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Beef Herd Expansion Continues Despite Lower Prices

Feb 16, 2017

By Dr. Kenny Burdine,
Livestock Marketing Specialist


USDA’s annual estimate of the number of cattle in the US held some surprises this year.  While this report is typically not a short-term market mover, it has considerable implications in the long-term as we consider the size of the US cowherd.  It was not surprising that the US beef herd grew over the course of 2016, but it did grow at a rate that exceeded most expectations.  According to the report, US beef cow numbers grew by 3.5% from January 1, 2016 to January 1, 2017.  This represents a little over one-million cows, after a slight downward revision to the January 2016 estimate.  The immediate implication is for even more calves moving through markets this year than expected.

As I have talked with producers across the state, many seem extremely surprised by this change in national numbers.  I think much of that surprise stems from the fact that we didn’t see the same pattern in KY.  The USDA estimate for our state was very consistent with our expectations as Kentucky cow numbers were relatively flat.  However, we also have to remember that while Kentucky is home to more than one-million beef cows, this only represents about 3.3% of the US beef cowherd.  Considerable growth in beef cow numbers was seen in Texas, Oklahoma, Missouri, Nebraska, and Kansas and this really worked to drive the national inventory.

Heifer retention provides us an indication of future herd growth expectations and does suggest more moderate expansion for the current year.  The number of beef heifers held for replacements was up by a little more than 1%.  Ultimately, weather and profitability at the cow-calf level will determine where beef cow numbers go in the future.  While both are difficult to predict, it is worth thinking about factors that will impact calf prices for 2017.

Let’s start by getting on the same page about 2016.  The calf market reached a bottom in late October / early November with Medium / Large frame #1-2 steers selling around $120 per cwt on a state average basis.  Obviously, larger high quality groups did much better than this and smaller groups and singles did much worse, but that should help set the baseline.  Those same steer calves, in early February of 2017, were selling in the low $130’s on a state average basis and are very likely to continue to see price increases as we move towards grass this spring.  The seasonal increase in calf prices that typically occurs from fall to spring is driven by stocker demand, not a change in the fundamentals of the beef market.

As we think about expectations for fall 2017, we have to think about what fundamental market factors will be different this year.  We are very likely to see increases in beef, pork, and poultry production for 2017, all of which will put pressure on fed cattle prices in the foreseeable future.  This expectation can be seen by looking at CME© Live Cattle futures, which are currently trading into April 2018 and suggest declining fed cattle prices over this time period.  As we sell feeder cattle in the future, they will be sold with an expectation of lower values at their eventual harvest, which will make them less valuable for placement into finishing programs.

While I know the general tone of this article has not been encouraging, I have always preferred a direct and straightforward approach.  Barring something unexpected, I don’t think we have seen the bottom of the calf market yet.  Cost control and efficiency are usually keys in these types of markets.  Here are a few ideas that might be worth consideration.

First, truly work to understand your cost per cow.  Leave it to an economist to start with this one, but it is impossible to manage what you don’t measure.  Through tracking of expenses, producers can get a feel for what it costs them to maintain a cow for a year.  Then it is easy to consider what calf prices need to be to cover those costs and leave you with an acceptable return.
Second, don’t be afraid to cull hard.  With calf markets as high as they were in 2014 and 2015, it was possible to justify keeping some poorer producing cows around.  In the current market, cows really need to earn their keep.  Additionally, reducing your stocking rate has the added benefit of allowing you to stretch your grazing season and reduce your dependence on winter feed.

Third, consider post-weaning programs.  There appears to be some premium right now for weaned and well managed calves which, when combined with weight gain, might make pre-conditioning programs attractive.  Again, this is one where you want to push the pencil, but it is common for these programs to become more attractive when there are more calves on the market.

About two years ago, I was talking about how decisions that we make during good times have implications for how we get through the challenging times.  I really wish that I could have talked about that a lot longer, but here we are already, talking about challenges.  The decisions that we make today, will have implications for us several years from now.  As you manage your way through 2017, be sure to think about where you want to be in 3-5 years

The USDA report is summarized in the table below and the full report can be accessed at: http://usda.mannlib.cornell.edu/usda/current/Catt/Catt-01-31-2017.pdf

 2016

(1,000 hd)

2017

(1,000 hd)

2017 as % of 2016
Total Cattle and Calves91,918.093,584.6102
    
Cows and Heifers That Have Calved39,476.240,559.2103
     Beef Cows30,165.831,210.2103
     Milk Cows9,310.49,349.0100
    
Heifers 500 Pounds and Over19,907.320,052.0101
     For Beef Cow Replacement6,340.26,419.2101
     For Milk Cow Replacement4,814.04,754.099
     Other Heifers8,753.18,878.8101
    
Steers 500 Pounds and Over16,315.416,353.5100
Bulls 500 Pounds and Over2,142.42,233.6104
Calves Under 500 Pounds14,076.714,386.3102

Source: osu.edu