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CME: Feeder Cattle Supply to Decline

31 October 2012

US - Feeder cattle imports from Canada and Mexico make up a notable portion of the US feeder cattle supply, especially along the Northern and Southern border areas. But as cattle inventories in these countries have steadily declined in the last decade, the supply of feeders that will potentially be available to the US market is likely to decline, writes Steve Meyer and Len Steiner.

The reduction will further exacerbate tight feeder cattle supplies in the US domestic market, a result of the smallest calf crop since the early 1950s. In the case of Canada, we have already seen a sharp decline in feeder imports, with total cattle volume last year down some 60% from the year prior to just a little under 76,000 head. This year, imports of feeder cattle from Canada have improved compared to the minimal levels of a year ago but they are still much smaller than what they used to be a few years ago. In the period 2007—2010, imports of Canadian feeder cattle averaged about 7300 head per week, compared to about 2300 head per week so far this year.

Imports of feeder cattle from Mexico constitute a much more significant source of feeder cattle supply. Last year, US feedlots brought in about 1.4 million head of feeder cattle from Mexico. Combined Canada and Mexico feeder cattle imports last year totaled about 1.478 million head. US steer and heifer slaughter last year 26.264 million head, implying imported feeders accounted for about 5.6% of the fed cattle slaughter in 2011.

Feeder cattle imports from Mexico have been exceptionally strong for much of 2012, largely reflecting the strong premiums paid for feeder cattle in the US, continuing drought pressure and limited pasture conditions in Mexico proper, and the effects of sharply higher feed costs in North America.

However, in recent weeks, imports of feeder cattle from Mexico have pulled back sharply. This is partly seasonal as feeder cattle availability declines during the summer months. But, the data for September and October indicates that the seemingly inexorable supply of Mexican feeders maybe does have an end. Weekly imports in October averaged about 16,700 head per week, compared to around 24,800 head per week last October, a 32% decline.

Drought conditions are not as dire as they were last year and earlier this year. Also the supply of feeders in Mexico is more limited. Indeed, the continued liquidation of the cow herd in Mexico coupled with little to no interest to hold back female animals is expected to lead to a dramatic reduction in the size of the overall Mexican cattle inventory. The latest USDA data indicate that on January 1, 2012, the Mexico cattle inventory was estimated to be 20.090 million head, about 20% smaller than what it was in year 2000.

By January 1, 2014, the inventory of cattle in Mexico is expected to decline to 17.095 million head, some 32% smaller than in 2000 and about 12% smaller than what it was this year. The chart above shows the progress in cattle inventories in the US, Canada and Mexico since 2000. Mexican cattle declines have far outpaced US and Canada.

The US inventory on January 1, 2012 was down 7.6% from year 2000 and by 2014 it is expected to be down 9.4%. It is not a given that North American cattle supplies will recover in the coming years. What is a given is that the shrinking calf crop holds significant implications for feeder and slaughter capacity utilization and ultimately beef availability.

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