The herd declined for a sixth straight year as of Jan. 1 to 89.3 million head, the government reported Feb. 1. Even as retail-beef prices jumped to a record in November, the shortage of cattle in Texas forced the shutdown of a plant run by Cargill Inc., one of the three largest U.S. processors.
“This year and next year, there's no way around smaller production,” said Randy Blach, the chief executive officer of CattleFax, an industry researcher in Centennial, Colorado. “We'll have record-high average prices for 2013. We'll see that on retail, wholesale and at the fed-cattle level.”
More than 55 percent of the contiguous U.S. was in drought as of the week ended Feb. 12, compared with 38 percent a year earlier, according to the U.S. Drought Monitor. The odds are against the dry spell ending soon, said John Nielsen-Gammon, a state climatologist and a professor at Texas A&M University, in College Station
Eoin Treacy's view The USA's drought last year and the effect this has had on the ability of farmers to replenish their herds is likely to take a few years to work through.
In nominal terms Feeder Cattle broke out of a seven-year range at the end of 2010 and rallied to a peak of $160 by early 2012. Prices have been ranging below that level since and found support yesterday in the region of $140. A clear downward dynamic would be required to check potential for a further bounce but a sustained move above $150 will be needed to suggest a return to demand dominance beyond the short term.
The price action over the last year suggests that a further deterioration in the size of the herd would be required to spur enough additional demand to sustain a move to new all time highs despite this week's rally from short-term oversold levels.