Record high feeder cattle prices leave no doubt that U.S. feeder cattle supplies are extremely tight. On January 1, estimated feeder supplies were down 2.7 percent over the previous year amid indications of heifer retention. There are indications that heifer retention has accelerated in 2014.
USDA will release the July Cattle report in about a month which will provide a mid-year estimate of feeder supplies, though no year over year comparisons will be possible since the report was cancelled last year. U.S. feeder supplies will likely be down again with a 2014 U.S. calf crop fractionally smaller than last year and increased heifer retention further squeezing feeder supplies. However, the market attempts to compensate for declining supplies with high prices prompting adjustments wherever possible.
U.S. veal slaughter continues to decrease, accelerating a long term trend in recent years. Veal slaughter so far in 2014 is down 15 percent year over year, a pace that would result in annual slaughter that is down 21 percent from the previous ten year average. High U.S. feeder prices also stimulate increased imports of feeder cattle from Canada and Mexico.
Cattle imports from Canada through April were up nearly 12 percent year over year. The imports reflect a changing mix of slaughter and feeder cattle with slaughter cattle down 3 percent and feeder cattle imports up 36 percent. This follows a 28 percent annual increase in Canadian cattle imports in 2013, consisting of 5 percent more slaughter cattle and a 113 percent increase in feeder cattle imports.
Changes in the mix of slaughter and feeder cattle imports from Canada partly reflect the impacts of the latest country of origin label (COOL) rules implemented in May, 2013 and partly the strong U.S. demand for feeder cattle. Despite the flexibility to shift between feeder cattle and slaughter cattle, there is a limit to total cattle imports from Canada. The Canadian beef cow herd is the smallest in 20 years and expected herd rebuilding there will limit feeder supplies in coming years.
Reliable cattle inventory data is much harder to find in Mexico but there are strong indications that total cattle numbers have decreased significantly in the past few years including a sharp drop in the cow herd inventory.
Drought forced liquidation in 2011 and 2012 resulted in unsustainably large Mexican cattle exports to the U.S. Not surprisingly, U.S imports of Mexican cattle dropped by a third in 2013 compared to 2012. The extremely strong pull of record U.S. feeder prices in 2014 has kept year to date imports close to year ago levels.