Vol. 12, No.

138 / July 17, 2014

Cow slaughter connues to run signicantly below year ago
levels on improving moisture condions in key producon areas and
above average pasture condions. We esmate that for the week ending
July 19, total cow/bull slaughter will be around 109,000 head, down 17%
from a year ago. Cow and bull slaughter has been running 15-20% below
year ago levels since April, underscoring the shortage of cull cow availabil-
ity. As we have noted before, the shortage of cows has had a direct impact
on beef prices, parcularly the price of lean beef, with the benchmark 90CL
boneless beef prices hing a weighted average of $295/cwt earlier this
week, a 45% increase compared to a year ago. It appears that some end
users may have been caught short in this market, hoping for a break in pric-
es that never materialized. Further exacerbang the shortage has been the
signicant drawdown in inventories that happened aer the rst spike in
prices in April. The sharp rise in lean and extra lean grinding beef values
has caused a scramble for imported lean beef among those whose spec
allows the use of imported grinding products (mostly foodservice). This has
caused the price of 90CL imported boneless beef, which for much of the
year traded well below domesc product, to rise sharply in late June and so
far in July. Prices for imported lean beef have gained a dime almost every
week for the past four weeks and pipeline supplies of lean beef remain very
limited. Australian packers, who eecvely are the only game in town at
this point, are ramping up shipments to the US and we esmate that Aus-
tralian beef exports to the US in June will be up about 90% from a year ago.
So far, Australian cale slaughter remains heavy but that will not last for
long. According to the latest Meat and Livestock Australia esmates, Aus-
tralian cale inventories as of June 30, 2014 were 26.7 million head, down
8.8% from the previous year. The rate of inventory depleon in Australia
has been dramac due to the impact of drought but it is clearly not sustain-
able. We expect less beef will be available from Australia in 2015, which
will further impact overall lean beef availability in the US.
But back to the US market. The latest USDA Crop Progress re-
port showed that about 55 percent of pastures across the US were rated
in good/excellent condion. This is a higher rang than the same period a
year ago when 46% of pastures and ranges were rated good/excellent and
dramacally beer than in 2012 when just 18% were rated G/E . Current
pasture condions also remain well above the 10 year average for this me
period. While summer weather eventually will take its toll on pastures, the
strong start to the season has greatly beneted cow producers so far. Car-
ryover hay stocks recovered signicantly this year, with May 1 hay stocks in
a number of states showing a dramac improvement compared to the pre-
vious year. The strong start of the season so far this year will further add to
hay inventories (except for alfalfa) and expectaons are for overall hay
supplies to dramacally improve this year, likely matching hay producon
levels we saw back in 2004. This will not be the case for alfalfa, as drought
in California has taken its toll.
According to USDA, total hay acreage that will be harvested this year is
expected to be 57.646 million acres, about 1% lower than a year ago. How-
ever, beer condions should oset the impact of the smaller acres. The
drascally improved situaon in the hay market can be seen in the latest
price data. Prices for alfalfa, which remains in short supply, are currently
sll hovering near all me record levels. According to a monthly USDA re-
port, June alfalfa prices averaged about $222/ton, slightly lower than May
levels and surpassing the record levels from a year ago. On the other hand,
prices for other hay types in June were $139/ton, 7% lower than the previ-
ous month and 5.4% lower than a year ago.
Boom line: The condions are in place for cow-calf producers to limit the
number of cows they send to market in the next 12 months, which will limit
overall lean beef supplies and further contribute to beef price inaon we
have seen so far this year.
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10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
MAY JUN JUL AUG SEP OCT
US PASTURE CONDITIONS: 20 YEAR HISTORY
% RATED IN GOOD/EXCELLENT CONDITION. WEEK ENDING Jul y 13, 2014
2012
1995
10-Yr Avg
2014 2013
60-Day Precipitation, Departure From Normal, in Inches
Source: Advanced Hydrologic Prediction Service, NOAA