Drought continues to parch most of the West and Southwest U.S. and appears to be spreading farther east and north into the Southern and Central Plains. The winter rainy season in California and the Southwest was disappointing at best, portending another drought year.

The rainy season for the Plains usually begins about mid-April and continues through mid-June. With roughly half of the national cow herd found in the area east of the Rocky Mountains and west of (and including) the states along the east side of the Mississippi River, there is still hope for normal precipitation in that area.

Corn prices have moved roughly $1 per bushel higher from post-harvest lows and were given an additional boost in the intentions to plant fewer acres this year.

Commercial cow slaughter for first-quarter 2014 is on track to be the lowest since 2008 and is indicative of both low cow inventories and intentions to retain or increase cow inventories as soon as pasture conditions permit.

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If pasture conditions fail to develop normally, the rate of cow slaughter could again increase, which could delay any expansionary intentions.

First-quarter commercial steer and heifer slaughter is on track to be the lowest since 1965. First-quarter beef production will likely be the lowest only since 2005 because dressed weights have increased over time and have largely offset general declines in inventories and slaughter since their peak in the mid-1970s.

Weekly prices for 90 percent lean cow carcasses continue to increase as weekly federally inspected cow slaughter declines year over year.

Cow-calf producers should continue to see attractive cow prices for the near term because of low cow inventories and continued demand for ground beef products from culled cows.

Choices for producers who are not certain they want to deal with another year of drought will be made more difficult by high cow prices.

Feeder cattle prices could decline slightly in the near future as demand for pasture cattle subsides with stocking of available pasture. However, anticipation of the smallest calf crops since 1949 will provide significant price support for the limited supplies of feeder cattle later in 2014 and 2015.

At the same time, fed cattle and beef prices may have reached their seasonal peaks. Any declines would diminish price support for heavier feeder cattle despite dwindling supplies.

With costs in the $129 to $130 range and fed cattle prices gyrating around $150 per hundredweight (cwt), cattle feeders could be experiencing positive margins exceeding $200 per head. However, fed cattle prices could decline into the summer if they follow a typical seasonal pattern.

This is especially likely with the record December 2013 to February 2014 placements of cattle weighing over 800 pounds in feedlots of 1,000 head or more since the series began.

These cattle could create a bulge in market-ready supplies of fed cattle this summer, which could exert downward pressure on fed-cattle prices.

Cattle import forecast raised
U.S. cattle imports totaled 364,804 head through February 2014, about even with a year earlier. Imports from Canada were up 7 percent, while imports from Mexico have fallen 6 percent.

Imports of slaughter cattle from Canada were unchanged from 2013, but feeder cattle imports have increased 12 percent this year.

Demand from U.S. buyers has been strong as feeder cattle prices in Canada have lagged strong growth in U.S. prices. AMS weekly data through March 29, 2014, show cattle imports at 19 percent above year-earlier levels.

Due to stronger shipments from Canada, the forecast for total 2014 cattle imports was raised by 20,000 to 1.97 million head. The forecast implies a 3 percent decline in cattle imports from 2013 as inventories have fallen in both Canada and Mexico.

The Jan. 1, 2014, Canadian cattle inventory indicated a year-over-year decline of 0.7 percent. While the number of beef replacement heifers has increased for the past four years, the beef cow herd dropped 0.8 percent.

Beef exports strong to Asia

U.S. beef exports were up 4 percent through February 2014 compared with a year earlier. Strong demand from Japan, Mexico and Hong Kong more than offset declining shipments to Canada, South Korea and Taiwan (see table “U.S. Beef Exports").

Higher prices for U.S. beef may have limited demand from some markets, including Canada, which has also experienced a depreciating exchange rate with the U.S. dollar. The average exchange rate in February 2014 was nearly 10 percent lower than the previous year.

Higher prices have not discouraged strong sales of beef products to Japan and Hong Kong. Exports to Mexico have also been strong in 2014.

After declining in 2012 due to a drought-induced rise in Mexican beef production, U.S. exports to Mexico rose 15 percent in 2013 and were up 32 percent through February.

Demand is likely to remain strong as beef production is not expected to increase significantly this year in Mexico due to diminished cattle inventories.

Slow start for U.S. beef imports
U.S. imports through February 2014 totaled 352.2 million pounds, a decline of 6 percent from a year earlier. Imports have fallen most from Brazil (-38 percent), Uruguay (-35 percent) and New Zealand (-7 percent).

Imports from Canada increased 7 percent as a stronger U.S. dollar makes Canadian beef comparatively less expensive. Imports from Oceania declined in the first 2 months of the year as significant herd liquidation during last year’s drought will lower beef production this year.

The forecast for U.S. beef imports in 2014 was raised 40 million pounds to 2.325 billion pounds, an increase of 3 percent year-over-year. Import demand is expected to strengthen due to a forecast decline in U.S. beef production.

Prices of domestic processing beef are well above last year, as weekly cow slaughter through March 29, 2014, has fallen 8 percent from a year earlier.

Lower cow slaughter will increase demand for imported processing beef. Imports from Mexico are expected to strengthen and, to a lesser extent, imports from Australia and Canada.

Economist Ken Mathews is with the USDA.