Drought relief expected to help grain and cattle outlook
Drought conditions have been widespread across the United States due to the La Niña weather pattern seen in the area for the past few years, but relief could be seen soon.
CattleFax meteorologist Art Douglas said we should expect to get through the next three months and then see relief from the drought.
“The two forecast systems we use are predicting the possible transition from La Niña conditions to a weaker El Niño by the summer,” Douglas said. “U.S. weather patterns over the next three months will be dictated by La Niña. However, warming at the equator could shift drought patterns across North America by late spring and summer.”
The temperature forecast through May shows gradual warming across the southern U.S. after a colder February in north central states.
While Hurricanes Harvey and Irma have given some moisture relief in the southern U.S., there are still other areas suffering from extreme drought conditions. Spring planting in the Corn Belt could have drier soils in the west and wetter soils from Iowa to Ohio. The lack of moisture in the southern Plains will be tough on winter wheat and pasture growth, according to Douglas.
“If weaker El Niño conditions develop this summer, conditions at that time could be milder through the Midwest, but drier soils in the Plains and Southwest could create feedback mechanisms that increase heat in these areas. The Northwest and northern Rockies may have the only reliable grazing into late spring and summer,” Douglas said.
The La Niña conditions will continue to cause drought conditions in Argentina and northern Brazil for the remainder of the summer growing season. Australian cattle growing areas have developed drought conditions also. These drought conditions in other areas of the world will lead to the need for more grain and beef production in the U.S.
CattleFax market analyst Mike Murphy said farmers in the states where the most corn, soybeans and wheat are grown will likely not change their acreage planted by much for 2018.
“Corn prices should move higher in the summer, but we still have to remember there are technical and weather risks that can affect everything,” said Murphy.
“Yield potential will be based on the timeliness of moisture. We expect to see average yields of 172 bushels per acre this year.”
Corn yields are expected to drive prices for the 2018-19 marketing year. Spot corn futures prices are expected to be between $3.25 and $3.95 per bushel.
With an increase in cattle, hog and poultry supplies, Murphy said more grain will be used for feed. Ethanol will continue to use grain and grain by-products for production. Higher ethanol blends could help provide for an extra market for corn. Exports should continue to grow, especially with drought in South America. U.S. soybeans especially rely on exports.
With China considering a 10 percent ethanol-blend mandate for gasoline by 2020, U.S. corn growers could benefit from more exports to China.
“Global production will continue to pressure wheat prices, as the U.S. share of global wheat production is at a record low 9.6 percent,” Murphy said.
Hay stocks are the tightest since 1976, which could cause a price increase of $10 to $15 per ton in 2018, with additional weather-related price risks.
Senior CattleFax analyst Kevin Good said all segments of the beef industry have seen profitability in the past year.
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Since 2006 a decrease of 1.27 million head of cows has been seen due to drought. The expansion and rebuilding of the cowherd is expected to slow in 2018. The U.S. beef cow inventory has grown 2.8 million head in four years.
Exports of beef have helped keep prices at profitable levels. In 2018, beef exports are expected to increase by 6 percent. In 2017, 16.6 billion pounds of U.S. meat was exported. These exports increased the per head value by $335 in 2017.
Record large beef production is expected in 2018 at 27.5 billion pounds. Annual production increases will be smaller into the 2020s.
Domestic consumption of beef is expected to slightly increase in 2018, which has been supported by the improved economy. Global protein demand will play a larger role in U.S. beef cattle markets, as record-high meat production is expected into 2020.
“We expect fed cattle to average $115 per hundredweight for 2018, 750-pound feeder steers should average $145 per hundredweight and 550-pound feeder steers should average $158 per hundredweight,” said Good. “Bred cow prices will be down a little in 2018, with an average of about $1,500 and utility cows should average $60 per hundredweight.”
Jennifer Carrico can be reached at 515-833-2120 or [email protected].