Prolonged Mexican Drought Conditions and Effects on U.S.-Mexican Cattle Trade

June 1999

U.S. cattle trade with Mexico reflects a number of factors including the cattle cycle, feed grain prices, economic growth, and, in recent years, the continuing drought in northern Mexico. The drought in the northern Mexican states has persisted since the early 1990's, resulting in poor conditions for cattle production. The current rainy season (June-October) is starting to bring some relief to the region.

The United States primarily exports slaughter cattle and breeding cattle to Mexico. In 1998, U.S. cattle exports to Mexico dropped 32 percent to slightly more than 160,000 head; this drop reflected a weaker peso vis-a-vis the dollar (particularly in the second half of 1998) as well as the effects of the drought in Mexico which have not allowed for a renewed expansion of the Mexican herd. U.S. cattle exports are likely to decline in 1999 because of reduced U.S. inventories and expected price gains later in the year, as well as continuing drought conditions in Mexico.

U.S. cattle imports from Mexico are virtually all feeder cattle raised in the northern Mexican states. These imports generally move in tandem with the U.S. feeder steer price, which declined steadily between 1993 and 1996. However, the peso crisis of 1995 resulted in unusually strong Mexican cattle exports to the United States that year (1.65 million head); the long drought was also a factor in the import surge of 1995. Imports have since been substantially lower despite continuing drought conditions; in 1998, U.S. cattle imports from Mexico were 720,000 head.

Mexican cattlemen claim drought conditions are worse this year than last. However, the Mexican Agriculture Secretary has stated that drought conditions so far in 1999 are about what they were last year, and that weights and fertility of cattle will drop but herds will not be lost. The Mexican Minister for the Interior has declared nine northern states a natural disaster zone due to the drought and has authorized emergency funds, including funds for cattle feed to supplement the diets of 300,000 head of cattle. This region is estimated to produce approximately 60 percent of total Mexican cattle, but is the source of more than 90 percent of feeder cattle exported to the United States.

The prolonged drought conditions in Mexico, combined with the credit difficulties faced by many cattle producers have resulted in a steady decline in Mexican cattle inventories in recent years, down 20 percent between 1994 and 1999, to 24.6 million head. Low U.S. feed prices, strengthening U.S. feeder prices later in the year, and the effects of the drought are expected to moderately boost U.S. imports of Mexican cattle in 1999 from the 1998 level. While year-to-date imports are stronger than last year, imports remain well below levels of the peak year, 1995. The low reproductive capacity leading to a low calf crop, as well as the poor health of Mexican feeders are expected to temper increases of imports. Mexican feeder cattle are below normal weights and are apparently being sold at a discount to U.S. feedlots.

For more information contact the author, Monica Castillo, of the Dairy, Livestock and Poultry Division at (202) 720-7285. You may also wish to visit the DLP home page.