Drought Likely to Impact Cattle Markets for Years

The following article is taken from the Cow-Calf Corner newsletter published by Oklahoma State University.

Dr. Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist

The on-going drought in the Southern Plains and surrounding regions is having immediate market impacts and, with each passing day is increasingly likely to have multi-year impacts in the future. It is difficult to determine the exact impacts of the drought but some indications are emerging. The contrast between beef cow slaughter nationally and in the drought region clearly indicates that the impacts are significant. For the year to date, beef cow slaughter is down 4.4 percent nationally, while beef cow slaughter in Region 6, which closely corresponds to the drought area, is up 11.7 percent.

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Measuring the drought impacts is difficult since it is impossible to know for sure what would have happened without the drought. However, analysis of typical slaughter patterns and tendencies suggests a range of impacts that probably captures the drought impact. At a minimum, Region 6 beef cow slaughter at the same rate (relative to the cow herd) as last year (which implies additional herd liquidation) would suggest about 49,000 head less slaughter than last year. This would result in a national slaughter rate that would be down 7.7 percent compared to the observed rate of 4.4 percent for the year to date. Moreover, a Region 6 slaughter rate that is closer to the long term average regional rate would suggest that an additional 100,000 head of cows are added to total beef cow slaughter so far this year due to the drought. Adjusting for this would put the national rate over 11 percent less for the year to date.

For the entire year of 2011, it appears that beef cow slaughter could have decreased roughly 10 percent year over year in the absence of drought, a value that is consistent with herd expansion. However, the additional 100,000 head of culling already estimated implies that the annual beef cow slaughter rate would be limited to a decrease of 7-8 percent. And that assumes no additional drought-induced culling for the remainder of the year. The drought is still very much in place and more culling is likely. Projecting the current rate of slaughter for the southern plains for the rest of 2011 would result in a national beef cow slaughter rate that decreases only by 3 percent.

The resulting drought impacts may have implications on the cow herd for several years. My early projections showed that it might have been possible to stabilize the beef herd this year but only under the most favorable circumstances. Even without a drought it was likely that the cow herd might decrease another 0.5 to 1 percent in 2011. Depending on how much additional drought liquidation occurs beef herd liquidation upwards of 2 percent is increasingly likely. If the drought impacts stop now, the additional cow slaughter that has already occurred would likely result in beef herd liquidation of close to 1.5 percent for the year. The additional herd liquidation will extend and exaggerate the current reduced animal inventories by at least another year. Herd growth rates will be limited when they finally do start so it is likely to take at least 4-6 years for any significant herd rebuilding.

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