ANALYSIS - Last year was a hard year for many cattle producers in the US, however 2012 has proved to be even tougher. Optimism is low throughout the ranks, as pasture conditions and high grains prices take their toll. Charlotte Johnston, TheBeefSite editor speaks with Don Close, Vice President of Rabobank's Food and Agribusiness Research for Animal Proteins.
From an historical perspective, cattle prices in the US are very good, Mr Close said.
However, exceedingly high calf prices and an unprecedented rise in feed grain prices are making this one of the hardest ever years for those finishing cattle.
Some feedlots are reported to be making in excess of $200 per head loss.
Mr Close explained that across the US, small feedyards are radically understocked. In some cases owners have depopulated yards and gone into a hibernating mode to wait out current market conditions.
When asked whether some feedyards were going out of business, he said: "Liquidation of cattle costs, so yes, there are some who are having to call it a day."
Feedyards are trapped between losses and feed prices, explained Mr Close. "Some are trying to shorten the available supply, to put themselves in a better position to negotiate prices with packers," he said.
However a lot depends on feedmills and the feed prices. Producers aren't optimistic about grain prices, but they do believe conditions will improve, Mr Close said.
"Packers are concerned," said Mr Close. "The drought has pushed cattle into feedyards creating a short-term surge in supply. Now supplies are tightening and the packers are having to carefully manage this to keep a balanced inventory.
Cow-calf herds liquidate
Last year saw herds in Wyoming, the Dakotas, Nebraska and Montana expand, despite the vast herd liquidation that occurred in the South due to the drought.
However, the 2012 drought has had a much further reach.
Despite conditions improving in the South, herds down there are still not in a position to begin rebuilding.
And this year, herds in the North are the worst affected by the drought. Efforts to rebuild herds have been quashed by severe pasture deterioration and many producers have been forced to liquidate herds.
Mr Close said that it would be at least two years until the national herd begins to stabilise, and that is if conditions were to correct today.
Already the concerns over future supplies have had an affect on beef prices, but it is next Spring when consumers will be stung by higher prices at the retail counter, Mr Close said.
Whilst demand will fall, the drought is complex, he explained. It is not just the retail price of beef that will increase, but also pork and poultry due to the reduced availability of corn and other grains.
Demand for all animals proteins is likely to decrease.
Concluding, Mr Close said that the US beef industry is very cyclical. Seldom has be it as severe as it has been in the last two years. In the long term, weather conditions will improve and production will continue on much the same as now, Mr Close said.
"It is important to remember that without question the world population will continue to grow and wealthier economies will emerge. This will create a demand for animal proteins and the US beef industry will be quick to respond."