A Few Thoughts by John Nalivka on drought, the cattle inventory, and risk management
We were at the Idaho Cattlemen’s Summer Roundup in Salmon, Idaho on Monday and Tuesday to discuss with members about structuring a risk management program on their ranch including developing and using budgets and using USDA’s risk management insurance programs. The program was well received by Idaho cattlemen attending and as ICA marketing committee chairman, I felt it was definitely a success.
With severity of the drought, risk management is definitely the major topic as ranchers scramble to sustain their herd and develop a sound marketing plan for their calf crop. There has already been a substantial number of pairs sold as available forage dwindles. To say this has not been a good situation in many areas of the West would be an understatement which definitely confirms the importance of risk management on your ranch. And, I don’t make that statement lightly. As we all know, in a severe drought, costs increase and revenue declines as calves are lighter and sales of cows and calves often do not follow a marketing plan other than “there isn’t enough feed.”
So, as I said at the meeting on Tuesday, we are liquidating cattle this year at a more rapid pace than probably would have occurred had there not been a drought. Beef cow slaughter through mid-June was 10% higher than a year ago and on a weekly basis above, the levels realized during the 2011-2013 drought which sent U.S. cattle numbers to a 60-year low. In fact, year-to-date beef cow slaughter is the highest since 2011, but furthermore, the two figures are nearly equal. Beef cow slaughter picked up following the severe winter storms in February and has remained above a year earlier since that then as ranchers sold cows that lost calves or needed to manage tight forage supplies.
We started the year with just over 31 million beef cows and just slightly more than at the beginning of 2011. At the same time, heifer slaughter year-to-date is up 9% from a year earlier, partly as the result of comparing to 2020 with plant shutdowns and slowdowns during the second quarter. But still, there were substantially fewer heifers from the 2020 calf crop held as replacements and instead, went to the feedlot. Dairy cow slaughter year-to-date this year is down 2% from a year ago and has accounted for the smallest share of cow slaughter since 2011.
I expect cow slaughter to remain higher through August which could somewhat temper the 4th quarter seasonal increase. This would leave cow slaughter for the year up 4% and when coupled with increased heifer slaughter and a 1% smaller calf crop, the January 1, 2022 U.S. cattle inventory would be down nearly 2% from the beginning of 2021 and nearly the same as at the beginning of 2012. In my analysis, depending upon demand and weather in 2022, that portends higher prices. But again, think budgets, break-evens, marketing, and risk management.
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