Drought’s Impact on Pasture and Rangeland
Pasture and range conditions are starting the summer season off in a bad spot and unless most of the country sees much-needed moisture, it will only get worse. Virtually all of the Western U.S. is experiencing some level of drought conditions, with D4 (exceptional drought) and D3 (extreme drought) areas covering a greater share of the land. Many of the areas experiencing drought are key areas for grazing livestock. As of May 18, 60% of the continental U.S. is experiencing drought to some degree. This is up significantly from this time last year, when 31% of the country was in some level of drought. As Figure 1 shows, 15% of the country is experiencing a D0 drought (abnormally dry), 13% of the country is experiencing D1 drought (moderate drought), 9% of the country is experiencing D2 drought (severe drought), 12% of the country is experiencing D3 drought, and 10% of the country is classified as D4 drought. It is also very striking how the drought has worsened over the previous year. There were slight adjustments in the overall levels of D0-D2 drought over the past year, but most of the change has been in the addition of the more severe categories. The area of D3 drought expanded considerably in September and October 2020, while the expansion of D4 drought kicked in in November and December.
Pasture and Rangeland Conditions
Figure 2 shows the divergence of 2021’s national crop and condition ratings from the last few years, as well as the five-year average. Each of the first three weeks of this year set records in terms of pastureland ratings in both the good-to-excellent categories and the poor-to-very-poor categories, and not the good kind of record. The most recent data has only 25% of pastureland in the U.S. rated as good-to-excellent, which is less than half of the five-year average of 56%, and below last year’s 48%. This is the worst start to the grazing season on record, with the historical data starting in 1995. Prior to this year, the record was set in 2013, when the drought significantly impacted ranchers’ ability to graze, leading to contractions in the cattle herd. When looking at the poor-to-very-poor category, we see a similarly bleak story, with 43% of the U.S. pastureland in this category. With historical data going back to 1995, the previous record was set in 2013. Figure 3 presents the stark contrast between the start of this year and the start of previous years, with 2021 entering the charts at completely different levels.
Cattle on Feed
USDA’s latest Cattle on Feed report, released May 21, shows a total inventory of 11.725 million head in the United States on May 1, up from the same time in 2020 but down from last month, and down 0.7% from 2019. This 4.7% increase is a bit above analysts’ expectations of feedlot inventories increasing 3.9% from last year. This report marks the second-highest May inventory since the series began in 1996.
Coming in at 27.2% above 2020, placements in April came in above the average analyst expectation of a 22.5% increase. The very wide range of forecasts for placements – 22% -- highlights the uncertainty in forecasting this specific variable while trying to account for the disruptions at this time last year. As mentioned previously, drought conditions are leading to record levels of poor pasture conditions, potentially driving more feeder cattle into feedlots. However, higher feeding costs due to corn and soybean prices will make things difficult for feeders for the foreseeable future. In April, placements clocked in at 1.821 million head, 389,000 head above a year ago but about 1% below 2019.
Marketings came in at 1.938 million head, or 32.8% above last year. This is right in line with the average analyst expectation of a 33% increase over year-ago levels. We are still seeing higher levels of heavier cattle on feed relative to normal history, although it is expected to be down from last year when cattle were backing up in the system due to constraints at the packing level.
As drought has spread throughout much of the Western and Southwestern parts of the country, critical cattle-producing states are experiencing a drastic increase in the percentage of pasture and rangeland in their states rated as poor-to-very-poor, while the share of pasture and rangeland rated as good-to-excellent has decreased in much of the rest of the country. The percentage of acres rated good-to-excellent has started the summer at a record-low 25% nationally, while the percentage of acres rated poor-to-very-poor has started at a record-high 43%.
This May Cattle on Feed report is considered relatively bearish due to higher-than-expected placements. While the level of the increase in placements would normally be extremely bearish news, year-over-year comparisons should largely be avoided due to last year’s COVID-19 disruptions. The overall supply of cattle on feed is up nearly 5% over last year but almost 1% below 2019, and the number of animals marketed throughout April is well above a year ago, but right in line with expectations.
The 2020 outlook reveals increased production for corn and soybeans and lower production for wheat in 2020. The increase in corn and soybean production is due to acreage and yield recovery following the adverse growing and harvesting conditions in 2019. With fewer acres and lower yield, wheat production is expected to decline. Strong demand for wheat and soybeans is expected to draw down supplies and may lead to higher prices in 2020. Meanwhile, ample supplies in the corn market are expected to lead to higher stocks and lower prices in 2020.