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Drought-Easing Rain Means Feeder-Cattle Rally: Chart of the Day

After the worst drought in Texas history, a return of healthy pastures may mean ranchers keep more young heifers for breeding rather than sell them to feedlots. Photographer: Jack Plunkett/Bloomberg News
After the worst drought in Texas history, a return of healthy pastures may mean ranchers keep more young heifers for breeding rather than sell them to feedlots. Photographer: Jack Plunkett/Bloomberg News

Jan. 3 (Bloomberg) -- Feeder cattle may extend this year’s record rally in prices as rain revives drought-parched pastures in Texas, encouraging ranchers to rebuild depleted herds, said Darrell Holaday, the president of Advanced Market Concepts.

The CHART OF THE DAY shows rainfall in Amarillo, Texas, reached at least 1.54 inches (3.9 centimeters) in December, the most since November 2010. Feeder-cattle futures surged 20 percent last year, reaching a record $1.508 a pound on Dec. 28. Feedlot operators buy year-old cattle that weigh 500 pounds (227 kilograms) to 800 pounds, and fatten them on corn until they weigh 1,200 pounds, when they are sold to meatpackers.

After the worst drought in Texas history, a return of healthy pastures may mean ranchers keep more young heifers for breeding rather than sell them to feedlots, Holaday said. Tighter supplies may send futures on the Chicago Mercantile Exchange to $1.60 by May, from $1.488 on Dec. 30, he said.

Ranchers in the southern Great Plains “are in a lot better shape than they were a year ago,” Holaday said in a telephone interview from Wamego, Kansas. If rains continue, “the demand to bring calves back down into that country is going to be phenomenal,” he said.

Texas received about 2.2 inches of rain last month, marking a second month of above-normal precipitation, State Climatologist John Nielsen-Gammon said in an e-mail. Even with recent rains, 2011 will still be the state’s driest year on record, he said.

The drought forced ranchers to sell more animals rather than buy grain to feed them, which boosted the feedlot herd in Texas to 3.01 million head as of Dec. 1, 6 percent more than a year earlier, U.S. Department of Agriculture data show. Those cattle will be slaughtered in the next five months. The total U.S. herd, including grazing cattle, was 92.582 million head at the beginning of 2011, the smallest for that date since 1958. The USDA will release its 2012 herd estimate Jan. 27.

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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