Market Advisor: U.S. Cattle Herd Continues Cyclical Decline

The USDA annual cattle inventory report, released Friday, Jan. 30, showed a continued decline in the U.S. cattle herd. The report indicated a total of 94.9 million head of cattle and calves in the United States on Jan. 1, down 1 percent from the 96.1 million head in 2003.

The lower numbers were not a surprise to most cattle market observers because of the drought conditions in many Western cattle-producing states including North Dakota, South Dakota and Montana. Close to 50 percent of the U.S. beef cow herd is in the area currently suffering moderate to severe drought conditions.

This marks the eighth consecutive year that cattle numbers have declined, which is a record liquidation phase for a cattle inventory cycle. Most liquidation phases are four years long and occur because of relatively high cattle numbers and poor economic returns in the industry. The additional four years of declining numbers for this cycle was due to the poor weather conditions.
Cattle prices and economic returns were high enough in 2003 and the previous three years to stimulate herd rebuilding, but the adverse weather would not permit it.

The beef cow herd at 32.86 million head was down 123,000 from the 32.983 million in 2003. Beef cow numbers generally declined or were unchanged west of a diagonal line from Lake Superior through Texas, and increased or were unchanged east of the line where moisture conditions were normal. For example, beef cow numbers declined 36,000 head in North Dakota and increased 33,000 head in Arkansas. The Pacific Northwest experienced better moisture conditions in 2003 with beef cow numbers increasing 22,000 head in Washington and 10,000 head in Oregon compared to declines of 5,000 and 12,000 the previous year.

Beef heifers over 500 pounds kept for replacement declined 2 percent from 5.62 million in 2003 to 5.52 million in 2004, indicating that cyclical herd rebuilding continues to be hampered by adverse weather conditions. Evidently, there is some optimism for improving conditions in the drought-plagued Northern Plains because beef heifer replacements actually increased 40,000 head in Montana, 30,000 in Wyoming, and 1,000 in North Dakota. The beef cow herd is down 2.46 million head from the last cyclical 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 declined 151,000 head to 8.99 million head, and dairy heifers kept for replacement declined 2 percent to 4 million head. Dairy cow numbers increased in only four Western states including California, Idaho, Nevada, and New Mexico. Numbers declined 11 percent in North Dakota, 6 percent in South Dakota, and 3 percent in Minnesota.

The number of cattle on feed for slaughter in all feedlots totaled 13.8 million head, up 4 percent from last year. This higher number, in spite of a smaller calf crop, is both weather and price related. More calves went directly into feedlots in the fall of 2003, rather than being backgrounded in the Northern Plains and placed on winter wheat pastures in the Southern Plains. Feed supplies were short in parts of the Northern Plains and winter wheat conditions were dry in parts of the Southern Plains. For example, steers weighing more than 500 pounds in backgrounding lots in North Dakota declined 40,000 head from the previous year, and Oklahoma had 150,000 less steers on winter wheat pasture. Feeder cattle producers also sold more calves in the fall due to the favorable prices, rather than retaining ownership until after Jan. 1.

Cattle-on-feed numbers were 11 percent higher in Kansas and 7 percent higher in Nebraska, reflecting that many light-weight calves went into these feedlots.

Lower feeder cattle supplies in 2004 from a declining cow herd will support feeder cattle prices. However, spring and fall prices will be affected by moisture conditions. Prices for lightweight feeder cattle are usually seasonally high in the spring because of demand for cattle for summer pasture grazing. Much of the Western cattle grazing area is still dry at this time, which could limit demand unless ample precipitation occurs between now and spring.

Portions of the Western Corn Belt are also dryer than normal. If dry weather should continue and corn prices increase this summer, fall feeder cattle prices would be adversely affected.

The highest prices for feeder 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.

U.S. moisture conditions can be monitored on a weekly basis by observing the U.S. drought monitor map web site (www.drought.unl.edu/dm/monitor.html) which is updated every Thursday morning.