12 February 2013

5 minute read

North America

Overall the take-home contribution of this report is additional confirmation of shrinking national cattle supplies.

Most final estimates were within the range of pre-report expectations with the few exceptions (namely the annual calf crop being down nearly 3 per cent and 3-state small grain pasture grazing supplies being down almost 16 per cent) generally suggesting upcoming feeder cattle supplies may be even tighter than previously believed.

A deeper assessment of multi-year adjustments can shed additional light on transitions underway in the industry. Tables 1 and 2 were derived to present estimates of closely watched herd size statistics individually for the 10 states currently with the largest beef cow herds as well as regionally and nationally.

Values are presented to enable easy comparison not to last year (which is provided in Friday’s report) but rather to the pre-drought period , 10 years ago, and 20 years ago. This reveals some important broader trends that can easily be missed by looking solely at year-over-year adjustments.

While the ongoing drought certainly has important implications, comparing the current situation to that of 10 and 20 years ago reveals additional industry adjustments underway.

A review of table 1 reveals how remarkably stable the geographic dispersion of the beef cow herd was over the 1994-2010 period. Adding the ongoing drought and heifer retention patterns (table 2) enriches current understanding.

While in total head the Great Plains followed the national trend of downsizing over the 1994-2010 period, its relative role as home to beef cows and heifers being retained was growing prior to the ongoing drought and has since accelerated.

This suggests the Great Plains may be a “growth area” in terms of its role in the national industry. Of course, the current ongoing weather concerns facing this region may well alter this trajectory.

Conversely while the share of the country’s beef cows has been stable in the Southeast, this region has a longer history of a decreasing role in retaining heifers. This suggests the Southeast may slowly be decreasing its overall relative industry role. While this region is the only broad area with “better pasture conditions than normal” which otherwise could indicate an expansion opportunity, the past pattern of reduced comparative heifer retention casts doubt on the likelihood of region-level expansion.

Between the patterns of these two regions is the Southern Plains. Prior to the current drought, the herd in Texas was contracting while the herd in Oklahoma was expanding leading to limited net change in the region’s collective role in the industry. However, since 2010 the portion of both beef cows and retained heifers residing in the Southern Plains has fallen notably.

Exactly how persistent these patterns are when current water and forage situations improve will be instructive to monitor. Currently however there are several indications that the beef cow herd may be moving north and west compared to how it has traditionally been dispersed within the country.

It will be interesting to see what another report scheduled to be released on Feb. 21st suggests the size of the Canadian herd is given changes underway in the U.S. Broadly speaking, the geographic adjustments at play are consistent with many of the farm and operator characteristics depicting representative situations across regions. National trends reinforced by Friday’s report also warrant highlighting. The report suggests collectively cattlemen have been adding youth to their breeding stock as heifer replacements are up from last year while the beef cow herd has declined reflecting ongoing culling.

Importantly, while heifer replacements are higher than estimates for 2011 and 2012, they remain lower than any other year since 1990 suggesting “real expansion” has yet to be initiated. It is also important to recognize that this aggregate “youth movement” is not occurring uniformly across producers.

Besides the geographic differences noted above, the number of cow-calf operations is likely continuing a trend downward and those adding heifer replacements may represent a minority of operations. This is consistent with the finding of an August 2011 producer survey that perhaps only one-half of those who liquidated herds in 2011 would restock when conditions improve.

It would be interesting to see responses to a similar survey if conducted today. More broadly, the likely enthusiasm of some but not all producers to explore expansion lines up with the mixed bag of industry sentiment picked up by two more recent producer surveys.

Overall, this report provides additional evidence of the tight supplies throughout the U.S. industry and highlights structural changes underway and forthcoming. The characteristics not only of where cows reside in the U.S. but the managerial traits and situations of host operations are important to appreciate.

If you are a stocker, feedlot, or packing firm seeking to source from an ever decreasing supply of feeder cattle, recognition of these adjustments is imperative. Moreover, as we learn more throughout 2013 about water and feedstuffs availability the match of these resources to “where the cows are” will be important to ascertain.

Finally, this most recent reaffirmation of tight supplies, underscores the heightened role realized demand strength will have in observed prices over the next couple years. One can argue there is more uncertainty on demand factors than supply factors making it increasingly critical to monitor.

Fortunately, there recently have been positive signals both globally (e.g. Japan relaxing some restrictions) as well as domestically (e.g. annual all fresh beef demand index increased in 2012).

The industry anxiously awaits these positive signals to be realized and reflected in higher boxed beef prices. The net of these multiple forces will go a long ways in 2013 and beyond in either refuting or confirming speculation about feedlot or packing plant closures given the growing excess capacity of these industry segments.

In short, one of the few certainties currently is that more changes and adjustments are in the industry’s future.

TheCattleSite News Desk