Market Advisor: Cattle herd decline supports prices
August 13, 2010
The U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS) July 1 cattle inventory report released on July 23 indicated a continuing decline in the U.S. cattle herd. Most people in the cattle and beef industry were expecting lower numbers, so the report had few surprises. However, many also are wondering when beef cow numbers will start to increase.
All cattle and calves in the U.S. on July 1 totaled 100.8 million head, down 1.2 percent from the 102 million reported last year.
Beef cows and heifers that have calved numbered 31.7 million head on July 1, down 500,000 head from last year. That is the smallest number recorded since NASS started the July 1 inventory series in 1973 and also smaller than any Jan. 1 beef cow inventory since 1963.
The number of beef heifers more than 500 pounds kept for replacement was down 2.2 percent from 4.5 million head in 2009 to 4.4 million in 2010. With both fewer beef cows and beef replacements, beef herd expansion likely will not take place this year.
Beef cow liquidation started in 2007 because of a drought in several important cattle-producing regions in the U.S., including the Northern Plains. Furthermore, increasing feed grain prices, which caused lower feeder cattle prices, also stimulated cow sales. In 2008, a spike in production costs, along with sharply declining cattle prices in the last half of the year, fueled continued liquidation. Also, in 2009, the U.S. and world economic crisis and the negative impacts of the H1N1 virus on all livestock and meat prices caused an additional decline in beef cow numbers.
In 2010, pasture and range conditions in most U.S. cattle-producing regions have improved and may be in the best overall shape for the past decade. With improving feeder cattle prices, there may be a renewed interest in retaining more beef heifers this fall.
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Initial signs of that interest were evident in March and April when replacement-quality heifers commanded premium prices at many Northern Plains auction markets. In June, young open cows were in high demand and were rumored to be shipped to states that had recovered from severe drought conditions.
On July 1, heifers accounted for 37 percent of the total cattle on feed compared with 38 percent last year. Although that is a small change and still above average, it could be the first sign of a shift to retaining heifers for breeding purposes.
Lower cow numbers will mean smaller calf crops and lower beef production for at least the next couple of years. This action will be supportive to cattle prices. The cow-calf sector should see improved profitability this year, with more improvement expected next year.
Cull cow and bull prices likely will set a record high this year because the demand for hamburger is good even in a down economy and manufacturing-grade beef imports have declined.
However, the economy still is struggling. This is affecting high-quality beef demand at the retail level and fed-cattle prices. Competing meat supplies also will be important to cattle prices, with boiler production starting to ramp up again. Corn prices are an important factor in fall calf prices. The grain market has been volatile lately because of the uncertainty of the ultimate size of the corn crop and dry weather in eastern Europe fueling wheat and feed grain prices.
Feeder calf prices likely will be 10 to 15 percent higher this fall than the depressed levels of the last two years unless corn prices continue to skyrocket.