Drought-forced culling means increasing beef supplies but a more ominous industry future in the longer term.
While the obvious effect of the current drought will be yet another year of liquidation and even tighter supplies in the future, we should see increasing supplies of beef in the short term as more cattle are placed on feed. The increase in placements and cow slaughter are expected to be offset somewhat by lighter placement weights and higher feed costs that will result in reduced slaughter weights.
The recent rally in the grain market has certainly reduced feeder prices. In the latest crop report, only 40% of the corn and soybean crop was rated to be in good or excellent condition; that’s the poorest overall showing of a crop for this time of year since the drought of 1988. We’re already hearing people talk about $9/bu. corn, and perhaps even $10. Admittedly, some of these same folks were talking about $4/bu. corn earlier in the spring when the corn acreage numbers came out.
But experience tells me to have a lot of faith in the American farmer to beat expectations, and I have no doubt they will again this year. The question, of course, is what those expectations will be.
There’s little relief in the long-term weather forecast, however. And without some help from Mother Nature, we’ll be looking at the highest feed costs ever experienced, at price levels most experts would not have believed just three months ago.
One thing is certain: the use of Conservation Reserve Program (CRP) ground and the upcoming debate over the renewable fuels standard is going to be even more critical. The impact of these issues on the livestock industry is going to have to be elevated to equal standing with deficit reduction and other concerns.
We’ve known for some time that the subsidization of ethanol would greatly reduce the size of the livestock industry. But the impact continues to grow, as it becomes apparent that it not only greatly increased input prices but raised to unprecedented levels the risk factor of raising and feeding livestock. In the last several months, we have seen corn prices rise by $2.25/bu.; before the ethanol era, corn didn’t even cost $2.25/bu. on average.