February 17, 2014
US beef cattle industry gears toward expansion
Recent record high cattle prices and much lower feed prices are just starting to provide the profit incentives that will be necessary to move the beef cattle industry toward expansion after a continual decline in numbers since 2007, according to Purdue University Extension Economist, Chris Hurt.
While those incentives have turned positive, they have not been in place long enough for the industry to begin registering signs of expansion according to USDA inventory numbers. The rebuilding of the beef herd is expected to take multiple years.
The cattle herd in the US has been in a long-term decline with total numbers at the start of this year reaching their lowest level since 1951. The number of beef cows stood at the lowest level since 1962, according to USDA. The most recent phase of the decline began in 2007 as a result of two basic drivers. First, sharply higher feed costs forced cattle feeding into large losses which depressed calf prices and secondly, drought conditions in major beef cow production areas also caused herd reductions.
In 2013, beef cow numbers fell by 253,000, or 1%, with most regions of the country reporting fewer cows. The biggest decline in numbers was in the South-eastern US with a reduction of 118,000 cows followed by the Pacific Northwest 88,000; the Northern Plains 62,000; and the Southern Plains 57,000 head. The continual decline in beef cow numbers since 2007 now means the 2014 calf crop will be very small, about 33.7 million head, a 10% reduction since 2007.
The two factors driving the strong profit incentives are the small number of fed cattleand calves which keep beef supplies extremely low and much lower feed costs starting last fall with normal US yields of corn, soy, and forages. These factors have resulted in record high prices for fed cattle and calves this winter.
While the profit incentive has shifted back to strong profits, there has been too little time for the industry to show much response yet. The recent USDA Cattle inventory update suggests the industry has barely begun the expansion process, if at all. Beef heifers being retained for beef cow replacements were up nearly 2%, but this may be too small to increase beef cow numbers during 2014. The total number of heifers being retained for breeding was only 90,000, which represents less than 1% of beef cow numbers and is the smallest number of retained heifers in the past three years.
Any increase in beef cow numbers is expected to remain modest in 2014 for at least three reasons: 1) The costs to retain heifers is very high; 2) Cow/calf producers had a long period of narrow margins and they want a longer period of strong margins to build their confidence to take on the market uncertainties, and 3) Drought/dryness still covers substantial areas of brood cow production areas.
The price outlook is extremely favourable for 2014-16 for the beef industry. Beef supplies this year are expected to be down 5%. Domestic demand is expected to remain positive with some continued income growth in the US, but USDA does anticipate beef exports will be down 8% with the very high US beef prices. There also will be greater competition from 2% more pork and turkey and 3% more chicken. However, the low beef supplies will dominate these drivers and likely push cattle prices to another record high year.
The California drought has caught much attention. The state''s beef cow inventory is only 2% of the nation''s beef cows and 4% of the cattle on-feed. However, California is the largest dairy state with 19% of the nation''s milk cow inventory. Continued drought in California and surrounding states could become an important story to the cattle and beef industry in 2014.