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CME: Little Impetus for Growth in US Cattle Industry

04 February 2020

US - According to the latest USDA semi-annual 'Cattle Inventory' report, the total inventory of cattle and calves as of 1 January 2020 was estimated to be 94.413 million head, 0.4 percent lower than the previous year, reports Steiner Consulting Group, DLR Division, Inc.

Prior to report estimates, analysts were expecting the inventory to be down 0.5 percent. But even as the decline in the inventory was a bit smaller than previously expected, the report may be seen as supportive for cattle prices in late 2020 and in 2021. This is because both the calf crop and the size of the beef cow herd came in below pre-report estimates.

The total inventory of beef and dairy cows was 40.651 million head, 393k head or 1 percent lower than the year before, about 0.2 points higher than pre-report estimates. The inventory of beef cows at 31.317 million head was 1.2 percent lower, the first decline in the January beef cow herd since 2014.

Prior to the report analysts were also expecting the inventory of dairy cows to be down 1.2 percent, a number that was sure to be wrong since USDA estimates the dairy herd on a monthly basis. The dairy herd as of 1 January was only 0.2 percent lower than the previous year.

The decline in the beef and dairy cow herd in 2019 resulted in a smaller than expected calf crop. In July USDA estimated the calf crop for all of 2019 to be down 0.3 percent from the previous year. About two thirds of the calf crop is produced in the first half of the year so usually this estimate is fairly close to the January number.

However, USDA data showed that while the calf crop in the first half was down 0.4 percent, the calf crop in the second half of the year was down 1.6 percent. The calf crop for the entire 2019 was estimated at 36.060 million head, 253k head or 0.7 percent lower than a year ago. Pre-report estimates were looking for a 0.4 percent decline.

The smaller than expected beef cow herd and the smaller calf crop are the two main reasons why we see this report as supportive for cattle prices in the fall of 2020 and in 2021. There is little impetus for growth in the US cattle industry at this time.

The produce survey indicated that cow-calf operators retained 5.772 million head of cattle for beef cow herd replacement in 2019, 1.9 percent less than a year ago. This was the lowest beef cow replacement number since 2014. Dairy cow replacement was down 1.4 percent.

The survey also showed that the supply of other heifers, i.e. heifers destined for the feedlot, was only 0.8 percent higher than last year. Pre-report estimates were looking for a 2.3 percent increase. Feedlots have been placing heifers more aggressively on feed this year, which limited the supply of heifers available for placement on 1 January.

Also, beef producers retained a few more heifers for replacement than analysts were expecting. The supply of steers over 500 pounds was estimated to be down 0.5 percent compared to a 0.3 percent increase that analysts were expecting.

On the other hand, the supply of calves under 500 pounds was 199k head or 1.4 percent higher than last year. This was probably one of the more puzzling numbers in the report although not entirely unprecedented.

We have seen cases in the past where the calf crop has been down and yet the number of under 500lb calves on 1 January was higher y/y. This is the biggest discrepancy that we could find in the last 20 years, however.

Even with the increase in this category, the total supply of cattle outside feedlots is calculated at 26.448 million head, 106k head or 0.4 percent lower than a year ago. The supply of cattle on feed as of 1 January was 14.668 million head, 2.1 percent higher than a year ago. This compares to the inventory in +1000 head capacity lots that were up 2.3 percent y/y.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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