Drought Conditions likely to push Cattle Prices Higher

Derrell S. Peel, OSU Extension Livestock Marketing Specialist

Stocker operators have had to look for supplemental feeding options as drought reduces the availability of wheat pasture and other winter forage sources. Cattle prices are also rising across the board as the drought accelerates liquidation, which will tighten the domestic supply of cattle in the months to come.

Cattle prices are rising as the packing industry continues to recover from disruptions caused by the pandemic, and dry weather conditions will only compound the tightening supply of cattle, according to a prominent agricultural economist.

Oklahoma State University livestock marketing specialist Darrell Peel said the drought had accelerated liquidation and would likely continue to support cattle prices in the months to come.

He was featured on a recent webinar hosted by the Colorado Livestock Association.

According to Peel, beef cow slaughter is about 9 percent higher year-over-year, and 12 percent higher than in 2019.

The drought’s contribution to that figure is probably modest, maybe one and a half percent, he said. Still, it is part of a confluence of factors that should continue to elevate prices.

“It means our numbers will get even smaller going forward. Our expectations for prices across the board are for higher prices now, and we are expecting that to continue in 2022,” he said.

Peel’s presentation mostly covered the upheaval in the market that played out after the pandemic shut down schools and restaurants and shifted more demand to retail trade. Food service dropped from 55 percent of total food expenditures down to 45 percent virtually overnight.

Delays in processing last year due to the pandemic were compounded by rising carcass weights. Steers on average were 20 pounds heavier than the year before as more cattle became backed up in the system, Peel said.

“It’s only been in the last two or three weeks that we’ve finally turned the corner at the feedlot level and that’s why we’ve seen fed cattle prices pop out,” he said.

Peel believes the flow of finished cattle through the system is no longer being constrained by packing capacity, as it was for much of 2020 and 2021.

“We should not have capacity issues facing us for the foreseeable future, at least for two years or so,” he predicted.

Even so, questions remain over what the long-term impacts of the pandemic might be.

Peel noted the blurring of lines between retail and food service, with more take-out, delivery and meal kit options provided by both grocery stores and restaurants.

“I think some of that is permanent,” he said.

“Certainly the business world has changed. Business travel might never be as popular as it was before,” he added.

Packinghouse labor is not a new issue but it was compounded by the pandemic, Peel said. Going forward labor in other sectors such as trucking, shipping and transportation could become a bigger concern.

While the drought signals the likelihood of higher cattle prices in the future, it also creates challenges for those with cattle in the pipeline such as stocker operators.

Paul Beck, a beef nutrition specialist at Oklahoma State University, said the delay of winter wheat pasture has had a serious impact on cattle performance in the state.

Northwest Oklahoma finally got some rains in October, but by then the clock was ticking.

“It didn’t matter when we planted it, the wheat didn't come up until we had those critical rains,” he said.

If wheat is to be harvested for grain, cattle must be pulled off by what is called first hollow stem stage in the spring. This is determined by observing the width of the hollow stem immediately below the wheat head.

“There’s a timeframe on how long we can graze that wheat,” he said.

That’s especially true for early maturing wheat varieties.

Higher feed costs tend to make grazing more attractive. However, wheat prices are also strong, which gives farmers more incentive to harvest the crop for grain.

It takes time for calves to get acclimated before the benefits of wheat grazing kick in, so how soon the grazing season starts is important, Beck said.

Previous research conducted in Oklahoma has shown that calves actually lose weight for the first two weeks on wheat, mostly due to the change in diet.

“Our studies showed it took about 20 days of grazing to reach the initial weight at turnout,” Beck said.

Over the next 60 days, gains averaged out to 2 pounds a day.

“We really need about 60 days of cattle on wheat pasture to get the kind of performance we expect out of that,” he said.

Proper supplementation can help cattle producers get better gains out of limited forage.

“We get a lot of questions about providing hay to cattle on wheat pasture,” Beck said. “We looked at supplying very low-quality hay, like wheat straw, to cattle on wheat pasture, and really there was no positive,” he said. “But if we provide good quality forage, that becomes a different story.”