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PRIME CUTS – for Jun. 13, 2011

Never underestimate the power of the weather to move markets. One immediately thinks of drought as having the biggest impact on cattle ranching. Rolling droughts through much of U.S. for the past several years have been a prime reason why ranchers have reduced their herds rather than expanded them.

At the other end of the spectrum, severe winter or spring storms can cause sizable death loss, notably of young feedlot cattle or newborn calves. The biggest impact though comes in weight loss in feedlot cattle and delayed marketings. One of the harshest winters in many years hit the Southern Plains in 1992-93. Marketings were delayed in the first quarter of 1993, so live cattle prices rose sharply. Some analysts declared in April that there was no backlog of cattle. But there were warnings that the front-end supply would start building and it did. The result was a summer market collapse, all because the weather severely disrupted the normal flow out of feedlots.

This year, a cold, wet spring delayed the full onset of the grilling season, in part causing live cattle prices to retreat rapidly from their all-time record highs the first week of April. Packers struggled to sell middle meats, which account for most of the beef items that are grilled, or to get retailers interested in forward orders. The weather finally turned warm and dry in mid-May, and many in the industry hoped this would encourage more people to fire up their grills and buy more steaks. This would give much needed support to middle meat prices and possibly stabilize cutout values and live cattle prices, if only temporarily.

Meanwhile, severe drought on the Southern Plains forced far more cattle than expected into feedlots in April. Drought and fires have ravaged crops and pastures in Texas, with 26 per cent of the state said by mid-May to be in exceptional drought status. This status refers to a one-in-50- year occurrence. Much of the rest of the state is in moderate, severe or extreme drought status. Much of the Texas wheat crop has failed and probably 50 to 60 per cent of the crop won’t be harvested. The drought is affecting most other crops as well. In turn, lack of pasture, hay and water are causing more ranchers to sell their cattle. Drought is also severe in New Mexico, Oklahoma and parts of eastern Colorado.

While the drought was raging, so too were flood waters in Manitoba and from Quebec to Louisiana. They came to the American mid-south region after tornadoes had earlier destroyed whole communities and caused hundreds of deaths. The cattle industry escaped largely unscathed. But the tornadoes caused widespread damage to poultry production, mostly in Alabama. The loss of birds was probably not enough to push the wholesale price of chicken higher. But it put many growers’ livelihoods at risk.

The flood waters look set to have the bigger impact, notably on a loss of valuable corn and other feed crop acres. The wet spring had already delayed corn plantings and caused USDA to lower its yield projection by three bushels per acre to 158.7 bushels per acre. USDA expects growers to plant four million more corn acres this year than last. Even before the flooding, every available acre was needed to be able to supply the livestock industry with corn at less than $7 per bushel. So any acreage loss will leave eventual corn supplies dangerously tight for yet another year. It’s doubly ironic that lack of rain, rather than too much, had already sent more cattle to feedlots earlier and probably lighter than expected, forcing them to eat more not less corn.

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Even before the flooding, every available acre was needed to be able to supply the livestock industry with corn at less than $7 per bushel. So any acreage loss will leave corn supplies dangerously tight for another year

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A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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