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CME: Forty Year Herd Inventory Decline Offset Slightly by Weights Increase

01 February 2013

US - Reports conducted by the Dow Jones and the USDA show a picture of headage decline since 1975 with some business liquidation offset by production increases as average weights have increased, according to Steve Meyer and Len Seiner.

USDA will release on Friday, February 1 the results of its semiannual cattle inventory survey. The survey results provide a benchmark for cattle supplies currently on the ground and serve as the best indication for the outlook of US beef supplies in the medium term (next three years).

As part of the data collection process for the semiannual inventory count, USDA also conducts a more comprehensive survey of US feedlots. While the monthly feedlot survey only covers feedlots with 1000+head capacity, the semiannual survey covers all US feedlots.

This is important as in recent years we have seen notable changes in the structure of the US cattle feeding industry, with smaller feedlots either closing or consolidating.

Analysts polled by Dow Jones ahead of the report indicated that they expect total cattle inventories as of January 1 to be down 1.8% from year ago levels.

Assuming no changes to the previous year’s inventory, this would imply a US cattle herd of 89.135 million head, the smallest inventory since 1952. US cattle inventories peaked in 1975 at 132.028 million head and have been trending lower ever since. The cattle cycle has also become shallower as producers find little reason to try and rebuild inventories.

Indeed, it seems as if the industry has been in steady liquidation mode since the mid 1990s, with only a very brief and relatively small increase in 2005 and 2006. Since 1995, the US cattle inventory has declined by 14.4 million head or 14%.

Keep in mind, however, that the decline in cattle numbers does not necessarily imply a decline in total beef output. US cattle producers have been quite adept at the changing economics in the beef business, increasing output per head and keeping costs in check. Cattle weights have increased dramatically in the last thirty years, helping offset some of the decline in cattle numbers.

In 1975, the average carcass weight for US cattle (steers, heifers, cows) was 589 pounds compared to an average weight of 791 pounds today. As a result, even as the cattle inventory has declined some 32% since 1975, total US beef production has increased 18%.

Cattle Inventory, 000 HEAD, 1920 - 2012 + 2013 Analyst Estimate

One of the survey items that will likely receive plenty of attention is the number of heifers that have been held back for beef cow herd rebuilding. As you can see in the Dow Jones survey, analysts have vastly different ideas in this regard. Some expect the beef cow herd replacement numbers to show further declines from a year ago, with the low end of estimates down 7.9% from last year.

Drought was a significant concern for cow-calf producers in 2012, although the areas affected shifted north. Moreover, the spike in corn prices negatively impacted feeder cattle values and changed the incentives for producers to hold on to their animals.

Most analysts, however, appear to think that the impact of the drought was not as severe. On average they still expect the beef heifer replacement numbers to be down 0.4% from last year, with the high side of the range expecting a 3% increase.

Analyst Estimates of USDA Semi Annual Cattle Inventory Survey: Dow Jones

USDA offered an initial estimate of the calf crop for 2012 in its July survey but that will be updated with actual numbers for the full year. On average analysts expect the calf crop for 2012 to be 2.1% lower than the previous year slightly higher than the July estimate.


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