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Agricultural News


Cattle Cycle Scenario 1: More and Worse Drought

Mon, 14 Feb 2022 08:43:55 CST

Cattle Cycle Scenario 1: More and Worse Drought Mondays, Dr. Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist, offers his economic analysis of the beef cattle industry. This analysis is a part of the weekly series known as the "Cow Calf Corner" published electronically by Dr. Peel and Mark Johnson. Today, Dr. Peel talks about the worsening drought.

The list of factors that will shape cattle markets in 2022 is lengthy and leads to multiple scenarios for cattle and beef industry outcomes for the coming year. The recently released USDA Cattle report confirms the cattle inventory situation at the beginning of the year and provides some indications of what the cattle industry would like to do in the coming year-or at least what might be possible in the coming year. Beyond cattle inventories, current drought measurements and data on hay stocks indicate the general forage situation in various regions and high costs for feed and other inputs must be balanced against higher and rising cattle prices.

Drought will be the principal determinant of the general cattle industry scenario in 2022. The current Climate Prediction Center drought outlook suggests that drought may persist in regions of the west and northern plains that have been in drought (with some improvement in the Pacific Northwest), and where drought has recently developed in southern plains and perhaps expand even further into the central plains region. Drought has impacted some regions since 2020. Widespread drought in 2022 could result in much more pronounced cow herd liquidation and relocation than previously and the scenario will be all about what we have to do. There will be little flexibility in regions that were in drought in 2020 and 2021. For example, December 1 hay stocks in the four-state region of Montana, Wyoming, North and South Dakota were down 40.2 percent year over year. By April or May this predominantly spring-born calving region could be faced with significant additional liquidation of cows or cow-calf pairs this year on top of the 8.0 percent herd liquidation in this region since 2020. This region represents 15.1 percent of the national beef cow herd. The four-state region of Colorado, New Mexico, Arizona and Utah has suffered in drought conditions since 2020 and has seen an 11.6 percent beef cow herd liquidation in the past two years. Persistent drought will result in additional liquidation this year. This region represents 5.3 percent of the total beef cow herd.

Drought has expanded sharply in Texas and Oklahoma over the winter; a region that has seen just 1.1 percent herd liquidation since 2020. Much of that was general cyclical liquidation rather than drought induced. December 1 hay stocks in these two states were up 18.7 percent year over year. The southern plains regions should emerge from winter with a bit more flexibility and, with more fall calving, might not face critical herd liquidation and destocking decisions as quickly as some other regions. Nevertheless, cow culling could accelerate sharply in the region by mid-summer. These two states represent 21.9 percent of the total beef cow herd.

The central plains region including Kansas and Nebraska has been marginally impacted by drought the past two years with the beef cow herd in these two states down 3.3 percent since 2020. The December 1 hay stocks in the region were up 4.9 percent year over year. Should drought develop significantly in the central plains, additional significant cow herd liquidation would follow by summer. These two states represent 10.8 percent of the beef cow herd.

Drought in all of the above regions could impact over 53 percent of the total beef cow herd- roughly 16 million cows. Significant drought in 2022 will have more noticeable impacts on cow markets, will change the timing of feeder cattle and ultimately feedlot production, and will have more implications for the industry in subsequent years. There is potential for the drought to push cattle inventories significantly lower than planned and set up a market reaction similar to 2014-2015 in the next couple of years.


   

 

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