US - The reduction in feeder cattle imports from Mexico, in part because of the sharp correction in US feeder cattle prices, will continue to impact the rate of placements in US feedlots over the summer months, write Steve Meyer and Len Steiner.
June placements were about 45,000 head less than what analysts expected and we think this was in part because of the impact of a notable reduction in the flow of Mexican feeder cattle.
Imports of Mexican feeder cattle for the period May 29 - June 25 were 54,096 head (this is based on weekly USDA reports), down 32,836 head (-37.7 per cent) compared to the same period a year ago.
Based on current trends, it appears that July placements will be similarly impacted. Imports of Mexican feeder cattle for the period June 26 - July 23 were just 36,230 head, down 37,293 head (-50.7 per cent) compared to the same period a year ago.
As the second chart shows, imports of Mexican feeder cattle are an important part of the supply structure for many southern feedlots. To calculate the chart we used monthly import statistics from USDA (which only go through May) and the placement numbers from the monthly USDA feedlot survey (feedlots +1000 head).
Total imports of feeder cattle from Mexico in 2015 were 1.151 million head. Feeder cattle placements in the five states that likely received these feeder imports (TX, OK, NM, AZ and CA) were 5.986 million head.
This implies that imports of feeder cattle from Mexico make up about 20 per cent of the overall placements for these five states (assuming all Mexican cattle go there).
Last year imports of feeder cattle from Mexico were particularly large given the big premiums paid for feeder cattle in the US market in 2014 and first half of 2015. It now appears that the flow of Mexican feeder cattle into southern feedlots is following a more normal trend but that also implies a significant reduction in overall placements for the next few months when we compare to the situation in 2015.
Going forward, it remains to be seen what happens with the Mexican feeder cattle supply. Based on USDA data, the supply of feeder cattle in Mexico is slowly expanding, with the calf crop in 2015 up about 100,000 head (+1.5 per cent) from the previous year.
USDA currently estimates the 2016 calf crop at around 7 million head, up another 150,000 head (+2.2 per cent) from 2015 levels.
An increase in the dairy herd is contributing to the larger calf crop in Mexico. The Mexican beef cow herd in 2015 was unchanged from a year ago and about 300,000 head (-4.3 per cent) lower than in 2011. USDA expects the beef cow herd in 2016 to be up about 100,000 head while the dairy herd is expected to also continue to expand.
We are not confident that such an increase in beef cow numbers will actually take place. High prices for grinding beef in the US continue to encourage producers to send cows to market and heifer retention, it appears to us, is enough to just maintain a stable beef cow herd.
If that is indeed the case, the calf crop in 2016 and thus feeder supplies in 2016 may not increase as much as expected.
Feeder imports from Canada so far this year also remain well below year ago levels but their overall impact in summer placements will not be as big. Imports of Canadian feeder cattle in the four weeks through July 16 were 6,596 head, down 3,888 head (-37 per cent) from last year.
Year to date imports of Canadian feeder cattle are down 87,220 head (-38 per cent) from last year. Mexican feeder cattle imports year to date are down 130,967 head, (-19.6 per cent).
TheCattleSite News Desk