The Heifers Are There: Will Producers Keep or Sell?

March 15, 2018 08:35 AM
 
Large red meat and poultry supplies suggests pressure on prices, which would likely influence herd numbers going forward.

Large red meat and poultry supplies suggests pressure on prices, which would likely influence herd numbers going forward. The Jan. 1 cattle inventory report already indicates ranchers have eased off the expansion throttle. NASS reported a 4% decrease in beef replacement heifers, and a 5% decrease in beef heifers expected to calve.

Replacement heifers were reported at 6.1 million head, down 237,000, and those expected to calve were counted at 3.8 million, down 208,000. While lower, those numbers remain strong and could lead to modest herd growth.

“Those numbers would certainly support a limited amount of growth if conditions are right,” says Derrell Peel, Oklahoma State University economist. “There are enough heifers out there to grow. We could see another half percent, plus or minus, growth this year.”

Inventory chart 2

Peel says the number of replacement heifers and those expected to calve are coming down from extraordinarily high levels. As a percentage of the herd, heifers are still at a higher level than the industry recorded in the 1990s. The average share of heifer replacements in the overall herd in 1993 to 1995 was 18.3%. This year’s NASS report shows those heifers at 19.3% of the herd.

“That’s enough to support a moderate level of growth,” he says.

Peel says the average number of beef replacement heifers for the 25 years prior to herd expansion that began in 2014 was 17.3%.

“We have to recognize just how unusual the current herd expansion has been,” he says. “Beef heifers as a percent of herd size shot up over 20% for the first time ever in the years 2015 to 2017, peaking at 21% in 2016. Thus, the current level of 19.3%, while down from recent years, is still above the levels seen in the previous full-herd expansion in 1990 to 1996, with an average of 18.3% in the years 1993 to 1995.”

While Peel believes beef herd expansion would be limited to less than 1% in 2018, a rate of 0.5% for the year is consistent with the numbers in the report.

“I expect that the market conditions that play out in 2018 will determine whether any additional herd expansion is forthcoming,” he says.

Nalivka agrees with the growth potential, adding, “I think there are more heifers out there that will calve than the report shows.”

The NASS report data are estimates, and Nalivka says modest cow-calf profits in 2016 and 2017, coupled with good forage conditions and low grain prices, leads him to believe the number of heifers that will calve in 2018 is higher than NASS suggests. “I project we’ll see continued expansion in 2018 of about 1%,” he adds.

 

Inventory chart 3

NASS’ annual cattle inventory is critical data economists use to gauge market conditions, and Nalivka uses the data to estimate the number of feeder cattle for the coming year. That estimated number, along with forage conditions, feeding margins and feedlot demand, and thus, fed cattle prices.

Using the Jan. 1 NASS report, Nalivka estimates 26.1 million feeder cattle in 2018, which is 2.3% lower than the 26.7 million estimated last year.

Inventory chart 4

“The feeder cattle supply was down 2.3%, but about the same as the 2016 feeder cattle supply,” he says. “That can change based on the number of heifers, but the current estimated supply would suggest that feedlot placements in 2018 will be down about 2% from last year’s large (+9%) number. My feedlot placement projection assumes about 88% of the feeder supply would be placed on feed, about the same as last year.”

The numbers, he says, suggest a sharply declining cattle on feed inventory as the year progresses.

“I think that paints a relatively optimistic outlook for feeder cattle and calf prices, barring a significant drought impact.”

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