US Cattle Herd Will Continue To Contract In 2010

US - The US cattle herd could continue contracting in 2010 because the slow economic recovery has not found its way back to the cow-and-calf producer, says Lester Aldrich; Dow Jones Newswires.
calendar icon 31 December 2009
clock icon 3 minute read

Feedlots may become more profitable later this year, reversing a two-to-three-year trend, but it will take time to filter back to producers and encourage them to begin rebuilding their herds, market analysts said.

Over the last few years, cattle industry losses have been reflected by a reduction in cow numbers, market analysts said. These are the mother cows that produce the calves that eventually wind up as fed cattle and meat on the table.

Initially it appears as though the cow herd is already expanding, said Richard Nelson, livestock market analyst at Allendale Inc. From January through October this year, beef cow slaughter, at 2.738 million head, was down 9.5 per cent from the same period of 2008. Dairy cow slaughter is up 10 per cent at 2.417 million, he said.

It's misleading, Mr Nelson said, because US Department of Agriculture slaughter data show that ranchers and dairymen are not retaining heifers. In addition, the 2009 cow slaughter data is being compared with 2008, in which total cow slaughter was significantly larger than normal--up 12.4 per cent versus 2007, and at 3.632 million head the largest cow-kill year since 1996 when it was 4.165 million head.

Much of the aggressive nature of the 2006 through 2008 cow slaughter was because of drought and a lack of pasture, said John Nalivka, president and market analyst of Sterling Marketing Inc. This year, much of the cow kill was from dairy cows because of low farm-level milk prices, he said.

The cattle industry won't see 2009's level of cow slaughter in 2010, Nalivka said. In fact, beef cow slaughter likely will continue to decline.

Milk prices at the farm level still aren't healthy, so there could be more dairy cows sent to slaughter, but Nalivka didn't expect a 2009 repeat since milk exports were rising and could continue higher in 2010.

Mr Nelson said he expected about three per cent more dairy cows going to market next year, mostly in the first half.

Both analysts expected to see total cattle inventories decline in 2010, setting the stage for potentially higher feeder cattle prices. The higher cost of feeder cattle could result in higher fed cattle prices, especially later in the year.

Beef demand will play an important role in fed cattle prices in 2010, and Mr Nelson said he expected a small turn upward as the economy stabilises and employment rises.

Because of continued reductions in herd sizes, Mr Nelson and Mr Nalivka said they expected lower cattle and beef supplies in the second, third and fourth quarters. This could mean a long-lasting supply based fed cattle rally.

Backing up those estimates was the US Department of Agriculture's November cattle-on-feed report. It showed that cattle feeders placed fewer cattle into the feedlots than many expected.

Market analysts and traders, however, said rising feed costs linked to greater ethanol use, possible cap-and-trade legislation and other expenses could limit the desire or ability to place cattle on feed in 2010.

Lower demand for feeders would pressure cow/calf operators to reduce their herds even more, market analysts said.

Assuming feed costs remain stable, Mr Nelson said he sees moderate profitability for the feedlots returning in the second half of 2010 after more than two years of losses.

But even if the feedlots become more profitable sometime in 2010, it will take years for profits to percolate back up the system to encourage cow/calf producers to rebuild the herds. When it does, it could take another three years before the first feeder cattle hit the market.

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