February 6, 2003

Market Advisor: Drought Reduces Cattle Inventory

By Tim Petry, Livestock Economist
NDSU Extension Service

The USDA annual cattle inventory report, released Friday, Jan. 31, showed a continued decline in the U.S. cattle herd. The report indicated a total of 96.1 million head of cattle and calves in the U.S., 0.6 percent less than the 96.7 million head in 2002. The lower numbers were not a surprise to most cattle market observers, because of the severe drought conditions in many of the Western cattle-producing states including North and South Dakota, Montana, and Wyoming.

This marks the seventh consecutive year that cattle numbers have declined, which is an abnormally long liquidation phase for a cattle inventory cycle. Most liquidation phases are three to four years long and occur because of relatively high numbers and poor economic returns in the industry. The additional three to four years of declining numbers for this cycle is due to the poor weather conditions.

The beef cow herd at 32.95 million head was down only 0.5 percent from 2002 because of improving moisture conditions in some South Central and South Eastern states. Beef cow numbers increased by 109,000 head in Oklahoma, 56,000 in Missouri, 49,000 in Texas, 46,000 in Tennessee, 45,000 in Kentucky and 31,000 in Georgia. The severely drought-plagued states saw decreases in beef cow numbers of 35,000 head in North Dakota, 106,000 in South Dakota, 49,000 in Montana and 109,000 in Wyoming. The total decline in beef cows for the US amounted to 171 thousand head.

Beef heifers over 500 pounds kept for replacement increased 46.6 thousand head. Again, increases were noted in the Southern United States with declines occurring in drought areas. The beef cow herd is down about 2.4 million head from peak numbers tallied in 1996. Therefore, there will be even more interest in retaining heifers when normal moisture conditions return to Western cattle-producing states.

U.S. dairy cow numbers increased 40,000 head to 9.15 million head, and heifers calves retained for replacement increased 43,000 head. Numbers increased in several far Western states including California, New Mexico, Idaho, Oregon, and Arizona and declined in 29 states including North and South Dakota, and Montana and Wyoming.

The number of cattle on feed for slaughter in all feedlots totaled 12.9 million head, down seven percent from last year. Slaughter weights, although high by historic standards, should be comparable to last year. US beef production is expected to decline by about three percent, which will be supportive to fed cattle prices.

Lower feeder cattle supplies from a declining cow herd will support feeder cattle prices. However, spring and summer prices will be affected by moisture conditions. Prices for light-weight feeder cattle usually are seasonally high in the spring due to the demand for cattle for summer pasture grazing. Much of the Western cattle-grazing area remains very dry with poor pasture conditions, which could limit demand. Portions of the Corn Belt are also quite dry. If dry weather should continue and corn prices increase, feeder cattle prices would be adversely affected.

The highest prices for cattle usually occur during the early accumulation phase of the cattle inventory cycle, when heifer calves are retained for breeding purposes and fewer cows are sold. Significant improvement in moisture conditions will have to occur in the cattle producing states for that to happen.

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Source: Tim Petry, (701) 231-7469, tpetry@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu