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CME: LMIC Expects 2018 Calf Crop to be Higher Than Previous Year

20 July 2018

US - If the cattle on feed report tells us about potential beef supplies in the next six months, the cattle inventory numbers offer insights about potential beef production for the next two years, writes Steiner Consulting Group, DLR Division, Inc.

Twice a year USDA does a survey of beef producers and updates its count of cattle at various stages of production. The July cattle inventory is based on a smaller sample and there are some gaps in the data for those years when budget issues prevented USDA from conducting the survey. Still, we think this is an important report that allows market participants to calibrate their supply expectations for the next couple of years.

At the bottom of the page (see below), we have included the LMIC estimates of the upcoming USDA cattle inventory report (7/20 at 3PM ET). One of the numbers in the report that analysts will likely pay close attention to will be the calf crop. This will be the first estimate of the calf crop for the year and it is a number that will likely be revised in January of next year when producers report on the number of calves born in the spring and fall.

Most calves in the year still are born in the spring, however, and the July calf crop estimate generally provides a good indication. LMIC expects the calf crop for 2018 to be 36.3 million head, 492k head (+1.4 per cent) higher than the previous year. The increase in the calf crop implies that cattle slaughter should continue to increase in the next 18-24 months but the rate of increase will likely slow down.

The calf crop in 2016 increased by almost 1 million head and it was 726k head higher in 2017. The calf crop estimate also allows analysts to examine the calving rate for the year. The rate could offer cues about any potential adverse factors that affect productivity.

Dry conditions in a number of key cow-calf producing regions have impacted feed supplies and likely pushed more cows to market this year. Beef cow slaughter during the first six months of the year is estimated at 1.493 million head (we estimated June slaughter), 146k head or 10.8 per cent higher than the previous year.

Dairy cow slaughter during the first six months of the year is estimated at 1.566 million head, 71k head or 4.7 per cent higher than last year. The increase in the beef cow slaughter does not necessarily mean a contraction in the beef herd and liquidation. After all, the beef cow inventory has been increasing in recent years and this implies a larger supply of cull cows.

The ratio of the beef cow slaughter in the first six months of the year vs. the beef cow inventory at the start of the year was 4.7 per cent compared to 4.3 per cent the previous year. Still, the ratio is lower than what we have seen during years of true liquidation. Between 2010 and 2013 the ratio of beef cow slaughter in the first half of the year vs. the inventory at the start of the year was 5.4 per cent.

Heifer retention this year is expected to decline. LMIC thinks the number of heifers held back for beef cow herd rebuilding will be down about 200k head or 4.3 per cent compared to a year ago. There are currently more heifers going into feedlots. The chart below shows the relationship between the beef cow inventory vs. heifer retention in the previous year.

The LMIC estimate for beef cow inventories on 1 July corresponds to the heifer retention numbers we saw last year. If heifer retention declines by 4.3 per cent (remember this is one estimate) on 1 July 2018 it could imply a 1.5 per cent reduction in the beef cow herd on 1 July 2019. But much will depend on pasture conditions and beef demand in the next 12 months.


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


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