Cattle markets to remain “solidly profitable” in the near-term
For the first time in nine years, the U.S. cattle herd is increasing. USDA’s National Agricultural Statistics Service (NASS) said the number of cattle and calves in the U.S. as of Jan. 1, 2015, totaled 89.8 million head. That’s an increase of 1.4% over last year’s 88.5 million head.
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Record cattle prices and abundant moisture through much of the Central Plains kick-started herd rebuilding the past year, and analysts say the inventory report shows expansion is happening at a more aggressive pace than anticipated. If maintained, that expansion could lead to rapid increases in the beef supply. But, they add, that scenario will take a couple of years to play out, with weather and other factors playing significant roles.
Still, cattle markets “will remain solidly profitable for the next several years,” Randy Blach, CEO of CattleFax, told attendees at the 2015 Cattle Industry Convention in San Antonio in February. As expansion gets underway, Blach says the industry can handle another 3 million cows and still be highly profitable.
“We still expect $200 to $220 per cwt for calves from 2016 to 2018,” he said, but cautions that in the future, “calf prices will be much more seasonal.”
Source: Sterling Marketing, Inc.
USDA’s annual inventory pegged all cows and heifers that have calved at 39.0 million head, up 2% from the past year’s 38.3 million head. The number of beef cows totaled 29.7 million head, also up 2%. The milk cow count totaled 9.3 million head, up 1% from 2014.
Analysts note that while the inventory showed an increase, the number of beef cows in the U.S. remains the third lowest since 1952. Yet it was encouraging to see that beef cow numbers provided the most significant expansion in USDA’s report, showing an additional 610,000 head. Four Southern Plains states—Texas, Oklahoma, Missouri and Kansas—accounted for 65% of that growth, with Texas showing an increase of 270,000 head.
Overall, 33 states showed either increased or equal beef cow numbers to the previous year. The remaining 17 states saw a decline of 158,000 cows.
Heifers for beef cow replacement posted a 4.1% gain year-over-year, with the addition of 271,000 head for a total of 5.78 million. The higher beef cow and heifer numbers account for about 65% of the increase in the total cattle inventory.
Purdue University agricultural economist Chris Hurt says the herd expansion is likely to continue through most of this decade.
“It is common for the beef herd to be in expansion for four to six years,” he said. Beef supplies this year might not be down by as much as the nearly 2% the USDA has been expecting, Hurt adds. That is because of larger
calf numbers and expected heavier marketing weights this year.
Despite the increase in total inventory resulting from a 1% larger calf crop in 2014, Sterling Marketing
president John Nalivka says those increases will not show up in fed cattle slaughter until the fourth quarter of this year.
“Cattle slaughter through the summer will be about as anticipated prior to the release of the inventory
report and down 3% to 5% from a year ago,” Nalivka says.
Following the release of the inventory report on Jan. 30, both cash and futures markets trended lower during much of February. Market analysts cited the unexpected increase in numbers as an influence, though the near-term supply and demand fundamentals were left unchanged.
“During 2015, beef production will be down 1% from a year earlier, with the fourth quarter expected to post a 2% year-over-year increase,” Nalivka says. “Based on this year’s forecast, there will be eight consecutive
quarters of year-over-year declines in beef production.”
Beef’s competition for consumer spending, however, will pick up considerably this year.
“While beef production will continue to fall below year-earlier levels, pork production will be up 5% from a year ago and broiler production will increase 4% over a year ago,” Nalivka says. “Consequently, per capita red meat and poultry supplies will be up 4 lb. this year compared to 2014.”
Increases in the U.S. cow herd also mean that beef production will likely increase next year.
“Beef production will increase 4% to 5% during 2016 as a result of the expansion that is currently underway,” Nalivka says. “That means 2015 will mark the end of a decade-long drop in per capita beef consumption.”