It has been 61 years since the U.S. cattle inventory was as small as it is now. And it has been 64 years since the calf crop was as small as it is now. At the first of the year the cattle inventory was 89.3 mil. down 2 percent from last year.
The calf crop in 2012 was 34.38 mil. down 3 percent from 2011. The 38.5 mil. cows and heifers that calved last year is the lowest number since 1941. The only anomaly in the trend was the fact replacement heifers were 102 percent of 2012. Are the days numbered cows and cowboys?
Don’t write off the resilient cattle industry; it is just re-inventing itself. There have been dry creek beds and rattlers along the way, but the iconic cowboy is just taking a snooze in the saddle until it is time to move on. And sometimes it is hard to see what is on the other side of the next rise until you get there.
Let’s start with the USDA’s January First US cattle inventory. As noted earlier it was 89.3 mil. down 2 percent from last year. The calf crop in 2012 was 34.38 mil. down 3 percent from 2011. The 38.5 mil. cows and heifers that calved last year is the lowest number since 1941. The only anomaly in the trend was the fact replacement heifers were 102 percent of 2012.
The decline in numbers, which came faster last year than in prior years, was attributed to the drought by Purdue livestock economist Chris Hurt. Hurt says, “The 2012 drought was the primary driver of the decrease last year as it destroyed pastures and forage supplies and catapulted corn, sorghum, and soybean meal prices. The impacts were largest for producers in the Southern Plains where beef cow numbers dropped by 9 percent last year and in the Central Plains were numbers were down 6 percent. These two regions had a decrease of 860,000 cows.” Apparently there were a number of livestock trucks that were northbound into wetter areas where forage was more abundant. Hurt says there was a 170,000 head increase in the Northern Plains, where better weather was to be found.
The declining number of head of cattle should not come as any surprise. The long term production chart from the Livestock Marketing Information Center points to a trend that will not be reversed overnight, or within the next year.
Hurt says there has been a more rapid drop in cattle numbers in the past 6 years. “The 2012 drought was just the latest event to result in the liquidation of cows that has been accelerating since 2007. Nationally, the beef cow herd has dropped by 3.6 million head (11 percent) with reductions in all regions except the Northern Plains. It has been difficult for the beef industry to compete for high priced feed and limited land that is being converted to corn and soybean production.”
Is a turnaround on the way? Hurt leaves that door open, and says there are two requirements for that to happen:
- The answer is more rain, more crop production, and more pasture and forage production. Larger crop and forage production would increase availability and lower prices of these critical feedstuffs. Given the small size of the calf crop, this would bolster calf prices.
- A second condition beef producers would like to see before expanding is some assurance that feed prices will have an overall moderation in coming years, not just a one year decrease.
As everyone knows, it has to start with the calf, and with the calf crop dropping 3 percent over the past year, it has a long ways to come, just to reach even. It may not be ready to turnaround for another year, and feeder cattle supplies may be tighter than previously believed, says Kansas State livestock economist Glynn Tonsor. He says, “The number of cow-calf operations is likely continuing a trend downward and those adding heifer replacements may represent a minority of operations. This is consistent with the finding of an August 2011 producer survey that perhaps only one-half of those who liquidated herds in 2011 would restock when conditions improve.”
Tonsor’s evaluation of the USDA data identified several other trends:
- The report suggests collectively cattlemen have been adding youth to their breeding stock as heifer replacements are up from last year while the beef cow herd has declined reflecting ongoing culling.
- Importantly, while heifer replacements are higher than estimates for 2011 and 2012, they remain lower than any other year since 1990 suggesting “real expansion” has yet to be initiated.
- It is also important to recognize that this aggregate “youth movement” is not occurring uniformly across producers.
Just like the requirement of having a tree to chop firewood, you have to have feed if you are going to feed cattle, and Tonsor says the limitations of feed from the 2012 drought will control where there is any expansion in feeding; “as we learn more throughout 2013 about water and feedstuffs availability the match of these resources to “where the cows are” will be important to ascertain.”
But where is there positive news? Tonsor says the recent decision by Japan to relax its BSE restrictions and accept the meat from 30 month old cattle will help, as will the increased demand for beef from US consumers. He adds, “The industry anxiously awaits these positive signals to be realized and reflected in higher boxed beef prices. The net of these multiple forces will go a long ways in 2013 and beyond in either refuting or confirming speculation about feedlot or packing plant closures given the growing excess capacity of these industry segments. In short, one of the few certainties currently is that more changes and adjustments are in the industry’s future.”
Hurt says cattle numbers may not increase, but the price will reflect smaller supplies, “There is a general feeling that cattle prices could be very strong in coming years due to small per capita beef supplies. If weather moderates, several profitable years are anticipated for cow-calf producers.”
Hurt also says, “Finished cattle prices should strengthen into the spring as beef supplies drop. These smaller beef supplies are related to both a small cow herd which means a small number of calves available and to the pace of feedlot placements that dropped sharply beginning last July due to higher feed prices resulting from the drought. Placements from July through November last year were down 12 percent. This will create a period of reduced marketings from feedlots in the late winter through mid-summer. In addition, the U.S. economy may be somewhat stronger than some are anticipating which will be supportive to finished cattle prices as well.”
Beef cattle numbers continue to decline, and the 2012 drought kept them on the express lanes due to lack of feed and forage. The decline had been accelerating since 2007 due to pasture being plowed to plant corn and soybeans. With smaller supplies of brood cows and a lesser calf crop, finished cattle prices should strengthen into the spring as supplies drop. With feedlot placements also down, there will be continued price strength into the summer.
Source: FarmGate blog