Cattle inventory at 61-year low

Markets
Feb 8, 2013
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The most recent Cattle Inventory report was released Friday, Feb. 1 and reported on all cattle— beef and dairy—in the U.S. herd as of the first of the year. Overall, the number of cattle and calves recorded was down 1.6 percent at 89.3 million head, making this the lowest Jan. 1 inventory since 1952.

“USDA’s latest Cattle report changes our view of what the situation has been as well as what we can expect in the coming year,” said Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist.

The pre-report estimate of all cattle and calves was that the Jan. 1, 2013, inventory would be down 1.8 percent from the Jan. 1, 2012, inventory. Peel said that, overall, the most recent report was in line with raw-numbers expectations in most of the report’s categories, but revisions made to the 2012 inventory data altered the percentile changes and how the report should be interpreted.

“Even though the total inventory number came in a bit above pre-report estimates, we think the report itself can be construed as moderately bullish for cattle prices in late 2013 and 2014,” commented CME analysts Steve Meyer and Len Steiner in their Daily Livestock Report.

Cows and heifers

The numbers of all cows and heifers that have calved (cowherd) stood at 38.5 million. This was down 2 percent from the 39.4 million head recorded the same time last year and the lowest Jan. 1 inventory of that category since 1941, which saw 36.8 million head of cows and heifers which had calved.

The beef cowherd was similarly down 3 percent with 29.3 million head. However, Peel pointed out the Jan. 1, 2012, numbers for the beef cowherd had been revised upwards by 275,000 head, with most of the addition coming from Texas and Oklahoma. This alteration to the 2012 number not only means the estimates of beef cowherd liquidation between 2011 and 2012 was not as severe as previously thought, but the actual numbers for 2013 were decently in line with pre-report expectations, even if the percentage movements were off.

Almost all of the states which had a beef cowherd over 1 million head in 2012—Kansas, Missouri, Montana, Nebraska, Oklahoma, South Dakota and Texas—saw declines between Jan. 1, 2012, and Jan. 1, 2013. Only Montana and South Dakota saw increases in their beef cowherds. If taken collectively, these biggest beef cowherd states saw an overall decline of 5 percent. The fact the overall beef cowherd numbers were not that depressed came from gains in other states.

While overall beef cowherd numbers were down, replacement beef heifer numbers were up 2 percent at 5.36 million head. As with the beef cowherd numbers, the Jan. 1, 2012, estimates were adjusted in the most recent inventory report. Oklahoma’s and Nebraska’s 2012 beef heifer replacement ranks got an injection of 50,000 head of additional replacements, making the overall replacement change between 2011 and 2012 a positive jump of 2.4 percent. This makes the increases seen between the 2012 and 2013 Jan. 1 replacement heifer numbers all the more encouraging.

This increased number of replacement heifers of course invited hopeful thoughts of near-future herd rebuilding. Several voices were quick to caution against excessive optimism, however.

“It is too early to draw hard and fast conclusions from one data point,” J.P.Morgan analyst Ken Goldman told investors in a note, though he did not rule out the possibility.

Meyer and Steiner credited any successful attempts at herd rebuilding more to the weather than to the hopes of those retaining heifers. Peel agreed that weather and the potential for continued drought would be the trump card on whatever plans and hopes cattlemen might have.

“The replacement heifers indicate, more than anything else, the contrast between what the industry would like to do compared to what they are able to do. Though the 2012 inventory of beef replacement heifers was up, the drought and continued beef cow liquidation meant that a very low percentage of those potential replacement heifers actually entered the herd. The 2013 numbers shown are even more pronounced in this respect.

“The 2013 beef replacement heifer inventory is 18.3 percent of the beef cow herd inventory, the highest replacement percentage since 1995. However, it depends entirely on whether drought condition moderate to determine what percentage of those heifers may actually enter the herd in 2013.”

Peel went on to say actual increases in the beef cowherd by way of replacement heifers would be slight even under the ideal conditions. Not only would those retained heifers need to actually enter the breeding herd, but cow slaughter would need to pull back significantly. However, he predicted the ideal conditions to make both of those things possible would be unlikely.

In the seven top beef cowherd-states mentioned above, most saw declines in their Jan. 1 beef replacement heifer numbers between 2012 and 2013 with the exceptions of Montana and Texas. Montana, with 435,000 head of replacement heifers, was up 5 percent, while Texas, with 600,000 head of replacement heifers, was up 9 percent.

Collectively between these top beef cowherd states, the replacement heifer retention rate was down 1.2 percent, again meaning the gains came from other, smaller states. The southern states of Alabama, Arkansas, Florida, Kentucky, and especially Virginia, led some impressive gains in year-to-year replacement heifer numbers for mid-sized beef cowherd states (those with a 2012 beef cowherd between 500,000 and 1 million head).

Calf crop

The calf crop estimate for 2012 stood at 34.28 million head, down 3 percent from 2011’s calf crop. Considering the 2012 calf crop estimate released last July anticipated a calf crop of 34.5 million, and pre-report expectations for this report were to the tune of 34.57 million head, this most recent number was a surprise.

The reduced calf crop, even from previously anticipated low calf numbers, implies an even greater reduction in the number of cattle coming to market towards the end of 2013 and the following year. CME has called this bullish for both the deferred live and feeder cattle futures.

Despite this contraction in the prospective feeder cattle supplies of the future, it is unclear what the reduction—if any—will be to beef production given the spectacular gains seen from the use of growth promotants. A reduction in beef production is likely needed to rescue packers and cattle feeders from the sea of red ink they’ve been drowning in recently.

Meyer and Steiner pointed out that since 1995—the most recent peak in the calf cycle—the annual calf crop has declined 15 percent, or by roughly 6 million calves. However, in that time, beef production has increased by about 13 percent, or 2.97 billion pounds. Gains in efficiency of genetics and feed technology over those years have everything to do with this shift.

“With a smaller forecasted 2013 calf crop and reduced cattle imports, the squeeze on feeder supplies will continue,” said Peel. “Without continued reductions in feedlot inventories, the feeder supply will continue to shrink. And, if conditions permit, increased heifer retention will further squeeze feeder supplies in the coming years.”

In terms of the actual inventory of calves under 500 pounds and steers over 500 pounds as of Jan. 1, 2013, both numbers were down. The number of steers over 500 pounds was generally steady though slightly weaker (down 0.1 percent) at 15.81 million head, down 19,800 head compared to Jan. 1, 2012. This was in comparison to pre-report estimates of steers over 500 pounds being down 2.2 percent.

The number of calves under 500 pounds was more dramatically down at down 2.3 percent, a difference of 327,800 head. This was more in keeping with prereport expectations of the number being down 2.5 percent compared to Jan. 1, 2012. — Kerry Halladay, WLJ Editor


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