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In the Cattle Markets

17 February 2012
LMIC

US - As expected, the Cattle Inventory report released by USDA on January 27th continues to receive notable attention, writes Glynn Tonsor, Kansas State University.

As implications from that report regarding herd expansion are debated, some context is warranted. The report estimated a 1.4% year-over-year increase in the number of heifers held back as replacements. This is the first year-over-year increase estimated since 2006 and has signaled to many that the national beef cow herd may have initiated its expansion.

However, a deeper analysis importantly reveals that this increase is largely being driven by historically low retention signaled by the January 2011 report. Narrowly, this year's estimate of 5.21 million heifers being retained is actually the lowest observed (besides 2011) since 1986 when 5.17 million heifers were held back as replacements.

Keeping proper context is important as analysts can easily make too much out of year-over-year changes. Given the broader interest in the situation of beef herd expansion, deeper recognition of the changing nature of cattle cycles is similarly warranted.1 In particular, observation of cycles "flattening" over time is critically important.

Stakeholders throughout the industry are encouraged to recognize the broader, longer term changes underway in the U.S. beef industry that are leading to reduced fluctuation in beef cow numbers, along with the more contemporary discussion of improved expected cow-calf profitability, to keep the dynamic discussion of herd expansion in proper context.

In short, while the national beef cow herd may well be initiating an expansion phase, it would be ill-advised to expect inventories to rebound back to the notably larger inventory levels held in the memories of many producers.

The Markets

Fed cattle prices for last week were slightly lower trading at nearly $123/cwt on a live weight basis and just under $198/cwt on a dressed basis. Oklahoma yearlings traded higher at nearly $155/cwt while Oklahoma calves continued to receive support and were up over $4 for the week. Corn and DDGS prices were more or less flat for the week.



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