By John DePutter & Dave Milne – July 24, 2018
“All cattle and calves in the United States on July 1, 2018 totaled 103 million head, 1 percent above the 102 million head on July 1, 2017.”
– USDA cattle inventory report, July 20, 2018
What it means:
Following the record prices of 2014, it appears the expansion of the American cattle herd is beginning to slow before entering a period of contraction.
To provide some perspective, the total American cattle herd on July 1, 2014, four short years ago, totaled just 95 million head, the lowest all cattle and calves inventory for July 1 since the USDA data series began in 1973.
The relatively small American herd back then was a result of years of unrelenting drought on the US southern Plains that forced many producers to liquidate their herds. Plus, the beef industry was still reeling from the impact of the record-high feed costs of 2012, not to mention a generational shift of disinterest in the cow-calf business.
Indeed, it was that herd liquidation which ultimately set the table for the biggest bull market in cattle in history in 2014.
Motivated by the strong prices and profits of 2014, US producers began retaining more females and building their herds, and just a year later the American herd numbered 98.4 million head, marking the first July 1-to-July 1 increase in the US cattle numbers since 2006.
Since then, the US cattle herd has continued to expand, jumping 4% between 2015 and 2017 – and then increasing 1% this past year according to the recent USDA semi-annual inventory report.
Not contracting yet, but on the cusp
Although the expansion has slowed, cow-calf operators aren’t cutting back. Not yet anyway.
Cattle prices now are obviously weaker than they were in 2014 but as the graph here shows, expansion and contraction phases in the US cattle herd typically last between 5 and 6 years, as the longer period it takes to produce a calf and bring it to market means that the production response to changes in market prices is usually delayed.
And after a period of softer prices in the wake of the 2014 explosion, we are now likely nearing the end of herd expansion. We may be on the cusp of contraction. Initial evidence of this is the fact last week’s cattle inventory report pegged the number of beef replacement heifers as of July 1 at 4.6 million head, down 2% or about 100,000 head from the previous year.
Fewer heifers obviously mean fewer calves down the road, and fewer calves eventually mean less beef.
Make no mistake, the slight slowdown in expansion and small decline in heifer retention don’t mean US cattle numbers are poised to immediately turn lower. After all, this year’s calf crop is estimated at 36.5 million head, up 2% from last year. This suggests the American herd will probably continue to increase a little and perhaps peak in 2019, before beginning the inevitable period of decline.
It is then that cattle producers on both sides of the border can begin looking forward to the next cyclic upswing in prices that the smaller cattle supply will eventually bring.
Key point: The long-term cattle herd expansion/contraction cycle and the price response to it is one of the most reliable cycles in agriculture.
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