Drought increases beef production potential

Due to the drought-induced placements of feeder cattle, feedlots in the Southern Plains are increasingly full of cattle. The numbers of cattle placed at lighter weights in Southern Plains feedlots will result in generally longer feeding periods and lower slaughter weights when they go to market. Although dressed weights are increasing seasonally, they are not increasing as fast as in other years because of the large placements of lightweight calves, and atypical patterns in placement weights and fed cattle weights are occurring. These lightweight placements will likely lead to slightly reduced beef production on a per head basis, but they could result in total steer and heifer beef production for the remainder of 2011 and perhaps into the second quarter of 2012, that is close to year-earlier production. Cattle marketed from Central and Northern Plains feedlots continue to sell at an unseasonal premium over Southern Plains feedlots, as they have for most of 2011. The premiums, at least in part, are likely due to the larger numbers of generally heavier yearling cattle preferred by packers being marketed from Northern and Central Plains feedlots, whereas the Southern Plains feedlots are marketing relatively larger numbers of calves.

Estimated cattle feeding margins (High Plains Cattle Feeding Simulator results: http://www.ers.usda.gov/publications/ldp/LDPTables.htm) turned negative in May 2011, following almost a year and a half of positive or near-positive margins. Current simulated cattle feeding margins imply losses of well over $100 per head, and with current expectations for higher corn prices, steady feeder cattle prices, and steady-to-declining fed cattle prices, negative margins appear likely to continue through the remainder of 2011, possibly into early 2012.

The spread between weekly wholesale Choice and Select cutout values has widened since mid-August as Select cutout values have declined relative to Choice, perhaps due to a decline in the price of Select middle meats relative to Choice. The large supplies of cow beef are adversely affecting processing beef imports, while helping to maintain sufficient supplies of ground products. Dressing percentages for steers and heifers are creeping upward, which often implies more fat on carcasses. Higher dressing percentages and the implied larger amount of fatter trim per carcass could partially account for the recent decline in relative prices of 50-percent lean trim compared with leaner trim like 90-percent lean trim.

Monthly average retail Choice beef prices declined steadily from their record peak this past May through July, but in August 2011 jumped back to $4.87, equaling May 2011’s high. Despite the August price, retail beef prices could decline into fall and winter due to the seasonal post-Labor Day decline in demand for grilling proteins, especially in light of the potential for increasing supplies of beef, abundant supplies of pork and poultry, and declining wholesale and retail pork prices.



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