A Few Thoughts by John Nalivka: Outlook for cattle numbers indicate optimism for 2020 market | TSLN.com

A Few Thoughts by John Nalivka: Outlook for cattle numbers indicate optimism for 2020 market

African Swine Fever, trade, plant-based protein, flooding in the Midwest, a packing plant fire – all leading to market uncertainty, but also opportunity and the beef industry is poised for higher prices during 2020. While the focus has been on export opportunities, particularly in the face of ASF in China, reduced cattle numbers will also be significant to next year’s market.

Both cattlemen and dairymen rigidly culled herds during 2019 as low prices pressured returns. For the year, I am projecting both beef and dairy cow slaughter to be up 3 percent from a year earlier and the 5th straight year of increased cow slaughter. Beef cow slaughter will represent 10 percent of the cows at the beginning of the year and while this is not nearly as high as during 2012 and 2013 when producers liquidated the U.S. cattle inventory to a 60-year low, it is the highest beef cow slaughter relative to the overall herd since 2013. In the face of significant financial stress due to low milk prices, dairy cow slaughter will likely account for 35 percent of the dairy cow herd this year. This is the highest since 1977. Remember that period. It led to the 1984 Dairy Termination Program.

Not only were producers culling herds more deeply, they retained significantly fewer heifers from the 2018 calf crop for herd replacements. Heifer slaughter into mid-October was still up 7 percent year-to-date and in addition, USDA indicated on their October 1 Cattle on Feed Report that the number of heifers on feed for that date was still up 2 percent from a year earlier. So, both the beef and the dairy industry liquidated herds during 2019. Consequently, I am projecting a 1 percent decline in the size of the U.S. cattle inventory at the beginning of 2020 compared to January 1, 2019.

This brings up another issue – USDA showing only a slight drop in 2019 calf crop on their July 1 estimate. I believe that USDA overstated the estimate. I am estimating a nearly 1 percent decline in this year’s calf crop compared to a year ago. Based on steer slaughter this year, I would even suggest that the 2 percent increase in the 2018 calf crop estimate was over-stated. While I don’t want to get into a debate with USDA, the calf crop estimate is key to projecting future supply and in 8 years out of 10, the July 1 estimate is larger than the last estimate on the January 1 Cattle Inventory Report. While it will get resolved when we know how many cattle are slaughtered, I would like to know before the fact rather than after the fact – just saying!

So, given my assessment of cattle numbers for next year and if demand holds at least steady and I believe it will continue to improve, particularly with regard to exports, live cattle prices from fed cattle to calves are likely to be up at least be up 3 – 4 percent during 2020.

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A Few Thoughts

A Few Thoughts by John Nalivka – beyond the numbers


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