Darrell Mark
In the Cattle Markets
Low heifer retention and tight feeder-calf supplies.
The much-anticipated annual Cattle Inventory report released Jan. 28 generally confirmed expectations for a 1.4% decrease in the number of all cattle and calves. The U.S. Department of Agriculture (USDA) pegged the Jan. 1, 2011, total inventory at 92.58 million head of cattle, the smallest inventory since 1958.
Although the percentage decrease for the total cattle inventory figure was about as expected, the actual inventory was slightly higher than expected due to upward revisions in the Jan. 1, 2010, numbers. While those revisions within the various reported categories of cattle were generally small, it did amount to an additional 180,000 head of cattle at the beginning of 2010 relative to previous estimates.
The Cattle Inventory report provides one of the best data sources to determine whether growth in the cattle herd has occurred or is likely to begin. Prior to the report's release, analysts expected beef cow numbers to decline about 2.1%. The actual reported beef cow inventory, at 30.86 million head, was down only 1.6%.
Even though beef cow numbers were slightly higher than expected, it doesn't appear there will be growth in cow numbers any time soon. In fact, one of the most surprising numbers in the report was in the number of heifers held for beef cow replacements. At 5.158 million head, beef heifer retention was down 5.4% compared to last year. The average trade estimate called for less than a 2% decrease in heifer retention. A decline of this magnitude ensures that growth in the beef cow herd won't occur for at least another two years unless beef cow slaughter falls dramatically in 2011. Clearly, the trend toward feeding and slaughtering more heifers that I discussed in the Dec. 28, 2010, "In the Cattle Markets" and that was evidenced by the 5% increase in heifers on feed in the January Cattle-on-Feed report has resulted in even tighter supplies of heifers for replacement than expected.
Regional differences
Some regional differences in cow herd changes in the last year were evident in the report. The impact of drought in the Southern Plains and Southeast for the past couple of years contributed to lower beef cow numbers in states like Texas (-2.2%), Oklahoma (-1.8%), Georgia (-3.8%), Mississippi (-1.6%), Alabama (-1.5%) and Florida (-3.3%).
More northern tier and Rocky Mountain states with better grazing conditions increased their beef cow numbers this last year: Colorado (+1.8%), Montana (+0.8%), Washington, (+2.6%), Oregon (+0.5%) and Idaho (+1.4%).
Key corn-growing states in the heart of the Corn Belt had larger declines than states on the eastern and western edges of the Corn Belt. For example, Iowa, Indiana and Illinois experienced beef cow herd declines of 5.1%, 3.6% and 9.5%, respectively, whereas Ohio had 0.7% more beef cows and South Dakota and Nebraska each had declines of only 0.5% in beef cow numbers.
One possible reason for these mixed year-over-year changes in cow numbers in the Corn Belt is the pressure that higher corn prices have created to bring marginal ground out of grazing and into row-crop production. While there might be more such marginal acreage in the fringe areas of the Corn Belt, the premium for crop production is likely greatest in the heart of the Corn Belt.
A second contributor could be that the relative increases in corn and soybean profitability to cow-calf production has sufficiently increased in recent years for diversified farm operations in these states to cause producers to decrease cow numbers or liquidate herds to focus on corn and soybean production. With escalating corn and soybean prices and considerable talk of converting pasture to crop production again this year, it wouldn't be surprising for beef cow numbers in those states to continue falling.
The number of heifers retained for beef replacements generally was sharply lower across the Corn Belt, Southern Plains and Southeast. Heifers retained for breeding increased the most in northern and western states like Montana (+19.1%), North Dakota (+12.1%), Idaho (+5.6%) and Oregon (+5.3%). Missouri also had an additional 20,000 head, or 7.1% more heifers retained for breeding. So, it generally appears that the factors that have contributed to lower beef cow numbers across all but the northern and western parts of the country are expected to continue to impact the industry based on producers' hesitancy to retain more beef heifers for breeding.
Dairy herd
USDA's inventory report also confirmed expectations that the dairy cow herd was poised for modest growth this next year. At 9.150 million head, dairy cow numbers were 0.7% higher on Jan. 1, 2011, compared to last year, or about 100,000 head more than expected prior to the reports' release. Dairy heifer replacements also grew more than expected and were up 0.7% as well.
USDA's estimate of the 2010 calf crop, at 35.685 million head, was about as expected and did mark the smallest yearly calf crop since 1950. However, the decrease relative to 2009's calf crop was only 0.7% due to an upward revision to the 2009 calf crop of 120,000 head. Perhaps the more interesting number in the Cattle Inventory report was the number of heifer, steer and bull calves weighing less than 500 pounds (lb.). At 14.5 million head, this category of calves was 3.2% lower than Jan. 1, 2010, and about 250,000 head less than expected. This likely reflects the larger placements of lightweight calves on feed last fall. Certainly, it implies fewer cattle available to place later this year. Based on reported figures, the calculated number of feeder cattle not yet placed on feed was about 26.8 million head on Jan. 1, 2011. This is 3.3% less than last year and the smallest available supply of feeder cattle in decades.
More comprehensive look
The January Cattle Inventory report's cattle-on-feed numbers better reflect the tight supply of feeder cattle available for placement than recent monthly Cattle-on-Feed reports. USDA's Cattle Inventory report provides an estimate of cattle on feed in all sizes of yards, whereas the monthly Cattle-on-Feed report provides inventory estimates for only feedyards with more than 1,000-head capacity.
The January Cattle-on-Feed report indicated that the Jan. 1, 2011, on-feed numbers were 4.6% higher than last year in the feedyards with greater than 1,000 head on feed. However, the Jan. 28 Cattle Inventory report pegged the number of cattle on feed in all feedyards, regardless of size, at 2.8% higher than a year ago.
Thus, cattle inventories in feedyards with capacities of less than 1,000 head have fallen dramatically. Many of these smaller feedyards would likely have been part of a diversified farm operation and faced the same tradeoffs as diversified cow-calf producers in the Corn Belt described above. It is likely that these 'farmer-feeders' would have shifted away from feeding cattle to crop production in recent years due to increasing profit margins in corn and soybeans relative to cattle feeding. Further, even though larger feedyards have significant economies of scale, it is difficult for them to operate significantly below capacity due to fixity in facilities, equipment and labor. However, smaller-sized feedyards with multiple enterprises have fewer "shut-down" costs associated with feeding substantially fewer (or no) cattle.
Several of the reported numbers in the Cattle Inventory report were slightly higher than expected, which leads to a somewhat bearish interpretation of the report itself. However, the report also confirms a relatively bullish scenario for later 2011 and beyond. Not only have cattle numbers declined for 13 of the last 16 years to reach 60-year lows, it now appears substantial growth in cattle numbers is not likely until 2013 at the earliest.
