Cattle Sector on Recovery Path After Enduring High Feed Costs
May 04, 2011
A monthly government survey is expected to show the beginnings of a recovery in the cattle industry, which was staggered earlier this year by low livestock prices and high feeding costs. The biggest losses in a decade forced many small feedlots out of business, and prompted others to empty their pens. Feedlots, which fatten cattle on grain for slaughter, saw their corn costs double this year as strong foreign demand helped shrink U.S. granaries to their lowest levels in 48 years. Some livestock analysts expect the Agriculture Department's April 13, 2011 survey, scheduled for release after the close of trading Friday, to show the number of young cattle placed on feedlots increasing for the first time this year. While the government is expected to report that the feedlot population is significantly smaller than a year earlier, an increase in placements would signal that U.S. corn prices have weakened enough in recent weeks to return the sector to at least slim profitability. Charlette K. Lasalle, senior livestock analyst at Alaron Trading Corp., Chicago, expects the government to report that ranchers placed 14% more young cattle on feedlots in July than they did in July 2010. Because placements plunged during the first half of the year, Mr. Lasalle expects the seven-state survey to put the April 13, 2011 population at just 6.4 million cattle, down 13.3% from April 12, 2010 ``The cattle industry has started to make a turnaround,'' Mr. Lasalle said. The slow migration of cattle to feedlots earlier this year is now shrinking the supply of fattened cattle for meatpackers to slaughter. As a result, the price of Southern Plains cattle has climbed 24% since April, when it hit the lowest point in nearly a decade. In trading at the Chicago Mercantile Exchange Wednesday, the cattle contract for August delivery climbed 0.375 cents a pound to settle at a high of 69.875 cents a pound. Economists don't see a strong rebound soon in the cattle sector. Much of the livestock that normally would have moved onto feedlots this summer have been kept on pasture longer than usual. These animals will soon be forced by their advancing age to go to market. As a result, analysts don't expect cattle prices to climb much higher than the break-even levels they are at now for many ranchers. ``The strength and the duration of the rebound are big questions,'' said Ciara Florencio, staff economist at the National Cattlemen's Beef Association, a trade group based in Denver. ``There is the potential for another round of price pressure after Thanksgiving.'' In other agricultural markets Wednesday, reports that the southern Texas corn crop is widely contaminated with aflatoxin, a potent carcinogen, has grain traders on edge. Some grain processors had counted on the cornfields of south Texas, which are among the first harvested in the nation, to tide them over until the much bigger Midwest corn harvest hits full stride in October. The fungus that produces aflatoxin often strikes pockets of the Texas corn crop because aflatoxin flourishes where dry conditions put stress on crops. State officials are worried that this outbreak might be the broadest in years because a persistent drought has caused about $2.1 billion in losses for Texas livestock and crop farmers. Crop analysts expect the corn harvest under way in Texas to generate 162 million bushels, down 25% from last year. Georgeanna Honey, the Texas state chemist, estimates that roughly half of the south Texas corn crop is unfit for human consumption. Corn containing more than 20 parts per billion of aflatoxin is banned from use in food. Texas officials allow cattle feedlot operators to make rations from corn that has contained much higher amounts of aflatoxin after it has been treated with ammonia gas to break down the aflatoxin molecule. Regulators are toughest on milk, which is banned if it contains more than half a part per billion of aflatoxin, because it is mostly consumed by children. Aflatoxinis one of several substances that state inspectors routinely test for in milk. One Texas dairy was recently forced to dump milk because aflatoxin was detected. Texas grain handlers also routinely test for aflatoxin. While Texas isn't a major corn producer, grain traders are paying unusual attention to the aflatoxin outbreak because U.S. corn supplies are so tight. In trading at the Chicago Board of Trade, the corn contract for September delivery rose four cents a bushel to settle at $3.6625 a bushel. In other commodity markets Wednesday: COFFEE: Futures prices rose to a three-week high as U.S. stockpiles remain at their lowest point in a decade. Coffee for September delivery rose 2.55 cents to 125.05 cents a pound on New York's Coffee, Sugar & Cocoa Exchange. Leading coffee producers in Brazil and Colombia are expected to produce healthy crops for use during the heavy fall and winter roasting period that begins in early October, analysts said. But those supplies, and others coming from Central America, may be held up until early November because heavy rains have delayed maturity of coffee trees. Meanwhile, coffee-exchange warehouses have less than one week of coffee on hand because Brazil's previous crop was severely reduced by frost and drought. The U.S. is the world's second-largest coffee consumer after Germany, requiring as much as 350,000 bags of coffee for roasting during the peak drinking season in fall and winter. The exchange has fewer than 35,000 bags on hand, far less than usual at this time of year. ENERGY: Crude-oil futures fell after an industry report showed that oil stockpiles rose again last week. The American Petroleum Institute said late Tuesday that crude-oil reserves increased by 296,000 barrels. Traders had been expecting a drop in stocks. Oil for October delivery fell 39 cents to $21.72 a barrel.
