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July 28, 2005 Market Advisor: Cyclical Beef Cattle Herd Expansion Confirmed
The USDA’s National Agricultural Statistics Service released two important cattle supply-related reports on July 22. The July 1 cattle inventory report and the July 1 cattle-on-feed report help give some indication of cattle and beef supplies for the next six months. The July 1 cattle report confirmed the expected increase in the U.S. cattle inventory. All cattle and calves totaled 104.5 million head, which is 900,000 head, and slightly less than 1 percent more than in 2004. This is the first time the July report has shown an increase in cattle numbers since 1995, which was the previous cyclical peak. The July report is an abbreviated report, compared with the more in-depth, state-by-state analysis that is included in the Jan.1 USDA cattle report. The number of beef cows, at 33.75 million head, was up 250,000 or less than 1 percent from last year. That number supports the expectation that herd expansion, although modest, is under way. Beef cow numbers peaked cyclically in 1995 at 36.1 million head, so numbers are still more than 2 million head less than they were 10 years ago. The higher numbers were not a surprise to cattle market observers because of the much improved moisture conditions in many cattle-producing states. Much of the northern Plains, which has suffered with severe drought for several years, has returned to near normal precipitation levels. Another indication that beef herd expansion is under way was noted in the heifers kept for beef cow replacement category. Beef replacement heifers increased 200,000 head from last year, the second straight year with a 200,000 increase. The 5 million head of beef heifers was the largest number to be retained since a similar number was reported in 1998. The USDA cattle-on-feed report indicated that the number of cattle being fed to slaughter weight in feedlots with more than 1,000 head capacity was 3 percent above last year. All of the year-to-year increase was due to steers. As of July 1, steers on feed were up 7 percent, compared with heifers reported at 4.5 percent below last year. Cattle herd expansion will have both long- and short-term price implications on feeder calf prices. In the long run, as offspring from increasing cow numbers and heifer retention are marketed, beef production will increase and prices will decline cyclically. If good to normal precipitation patterns continue, cattle numbers will likely increase through the end of the decade. The timing of the cyclical price highs and lows will be different from the past. Observers of the cattle cycle will recall that prices have been low and numbers high in the mid decades of the past, especially in years ending in 5 (’65, ’75, ’85, ’95). The extra long liquidation during the previous nine years, instead of the typical four-year liquidation, caused relatively high prices and low beef production in 2005. If the next cycle is the typical 10-year length, low prices likely are to occur in 2009 through 2010, with cyclical high prices again in 2015. In the shorter term, historically low feeder cattle supplies will be supportive to feeder-calf prices in the next six months. The 2005 calf crop is projected to be 37.8 million head, up slightly from 37.6 million in 2004, but down slightly from 37.9 million in 2003. This year’s calf crop will be almost 2.5 million head less than 10 years ago. Continuing heifer retention also will reduce supplies available to the feedlot sector. The demand for feeder calves and heavier-weight feeder cattle this fall will depend on the size of the corn crop and the resulting prices and the price of fed cattle. Parts of the Corn Belt are experiencing dry conditions, so corn-futures prices have been volatile. Fed-cattle prices likely will average several dollars per hundredweight less than last year in the fourth quarter. If a good corn crop materializes and fed-cattle prices average more than $80 this fall, calf prices should average near last year’s levels. Reduced corn production or lower fed-cattle prices would pressure calf prices lower. ### Source: Tim
Petry, (701) 231-7469, tpetry@ndsuext.nodak.edu |
Market Advisor: |
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North Dakota State University |
