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CME: Year-on-year Declines Expected for Almost All Categories of US Cattle Herd

03 February 2020

US - USDA published its semi-annual estimates of the US cattle herd and various inventory subgroupings on Friday (31 January), reports Steiner Consulting Group, DLR Division, Inc.

Analysts polled by Urner Barry ahead of the report expect y/y declines for almost all categories but the key numbers, in our view, are the size of the cow herd, heifer retention and the revisions to the calf crop estimates for both 2018 and 2019.

On average analysts expect the breeding herd to decline about 0.8 percent from the previous year. The expected decline should not be a surprise since the July survey already showed a contraction in the cow herd. Since then we have continued to see producers send more cows to market.

Statistics for the second half of 2019 put total cow slaughter at 3.251 million head, 137k head or 4.5 percent higher than the same six month period a year ago. More heifers were also sent to feedlots in 2019 and heifer slaughter in the second half of the year was 5.096 million head, 334k head or 7 percent higher than the previous year (see our report on 1/28 for a full breakdown of 2019 production statistics).

The US cow herd had been increasing since 2014, a function of robust demand in domestic and export channels, improving cow-calf profitability and good pasture conditions. However, as we have noted in previous issues of this report, cow-calf profitability has been slowly eroding and the last two years have been particularly difficult.

Limited cattle processing capacity meant that even though wholesale/retail beef prices have been relatively strong, much of those gains have not filtered through back to the farm. Like any business producers need to see consistent strong returns otherwise there is little incentive for them to maintain the current production rate, let alone continue to expand.

Analysts think that on 1 January the number of heifers retained for beef cow herd replacement will be 3.5 percent lower than the previous year. If they are correct, this will be the smallest replacement number since 2014.

The dairy cow herd has also declined in the last 12 months although liquidation appears to have bottomed out at this time. On average analysts think the dairy cow herd will be down 1.2 percent or 112k head from a year ago.

It is interesting to note that the monthly USDA milk production report pegged the dairy cow inventory in December at 9.339 million head, only slightly lower than last year. The analyst average appears oddly low on this count.

The average of estimates currently puts the calf crop for 2019 down 0.4 percent from a year ago, a bit lower than the 0.3 percent estimate that USDA calculated in the July survey. Given the current rate of slaughter, especially steer slaughter, it will be interesting to see how much USDA changes some of its previous estimates.

A smaller calf crop in 2019 should result in tighter cattle/beef supplies in the second half of 2020 and in 2021. And with the cow herd at the start of this year, a smaller calf crop for 2020 appears to be a foregone conclusion and with that a continued reduction in beef supplies in 2021.

Please note that USDA will also issue an estimate of the cattle on feed on 1 January. This estimate is a bit different than what’s in the monthly report as it captures on feed supplies in all operations, not just in those with +1000 head capacity. The data helps us recognize structural shifts over time.

The feedlot data is also needed to calculate the supply of cattle outside feedlots as of 1 January and may influence how participants approach the feeder cattle market this spring.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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