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CME: Growth Expected for Beef Cattle Herd, Dairy to Remain Stable

29 January 2016

US - The January 1st Cattle Inventory report will be released on Friday, at 3 pm EST, by USDA-NASS. Pre-report estimates have come in (see table below) and industry analysts expect the beef cattle herd to continue its growth, write Steve Meyer and Len Steiner.

All cattle and calves as of January 1st are expected to be, on average, 101.8 per cent higher than 2015’s inventory to total 91.4 million head. The dairy industry is expected to remain stable due to lower milk and dairy product prices, so the inventory growth will come from the beef cattle sector.

Beef cow and heifers that have calved are expected to be up 2.3 per cent compared to year ago, or up around 680,000 head. Beef replacement heifers are expected to be 4.3 per cent higher than 2015’s or an additional 250,000 head, but there is a notably wide range in the pre-report estimates. One of the main questions that this inventory report will help answer is; how much did the price drop in the cattle market the last part of 2015 curtail producers’ willingness to retain heifers and grow their beef cattle herds?

While we do not have the specific answer to that yet, reviewing 2015’s cattle slaughter totals can give us some insight to how these trends played out.

According to USDA-AMS and NASS, 2015’s annual Federally Inspected (FI) cow slaughter was 4 per cent below 2014’s. Dairy cow slaughter was actually up 3.4 per cent year-over-year, but the reduction in beef cow slaughter outweighed the increases on the dairy side. FI beef cow slaughter in 2015 totaled 2.2 million head, down 13 per cent from 2014’s.

Combining the fairly significant decrease in beef cow slaughter in 2015, with increased cow inventories in 2015 compared to 2014, it is obvious cattle producers have continued the trend of increasing the beef cattle numbers.

Additionally, if we look at beef cow slaughter as a percent of beef cow inventory, on an annual basis, 2015 came in at 7.5 per cent. This is the lowest ratio since the beef cow inventory series was first recorded in 1986, and the next lowest ratio was 8.1 per cent in 1991.

To note, although we have seen decreases in culling rates, the Livestock Marketing Information Center does expect cow cull rates to trend back to normal levels, and as a result more normal seasonality should be built back into the cull cow market.

Moving on to heifers, annual FI slaughter in 2015 came in 12 per cent lower than 2014’s coming in at 7.3 million head. Again, another fairly impressive difference that indicates producers continued to retain more heifers for beef cow replacement.

In 2015, beef heifers inventory increased 4.1 per cent compared to 2014 (up 230,000 head).

Looking at the ratio of beef heifers kept for replacement compared to beef heifer slaughter, 2015’s 79 per cent was the largest since 1974’s heifer holdback that was 1.03 per cent of heifer slaughter that year.

Again, another key indicator that the beef herd continued relatively substantial growth in 2015.

Circling back to our question posed earlier, regarding the change in producers’ attitudes about retaining heifers; based on slaughter numbers not enough change occurred in heifers sold or cows culled during the end of 2015 to impact these January 1st inventory numbers.

We have seen a sharp decrease in prices for replacement heifers and cull cows in recent months. Looking ahead though, the number of heifers in feedlots and slaughter cow data will be key figures to watch to gauge the reaction of the cow/calf segment to the cyclically eroding cattle and beef prices.

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