CME: Differing Time Horizons Impact U.S. Beef Industry

USDA released two important reports dealing with the beef industry on Friday with the Cattle On Feed report showing lower inventories of feedlot cattle and the Cattle report (commonly called the Cattle Inventory report) showed a larger cow herd and a number of heifers being held for beef cow replacements that is significantly higher than expected.

For those unfamiliar with the Cattle on Feed report, we refer you once again to Dr. Darrell Mark’s University of Nebraska extension publication “Interpretation of the USDA Cattle On Feed Report” which can be found at h t t p : / / w w w . i a n r p u b s . u n l . e d u / e p u b l i c / p a g e s / i n d e x . j s p ? what=publicationD&publicationId=878. We think you will find it quite useful.

These reports contain data that impact the U.S. beef industry over differing time horizons. The Cattle On Feed report deals with the number of cattle that are being fed high-energy diets in feedlots to bring them to desirable market weights (generally 1100-1300 lbs.) and degrees of finish (or fatness) that will result in an acceptable percentage of animals in the USDA Choice quality grade.

The Cattle report, on the other hand provides information about the size of the breeding herd, the number of replacement breeding animals being held and the size of the calf crop and number of lighter-weight cattle on U.S. farms and ranches. The first two of those numbers obviously give us an idea of the production capacity of the U.S. beef industry over the next 2-4 years. The third number provides an idea of the coming year’s available supply of calves (generally 300-500 lbs) available to U.S. stocker operations where the animals are grazed on grass or wheat pasture. The final number provides an estimate of the number of yearlings ( generally 500-800 lbs.) available to U.S. feedlots.

Some highlights of Friday’s reports are:

• 10.295 million head of cattle in U.S. feedlots with inventories of 1000 head or more on July 1. That is 4.1% fewer than last year, quite close to the pre-report estimates of -4.5%.
  
• June placements of 1.513 million head, 8.7% fewer than last year and, again, quite close to the pre-report estimates of 91.8%.
  
• June marketings of 1.973 million head were somewhat lower (-7.8% vs. – 5%) than the pre-report estimates and this one number could be slightly bearish to nearby CME Group Live Cattle futures on Monday.
  
• A beef cow herd of 33.15 million head, 0.6% smaller than last year where the average pre-report estimate was –1.2%.
  
• The most bearish long-term number in either report is the number of heifers being held for beef cow replacements. This number was expected to be sharply lower at 96.1% o f the July 2007 level but came in at 4.67 million head, only 2.1% lower than last July 1. This means that U.S. cowcalf operations may have sold some cows but they plan to replace more of them more quickly. The increase also means that the supply of “other” heifers available for feeding will be equal to that of 2007 instead of the expected instead of seeing an expected drop of 1.5%.

Further Reading

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You can view the full report by clicking here.

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