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CME: Lack of Processing in Canada and Feed Situation Altering Spring Cow Slaughter

09 May 2013

US - Cattlemen in Oklahoma/Texas are having to sell cows for meat due to fodder shortages meaning cow slaughter is up 7 per cent last year. But without Canadian cow imports Steve Meyer and Len Steiner write that cow slaughter would be down on 2012.

US cow slaughter continues to be well above 2012 and 2011 levels. As we have noted before in this report, the surge in cow slaughter is in large part due to more dairy cows coming from Canada.

Lack of cow processing capacity there has send more Canadian cows, especially more dairy cows, to the US market. Consider the following: Since the beginning of the year through April 20, Canada had shipped 98,765 slaughter cows to the US, 54,059 head or 121 per cent more than the same period a year ago.

During this same period, overall US cow slaughter (which includes Canadian cows slaughtered here) has been 1.973 million head, about 31,539 or 1.6 per cent higher than the same period a year ago. If you adjust for the additional number of Canadian cows that have come into the US, US cow slaughter actually is below year ago levels todate.

More recently, however, we have noted an increase in the number of US cows, especially in the number of US beef cows coming to market. Since early March through April 20, there have been 869,503 beef and dairy cows that have come to market, 57,157 head or 7 per cent more than a year ago.

Dairy cow slaughter during this period has been 3.9 per cent higher than last year while beef cow slaughter has increased by 10.6 per cent compared to last year. Higher Canadian cows have accounted for about 42 per cent of the increase in cow slaughter since early March.

Even when adjusting for those extra Canadian cows, domestic cow slaughter since early May has been 4.1 per cent larger than a year ago. Coming into this year, the expectation was for US cows slaughter to decline significantly compared to a year ago.


In part this was due to the changing profitability in the cow-calf sector, with record high forward live cattle prices and much higher feeder cattle values. The feeder cattle market has declined significantly however, which certainly has weighed on the decision to retain cows.

More importantly, limited feed in key production areas, especially the Great Plains as well as in the Texas Panhandle and Oklahoma, have forced producers to sell. Some accounts indicate that producers are splitting mother/calf pairs and selling cows early due to the lack of feed.

Hay costs were a concern coming into this year and the long winter and cool spring, with snow in some areas by late April), further exacerbated the situation. Beef cow slaughter in region 6, which includes Texas and Oklahoma has average 12.3 per cent above year ago levels since early March.

While producers have shown a willingness to try and rebuild their herds, as indicated in the January 1 inventory report, they will need feed in order to make those plans reality. Further complicating the supply picture for analysts this year will be the decision by USDA to eliminate the July 1 inventory survey.

We will likely have to wait until early next year to get a full picture of the herd rebuilding activity and as to whether the declines in US beef production will be extended further out into the future.

In the more immediate term, however, the increase in US cow slaughter has had a significant impact on the price of lean beef coming to market.

While we don't think that the sharp decline in 90CL beef prices (see chart) is entirely due to the rise in domestic cow slaughter, it certainly is a factor. Slow foodservice sales in the first quarter of the year meant that as of April 1, end users had a bit more product around them than they expected.

Also, some had anticipated higher lean beef prices in the spring and likely had booked a portion of their needs. With little pent up demand and high freezer stocks, the increase in domestic cow slaughter caused lean beef prices to decline some 9 per cent at a time when it should have been higher for Memorial Day needs.

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