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CME: Analysts Expect Beef Cow Herd to be Only Slightly Higher Than a Year Ago

28 February 2019

US - The results of the semi-annual 'Cattle' inventory survey has been released and we hope to provide an update in our 1 March report, writes Steiner Consulting Group, DLR Division, Inc.

Spending two days, first on the estimates ahead of the report and then on the report results, may seem a bit much if you are not involved in the cattle market but we think it is appropriate. This is not exactly a market moving report but it could had some immediate impact on summer/fall fed cattle market as well as feeder cattle.

More broadly, however, the report offers a very important benchmark for estimating cattle supplies and beef output in the next couple of years. Below are some of the key items to watch for:

How big was the calf crop in 2018 and what does that imply for cattle supplies in late 2019 and 2020?: In July USDA estimated the calf crop for 2018 at 36.5 million head, 692,000 head or 1.9 percent higher than the previous year.

The calf crop is a key driver for beef supply growth in the next two years. It is not the only one since producers can also bolster beef production by feeding cattle to heavier weights but you can't produce more beef if you don’t have the animals on the ground in the first place.

Analysts on average think the calf crop will be revised down and expect the total crop to be 36.381 million head or 1.6 percent higher than the previous year. This number will be scrutinised closely and could have a significant impact on feeder cattle market.

Is the US beef industry done expanding?: Two items in the report will offer some insights on this question. First, the size of the beef cow herd at the start of the year is critical for calf production in 2019 and beef supplies down the road.

Analysts on average expect the beef cow herd to be only slightly higher than the year before. This implies that we could see a y/y increase in the calf crop in 2019, albeit only a marginal one. Analysts also think that producers at this point are done expanding.

The number of heifers retained for beef cow herd rebuilding is expected to be 4.3 percent lower than the previous year while heifers retained for milk cow replacement are expected to be 2.3 percent lower than the previous year.

A decline in heifer replacement numbers does not immediately change the trajectory of the beef cow herd growth but eventually it does. Cow slaughter will be critical this spring and summer. Sending more beef cows to market while putting fewer heifers back in the herd could lead to a smaller beef cow inventory as early as July of 2019 but more likely by January of 2020.

Market participants will pay close attention to the heifer retention numbers. In the short term, holding back fewer heifers will tend to bolster the supply of calves that flow into feedlots and sustain beef production.

Does the feedlot inventory match with the monthly survey?: Each month USDA does a survey of feedlots with a capacity of more than 1000 head. This is a good benchmark that participants follow closely but it is good that twice a year USDA offers information on the supply of cattle in smaller feedlots.

Understanding the situation of farmer feeders and any significant deviation from the broader trends is an important piece of information that we get from this survey.

Using the average of analyst estimates we calculate the supply of feeder cattle outside feedlots at 28.531 mil. head, 174k head or 0.6 percent higher than a year ago.

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