Wednesday, February 15, 2012
What Did You Say Again About The Cattle Herd Expanding?
Cowboys may not be as bullish on cattle as the USDA’s Cattle Inventory numbers were first interpreted. The percentages may have indicated a long-awaited expansion of the cattle herd, but when you look at the underlying numbers, they may tell a different story.
When the USDA’s January 1 Cattle Inventory was initially released, market analysts saw a 1% increase in heifer retention and sounded the trumpets for a turn around in the decline in cattle numbers. Yes, there was a percentage increase, but livestock economist Glynn Tonsor at Kansas State University says the percentage does not tell the full story, “This is the first year-over-year increase estimated since 2006 and has signaled to many that the national beef cow herd may have initiated its expansion. However, a deeper analysis importantly reveals that this increase is largely being driven by historically low retention signaled by the January 2011 report. Narrowly, this year’s estimate of 5.21 million heifers being retained is actually the lowest observed (besides 2011) since 1986 when 5.17 million heifers were held back as replacements.”
Tonsor says there may be an expansion being initiated in cattle country, but—to paraphrase an old poultry producer—don’t count your calves until they are born. And he says any rebound in inventory to the point of millions of additional head, may be a thing of the past.
Iowa State livestock economist Shane Ellis says one of the keys to the future is the number of beef cows, and the USDA report puts that number under 30 million. He adds, “The supply of beef feeder cattle continues to decline, while cattle on feed inventories are slightly higher than a year ago. While numbers are up, the supply of finished animals is expected to be substantially lower nearly every quarter of 2012. Beef heifer retention was up slightly from last year but was still 4 percent lower than the quantity seen at the beginning of 2010. In short, cattle numbers are still lower, beef supplies will be down, and while there are early signs of an expansion beginning to phase in we may see declining beef supplies for the next 3 years.”
In round numbers, the USDA’s 2011 calf crop was 35 million, which implies 35 million head of beef cows, not counting multiple births. But there were only 29.9 head of beef cows at the first of the year. 6 million went to slaughter and 5 million heifers were retained.
Ellis says cattle currently in feedlots will likely turn a modest profit, compared to some deep losses last fall. And he says, “Cattle marketed in March through June will likely produce the largest returns for the year. Based on recent futures market prices, fed cattle may reach $130/cwt. during late April and May, and then remain north of $125 for the duration of the summer. By November there could be a reemergence of $130/cwt. fed cattle to finish out the year. Keep in mind that these cattle prices are likely to deteriorate with any major disturbance in the general economy.”
The economy is the primary driver for any downward pressure on cattle prices. Employment declines, a tougher time for consumers, and other recessionary indicators will be the dark clouds on the horizon, he says.
Summary:
While percentages may indicate a reversal of the decline in cattle numbers, actual numbers, rather than percentage changes from prior periods point to a continuation of the contraction in the beef industry. Feedlot steers may be profitable, compared to last year, but economic stresses could soften profitability.
Posted by Stu Ellis on 02/15 at 10:31 PM | Permalink
Comments
Posted by: Sharon Squires at February 16, 2012 10:10AM
We raised our bull calves last year for the first time in five years. Last year the price of (dairy) replacement heifers was so low and the beef price outlook so strong for this year, it seemed like a good bet. Three of our neighbors are doing the same thing. We have wondered how many other dairy farms are raising their bulls. We also have stopped selling our heifers and instead ship our cows. This is also in response to the beef price.
Does this mean the high price of beef will be eating away at US dairy production? We have seen the impact of the drought on the Texas cattle industry with the liquidation of the breeding herd. Will the dairy herd closely follow, only because of the high price of beef?
~Stu