A 2.5% to 3% expansion in the U.S. cowherd likely
Rumors of beef herd expansion are no longer just rumors; they’re fact. While we might not know how many heifers entered cowherds in 2015 until the January inventory report, market experts are closely watching feedlot placements and slaughter percentages to gauge how much the U.S. beef herd is increasing.
The two biggest influencers to heifer retention are beef cow slaughter and heifer slaughter,says John Nalivka of Sterling Marketing, Vale, Ore. As of the end of October, cow slaughter was down 15% from a year ago, and heifer slaughter was down 13%.
“I didn’t expect heifer retention to be that rapid,” he says. “Obviously the price levels this year—and prices in 2013 and 2014—were exceptionally strong. With strong prices in all classes of cattle, producers could afford to hold back more heifers and still have great profits.”
The Cattle on Feed report released Oct. 23 shows fewer heifers in feedyards, totaling 3.29 million head, down 7% from the same time in 2014.
With these indicators, producers should be ready for an increase of heifers staying home in the January report.
“We’ve incentivized the factory, and producers are responding,” says Lance Zimmerman, market analyst for Cattle-Fax. “We’re setting up for a billion-pound increase in beef production by 2017.”
Cattle-Fax forecasts heifers’ percent of slaughter will remain less than 35% through 2016, signaling expansion is setting in long-term. As a result, Cattle-Fax is predicting a 220-million-pound drop in commercial beef production for fiscal year 2015 as the supply chain narrows. As heifers become productive in 2016, commercial beef production is expected to rise 870 million pounds, to a total 24.5 billion pounds.
A 2.5% to 3% increase in the nation’s cowherd on Jan. 1 is likely, Nalivka says. “Heifer retention has been fairly strong for the past four years. We’ve got a young and efficient herd, and that puts the industry in a very good position. As we go into 2016, I’ve got feeder cattle prices down 15% to 20%, but that still leaves a fairly good return for cow-calf producers.”
There is optimism in heifer retention, but also increased risk. Even with a moderation in prices, profitability for cow-calf producers should remain high for 2016.
“With the increase in supply, profitability will be pressured from 2016 to the end of the decade,” Zimmerman says. “2015 has been a transition year, and we are likely to see prices transition lower into the end of this decade.”
He suggests producers remain cautious during the expansion phase and protect equity. One strategy is to increase herd size by small percentages each year. The greatest opportunity, however, is in selecting new genetics for the future.
What if drought returns? There is still opportunity to sell feeder heifers next spring or bred heifers next August, Nalivka says.
“With a relatively young cow herd, an increased number of heifers could be sold next year and in 2017 to increase cash flow and still not be detrimental to the herd,” he adds.
U.S. beef production will fall to an all-time low for 2015, as heifers are retained. More than 1-billion-pound increases are forecast for 2017 and 2018.