The United States Department of Agriculture has cut its forecasts for red meat and poultry production for 2012 and 2013 as drought conditions intensify in key livestock and grain producing states.

The headline development in the USDA’ s latest World Agriculture Supply and Demand Estimates report released early yesterday Australian-time was a further 1.8 billion bushel reduction in the US corn crop estimate to 12.97 billion bushels.

The USDA said the projected US corn yield has been lowered by 20 bushels per acre in the past month to 146 bushels, reflecting the rapid decline in crop conditions since early June and the latest weather data. 

Corn usage for livestock feed been projected down by 650 million bushels. Ending stocks for 2012/13 are projected at 1.2 billion bushels, down 698 million from last month’s projection. 

The season average 2012/13 farm price for corn is projected at $5.40 to $6.40 per bushel, up sharply from $4.20 to $5.00 per bushel in June.

From a meat production perspective, the higher feed prices are expected to slow the pace of pork and poultry expansion and temper growth in weights, the USDA said.

US beef production is forecast to increase in 2012 as deteriorating pasture conditions force more cattle into feedlots. 

Production is expected to ease slightly next year as the earlier placement of calves in 2012 results in a small adjustment to early 2013 marketings. 

Impacted by higher corn prices, US fed steer prices for the third and fourth quarters of 2012 are forecast to remain relatively high year-on-year, averaging 123USc/lb and 127USc/lb, respectively.

The USDA forecasts US beef imports in 2012 to increase 20pc on the previous year, to 1.12 million tonnes cwt, with 2013 imports to rise a further 6pc, to 1.19 million tonnes cwt – supported by firm demand for manufacturing beef.

Meanwhile, US beef exports are estimated to decline 7pc in 2012, totalling 1.17 million tonnes cwt, before recovering 2pc in 2013.

One of the more immediate impacts of the worsening drought is likely to be an increase in cow slaughter rates in the US, as producers are forced to destock as pasture quality deteriorates.

Meat & Livestock Australia chief economist Tim McRae said that extra production could affect demand for Australian beef exports to the market, however, any impact was unlikely to be significant.

“Given supply in the US is already so tight – they have had other issues which has removed product out of their supply pool this year, particularly the Lean Finely Textured Beef issue – it will probably be felt in the market, but I don’t think we will see a major impact on Australia shipments.”

The sharp increase in US corn prices that has followed dramatic yield downgrades has also pushed feedgrain prices in Australia higher, placing further pressure on feedlot margins, already squeezed by relatively strong feeder cattle prices.

What impact the recent rise in feedgrain prices will have on Australia’s feedlot sector will depend on how long the higher prices are sustained and how much stored grain feedlots have in store.

“I think the big unknown is, given the last two years of feed grain production in Australia, just what amount of feed grain feedlots are sitting on at the moment,” Mr McRae said.

“I have no doubt there would be a lot of feed grain stored right across the country, just where it is and how much is there are the big questions.”

A longer term impact of the increasingly severe US drought is likely to be further delays in their herd rebuild

Of all the meat production systems, the cattle industry was the slowest to turn around.

“In the US they’re looking down the pipeline of a few lean years of production, and particularly a few years until they turn that herd around.

“Australian producers can sympathise greatly with what US producers are going through, you don’t wish drought on anyone, and it seems they will see their rebuild delayed for a couple of years now depending on how this breaks.”