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CME: Total Cattle Inventory on 1 January Smaller Than a Year Ago

05 February 2014

US - National Beef announced on Friday that it would close its Brawley, California fed beef plant on 4 April. The plant is located in California’s Imperial Valley and was built in 2001, according to a report from Cattle Buyers Weekly, write Steve Meyer and Len Steiner.

The plant had a capacity of 2000 head per day and accounted for just over 14 per cent of National Beef’s output for the first nine months of 2013. National acquired the plant in 2006 and the closure will idle about 1300 workers. The company’s press release cited a declining supply of fed cattle. CBW cited National’s majority owner, Leucadia National Corporation as expecting to “face operating losses for the foreseeable future.” This will be a big, big blow for feedlots in that area as there are few other slaughter opportunities in the immediate vicinity.

While the closure of the Brawley facility itself may be a bit of a surprise to some industry observers, the closure of a beef slaughter facility should really be no surprise at all. Declining cattle numbers have put both the feedlot and slaughter sectors in a position of overcapacity and, while the US beef cow herd may grow over the next few years given current profits and generally better range/pasture conditions, we know of hardly anyone who would expect it to grow enough to support the current number and capacity of either feedlots or packing plants. In fact, we doubt that this will be the last plant closure as the sector adjusts to smaller cattle numbers.

Which brings us to Friday’s expected news item, the January Cattle report from USDA. The key data appear in the table below. Note that we included last year’s original estimates in the left-most column and this year’s numbers for January 2013 anticipating that there might be some revisions. There indeed were but they were generally small, especially for the key cow and heifer inventories and the 2012 calf crop.

Our first impression of the report is that it is somewhat bullish. The total cattle inventory on 1 January was 87.73 million head, 1.8 per cent smaller than one year ago. That figure is slightly smaller than the average of analysts’ pre-report estimates and actually very near the bottom of the estimate range.

Of particular interest to us are the five bolded figures in the percent of year-ago column below.

  • The number of beef cows that have calved that were on US farms and ranches on 1 January was down 0.9 per cent from one hear ago at 29.042 million head. This marks the 7th straight year for an alltime low on the “beef cows that have calved” measure which dates back to 1965. Adjusting the “beef cows and heifers 2 yrs. & older” inventory used before that year indicates that this is likely the smallest beef cow herd since 1962. But — this year’s reduction was smaller then expected, meaning the herd size may turn upward more quickly.

  • The number of heifers held as beef cow replacements was up only 1.7 per cent from last year. That figure is just over half as large as analysts expected indicating that cattlemen may not have responded quite as much to potential profits yet. The 5.381 million heifers being retained marks, as we pointed out last week, the third straight year of growth for this number. But the cow herd has continued to decline so the question remains: Will these heifers ever be bred and actually make it to the cow herd?

  • The number of dairy heifers held for replacements was below expected levels as well. The 4.539 million head was 0.3 per cent lower than one year ago where analysts expected the number to be 0.3 per cent higher given much lower feed costs. While this figure’s most obvious impact is on future milk supplies, it also impacts beef supplies since the virtually all of the bull calves from dairy matings enter feedlots and become beef.

  • The most bullish number in the report is the number of calves under 500 pounds. The 13.278 million head is 3.7 per cent lower than one year ago. When combined with the “other heifers over 500 pounds” number at 95 per cent of last year and the “steers 500 pounds and over” number at 97.5 per cent, this figure indicates that the supply of cattle outside of feedlots is still almost 3 per cent lower than last year. That figure is particularly bullish for the summer and fall market — and feedlot inventories themselves (-5 per cent versus last year) are bullish enough for cattle and beef markets between now and then.

  • The most curious number in the report, in our opinion, was a calf crop of 33.93 million head, down only 1 per cent from last year. That figure appears large relative to both the calf and yearling supply figures cited above and to the January 2012 cow herd which was 2.2 per cent smaller than one year earlier.

Bottom line: The outlook supports continue heifer retention and lower cow slaughter this year. The big question still is whether the weather will also support the expansion. If so, look for very tight supplies and continued high prices for 2014 and into 2015. Beef production will not increase significantly until 2016.

Further Reading

You can view the USDA Cattle report by clicking here.

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