by about USDA’s “Livestock Slaughter” report released last week.

Mark Nelson, an economist with the Kansas Farm Bureau, predicts that cattle numbers will be even tighter next year and in 2013.  Nelson believes that if current conditions–high corn and hay prices as well as severe drought in the Southwest–persist and liquidation occurs into the fall, the breeding herd could decline by as much as 7 percent.  “This would be a loss of 2 million head of beef cows,” he adds.  “This is huge and could mean a reduction in cowherd numbers this country hasn’t seen since the early ’60s.”

La Nina has been blamed for the severe drought that has plagued the Southern Plains, particularly Texas.  In August, after a brief hiatus, La Nina returned.  “While it is not yet clear what the ultimate strength of this La Nina will be, La Nina conditions have returned and are expected to gradually strengthen and continue into the Northern Hemisphere winter 2011-12,” according to the National Oceanic and Atmosphere Administration’s Climate Prediction Center.

“Cow numbers continue to shrink,” says Glynn Tonsor, livestock economist with Kansas State University.  He expects continued tight supplies of both feeder cattle and calves over the next 12 months.  “That means the value of calves and feeder cattle will be historically high,” Tonsor notes.

Some in the corn industry refer to the mass liquidation of the beef herd as “demand destruction” and, indeed, lower numbers of cattle will reduce the amount of corn going into feed channels.  Price resistance, a rally in the U.S. dollar, and expected or better-than-expected harvest yields have already pressured corn prices substantially lower over the past month.  Whether the current price pressure persists is uncertain and will ultimately play a key role in whether lost demand returns to the market, the report explained.

“If 50 cents falls off the corn price permanently, feedyards would be willing and able to pay more for feeder cattle based on expected returns,” Tonsor says.  For now, though, the outlook remains tight on both calves and feeder cattle through the next 12 months or so, he added.