“U.S. beef cow numbers are likely to be 2-3% lower in the upcoming January inventory report,” says Chris Hurt, an agricultural economist at Purdue University.  “The mid-year estimates were already reflecting a 4% decrease in the national beef-cow herd, and that was before the impacts of the 2012 drought began to be felt. The implications are for continued cow reductions until feed and forage supplies are restored.”

While producers in the eastern Corn Belt and Southeast have received some drought relief, Hurt points out that 62% of the lower continental U.S. is still experiencing varying degrees of drought, especially in the central Great Plains and western states.

Cattle supplies are already snugger than a flea’s wallet, of course.

According to James Robb, director of the Livestock Marketing Information Center (LMIC), the number of cattle placed in feedlots typically increases by at least 200,000 head between August and September. Instead, he explains September placements were down 19% or 465,000 head.

“In the last month, the Torrington, WY, Livestock Market has sold nearly 13,000 head of cows at their regular Friday cow and bull auctions, which is about twice as many as at the same sales a year ago,” said analysts with the Agricultural Marketing Service Friday. “Only about 35% of these are going for immediate slaughter, but the bulk of the balance that are placed on feed for later harvest and the devastating effects of this summer’s drought on the general area cannot be overemphasized.” 

Another Perspective: September Cattle Placement Number Confirms Trend

For producers who can hang on, though, Hurt expects record-high prices in the coming months.

Fed cattle prices averaged close to $120/cwt. in the third quarter. Hurt expects prices to be near $125 in the fourth quarter and $130 in the first quarter of 2013. He says spring prices are likely to peak in the high-$130s, while prices in the second quarter of 2013 are likely to average in the mid-$130s.

Calf prices won't recover quite so quickly, Hurt says, because of the continued margin pressure feedlots are receiving from high feed costs.

“Moderation in feed prices could begin in a small way with lower soybean meal prices in the spring of 2013, assuming reasonable South American soybean production,” Hurt explains. “Further declines in feed costs could occur with a better grazing season in the spring and summer of 2013 and a return to larger U.S. corn and soybean crops next year.”

“A more abundant feed supply in the second half of 2013 could result in a robust price recovery for calf and feeder cattle prices,” Hurt says.