Drought rears its ugly head

Prime Cuts with Steve Kay

Drought and searing heat have had a severe impact on feed crops such as corn, wheat and soybeans.

BSE cases and E.Coli O 157:H7 recalls have roiled the North American beef industry over the past 25 years. But neither have had more of a long-running impact on the industry as drought. Severe to extreme drought conditions have now returned to much of the western half of the continent and are having an impact on everything from beef cow prices and liquidation to crop prices.

Ranchers and grain farmers in Western Canada are currently grappling both with the worst drought in some years and wildfires. It is no wonder that the resulting volatile markets for cattle and grain continue to keep those in the agriculture industry on edge, as one report put it at the end of August. The next five to six months are going to be dramatic with the number of cows that are going to come to town, and the only place for them to go is to slaughter, Bob Balog with Balog Auction Services in Lethbridge, Alta., told MSN News.

The calls just keep coming from concerned producers spanning all the Prairie provinces, said Balog. Most of the calls coming in have been about a lack of pasture. But over the last 10 days (of August), he was getting lots and lots of calls because people were out of water. So it’s a double whammy. There is a third whammy with the fact there is very little if any hay, he said.

That in a nutshell summed up the challenges facing beef producers both in Canada and in much of the western U.S. Oddly though, the effect of drought on cull cow prices has been markedly different in the two countries. Canfax senior analyst Brian Perillat in late August said the drought had driven the price of slaughter cows down about 20 cents a pound and August is usually the strongest price month of the year. It takes a good cow to make 80 cents now, he said. Lots of cows are trading in the 70-cent range. In June, prices were over a dollar a pound. Some of the August cow prices were the lowest they have been in that month in almost 10 years, he said.

Conversely, U.S. cull cow prices remained above year-ago levels in August, although they had pulled back from summer peak prices. This was despite growing beef cow herd liquidation, which reflected the fact that 25 per cent of the nation’s cow herd is located somewhere within areas of varying degrees of drought. But as the U.S. cattle herd finds itself in its third year of liquidation, reduced calf crops will be price-positive for both feeder cattle and calves, says analyst Andrew Gottschalk, HedgersEdge.com.

The bigger impact is on crops and their prices. Drought and searing heat is having a severe impact on corn, wheat and soybean crops in many parts of the country. North and South Dakota, Minnesota, Iowa and Nebraska all contain areas of extreme drought, according to data from the U.S Drought Monitor. In late August, 63 per cent of the U.S spring wheat crop was in poor or very poor condition, versus six per cent at this time last year. The likelihood of smaller crops than earlier forecast means increasing prices and ending stocks for corn, wheat and soybeans that are at their lowest levels since 2013. Prices in mid-August were much higher than a year ago. Omaha corn was US$6.32 per bushel versus US$2.97 a year ago. Basis Western Kansas corn was US$6.08 per bushel versus $3.15 and wheat was US$7.10 per bushel versus US$3.88 a year ago. That doesn’t augur well for feedlot costs of gains.


For more content related to drought management visit The Dry Times, where you can find a collection of stories from our family of publications as well as links to external resources to support your decisions through these difficult times.

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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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