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CME: US Cow Slaughter Down Massively

05 December 2014

US - Beef and dairy cow slaughter are down sharply compared to a year ago, Beef - 17.9 per cent and dairy -10.5 per cent, write Steve Meyer and Len Steiner.

One of the first things to do when the market demands higher production levels is to stop liquidating the breeding stock.

Over time producers will seek to expand that stock, especially if demand is sustained but the immediate response is to stop culling. That has been the theme in the cattle market for much of this year, with beef and dairy cow slaughter down sharply compared to a year ago (see chart).

In the first 10 months of the year beef cow slaughter in the US was 2.146 million head, 468,800 head(- 17.9 per cent) lower than a year ago. Dairy cow slaughter at 2.343 million head also was 276,000 head (-10.5 per cent) lower than last year.

But there are constraints beyond the producers control in this matter. Weather may dictate that as much as you wish to hold on to all the cows you have, some of them have to be culled if there is not enough pasture to support all of them.

The drought of 2011-13 was a case in point when Texas producers had to reduce the cow inventory by a million head due to lack of available feed.

The beef cow inventory in Texas was 5.140 million head as of 1 January, 2010. It had dropped to 3.910 million head by 1 January, 2014. The decline in cow slaughter has impacted overall beef supplies, especially supplies of lean grinding beef.

Keep in mind that much of the beef harvested from beef and dairy cows becomes ground beef.

The supply hole created by the drop in cow slaughter has been filled in part by higher imports. Beef entries from Australia through the end of November were up almost 70 per cent from a year ago.

In part the lean beef shortage has been filled by more fed beef cuts going into the grinder. It should not be surprising that round and chuck primals have contributed the most to the rise in cutout values.

Going forward, it is unlikely we will see a rebound in beef and dairy cow slaughter. Hay supplies this year appear to be more than adequate to support the current stock over the winter. Costs of other feeds also are down thanks to a record corn crop.

Weekly cow slaughter was hovering around 110-115,000 head per week during the first quarter of 2014. It will be notably lower than that in the first quarter of 2015. This will continue to limit the supply of lean beef in the market and provide support to the beef cutout.

Beef imports are expected to remain strong as US prices currently are extremely strong relative to other markets. A strong US dollar has further bolstered US import competitiveness. Having said that, imports always are a wild card, as late spring and summer rains in Australia (somewhat of a long shot at this point) could crimp beef import availability.

But if imports decline, it could further bolster lean beef values in the US.

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

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