Exactly how persistent these patterns are when current water and forage situations improve will be instructive to monitor. Currently however there are several indications that the beef cow herd may be moving north and west compared to how it has traditionally been dispersed within the country. It will be interesting to see what another report scheduled to be released on Feb. 21st suggests the size of the Canadian herd is given changes underway in the U.S. Broadly speaking, the geographic adjustments at play are consistent with many of the farm and operator characteristics depicting representative situations across regions.
National trends reinforced by Friday’s report also warrant highlighting. 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. Besides the geographic differences noted above, 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. It would be interesting to see responses to a similar survey if conducted today. More broadly, the likely enthusiasm of some but not all producers to explore expansion lines up with the mixed bag of industry sentiment picked up by two more recent producer surveys.
Overall, this report provides additional evidence of the tight supplies throughout the U.S. industry and highlights structural changes underway and forthcoming. The characteristics not only of where cows reside in the U.S. but the managerial traits and situations of host operations are important to appreciate. If you are a stocker, feedlot, or packing firm seeking to source from an ever decreasing supply of feeder cattle, recognition of these adjustments is imperative. Moreover, 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. Finally, this most recent reaffirmation of tight supplies, underscores the heightened role realized demand strength will have in observed prices over the next couple years. One can argue there is more uncertainty on demand factors than supply factors making it increasingly critical to monitor. Fortunately, there recently have been positive signals both globally (e.g. Japan relaxing some restrictions) as well as domestically (e.g. annual all fresh beef demand index increased in 2012). 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.