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Drought: More Pressure for Struggling Industry

19 July 2012

ANALYSIS - There appears to be little relief for US farmers and ranchers as the drought spreads relentlessly, writes Charlotte Johnston, TheCattleSite editor.

This week, it was announced that 55 per cent of the US is in moderate to extreme drought, the worst since 1956.

This year's drought is likely to be more detrimental because areas affected by last year’s drought have not been able to recover.

The feed situation

Despite the highest planted corn acres since the 1930s, USDA has slashed corn projections. In June, the USDA was projecting a record 166 bushels of corn per acre to be harvest this fall. That projected yield has been pushed down to 146 bushels per acre as of mid-July.

However the industry is sceptical, with some saying that yields are likely to go even lower, and could be as low as 138 bushels per acre.

While some rain has fallen in parts of the Corn Belt over the last week, it is not enough to make a difference to long term yields. It is too late for the corn crop in the southern areas, and growing areas of the Midwest and Plains could be next if the drought does not recede.

Futures markets were near record levels at around $8 per bushel.

Year-end stocks-to-use ratio are now expected to be around five per cent — the level believed by many to be the minimum possible.

Standing and harvest forage supplies remain low and pasture conditions continue to deteriorate.

Feeder cattle

In response to the rise in corn and grain prices, feeder cattle prices have fallen, as feedlots recognise the increased feed costs that lie ahead of them.

Already struggling from tight margins, future prospects for feedlots look dim. The latest Livestock, Dairy and Poultry Outlook for the USDA says that projected margins for fed cattle marketed in July are in excess of -$200 per head (based on $117 per cwt fed cattle prices).

Poor pasture conditions has already pushed more cattle to feedlots and slaughter, causing cattle prices to drift lower. These increased placements, along with higher feed costs are expected to dampen weight growth.

The drought has most likely put heifer-retention on hold, meaning further declines in the US cow inventory.

With the world facing shortages of agricultural supplies, an increasing number of farmers and ranchers leaving the industry, drought in the US is just another problem for a struggling industry to face.

Charlotte Johnston, Editor

Charlotte Johnston - Editor



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