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CME: Cattle Numbers Higher than Expected

04 February 2015

US - USDA’s Cattle report (frequently called the Cattle Inventory report in the trade) indicates that January 1 cattle numbers were significantly higher than had been expected, write Steve Meyer and Len Steiner.

We think that might be more of a statement about how low the trade expectations were than about how high these inventory numbers are but — they are indeed high relative to the estimates provided to Urner Barry last week. If those trade estimates actually represent the sentiment of “the market”, we see this report being bearish for cattle values in 2016 and 2017. The key national numbers from the report appear below.  

Some highlights are:

  • All Cattle and Calves was estimated to number 89.8 million head, 1.274 million head or 1.4 per cent more than one year ago.  The trade, on average, expected this number to be lower than on e year ago in spite of huge incentives to retain beef cows and heifers and generally good pasture conditions to support that incentive.  The actual increase is well above the highest of the trade estimates.   

  • Cows that have calved was also larger than the top of the trade estimates at 39.0 million, over 707,000 or 1.8 per cent higher than one year ago.   The beef cow herd was, not surprisingly, the big contributor to that growth, increasing by 2.1 per cent or 608,000 head.  Dairy cow numbers grew, too, on the strength of dairy profits during the first three quarters of 2014 but the growth there was not nearly as large, even in percentage terms.   Note that these animals would be mature cows and, most likely, young cows that appeared as retained heifers in last year’s report.   2014 beef cow slaughter that was 517,000 head lower than one year earlier was a major result of the cow retention that pushed beef cow numbers up by this magnitude.

  • Heifers held for beef cow replacements numbered 5.777 million, 271,000  or 4.1 per cent higher than one year ago.  This was the number in the pre?report estimates that we found most curious as the average of +2.7 per cent did not square well with either 2014 heifer slaughter or those strong incentives to grow the cow herd.  We suppose that some analysts were still scratching their heads over last July’s beef heifer retention figure that showed numbers LOWER than two years earlier (there was no July 2013 report) in spite of the incentives and much better pastures conditions.  Regardless, this figure suggests larger beef supplies in 2016 and beyond!

  • The number of beef heifers expected to calve in the coming year is up 7 per cent .  That is a disproportionate number relative to the number of heifers retained but suggests rapid expansion of the calf crop. The higher beef cow and beef heifer numbers account for about 65 per cent of the increase in total cattle and calf inventory as of January 1.  

  • The 2014 calf crop  is pegged at 33.9 million head, up 0.5 per cent from one year ago and 2 per cent larger than the average of pre?report estimates.  Note that all of this “growth” is in fact due to a downward revision of the 2013 calf crop.  USDA knocked 200,000 or 0.6 per cent off that number in this report.   

The bottom line is that the beef industry has responded to the resounding market signals of 2014 and better pasture conditions with robust growth.  The growth, however, will not bee seen in larger beef supplies for some time to come, partly because heifer retention is not likely over.

That process, of course, has been a big factor in tighter supplies thus far and, to the extent it continues, will continue to be so.  Meanwhile, most of those heifers’ calves will not arrive until spring and those calves will not reach market weights until late next year or early in 2017.   The last time the beef sector saw anything like this expansion was 1994.   

Where are future supplies headed?  Assuming the cows and retained heifers in this report calve at the same rate as the past two years, the 2015 calf crop will be about 34.575 million head, or nearly 2 per cent larger than in 2014.  That is a larger year on year growth number than we have seen kicked around but the inventory data in this report support it assuming calving rates hold.

Those calves would push 2016 and 2017 slaughter upward.

Weather remains critical to this situation, however.  The cow calf business is more directly dependent on weather than any other livestock sector not the least because it is largely located on land that is too dry to be used for other things. The question of rainfall is always important and is doubly so given the larger numbers shown in this report.  

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