News

Kay’s Cuts: Drought might end further US herd expansion

Guest Author, 07/02/2018

US cattle herd size trends have a direct bearing on the fortunes of the Australian export beef industry, and this month’s column from US market commentator Steve Kay, publisher of US Cattle Buyers Weekly, looks at the impact that encroaching drought might have on the resurgent US cattle numbers…..   

 

 

 

 

 

 

BEEF cattle producers all over the world largely owe their livelihoods to a simple but precious commodity: grass.

The more they have, the more they expand their herds because no producer can bear to see pasture being under-utilised.

But the less they have, the more likely they are to cut their numbers. Producers in Australian and the US know only too well how drought can cause the latter to occur, drastically as it turns out in recent years.

It’s with some concern therefore that drought conditions have worsened in the past month in several parts of the US.

Extreme drought now extends through much of the Texas Panhandle into southern Kansas, with pockets also in Arizona and other places. Severe drought extends from the Colorado Rockies to the Mississippi River and south to the Florida Panhandle, and is also in parts of Montana and South Dakota.

“Should these conditions persist, it is possible that four years of US cattle herd expansion might come to an end.”

Should these conditions persist, it is possible that four years of US cattle herd expansion might come to an end.

The total US herd (beef and dairy cattle) expanded again in 2017 but at a slightly slower rate than expected. The All cattle and calves total on January 1 was 94.399 million head, up 694,000 head or 0.7pc. Beef cow numbers totaled 31.723 million head, up 510,000 or 1.6pc from last year. The 2017 calf crop totaled 35.808 million head, up 715,000 or 2pc from last year.

Analysts had forecast that the total inventory would be up 1.3pc. But a dive into the numbers revealed that USDA upwardly revised its Jan 1, 2017 total by 120,000 head. USDA added 10,000 head to the 2016 calf crop, and 3000 head to the Jan 1, 2017 beef cow total. But it subtracted 51,000 head from its 2017 beef cow replacement total. This reflected the fact that heifer slaughter increased in 2017 from 2016.

On a state basis, the most startling growth in 2017 came in South Dakota’s beef cow numbers, which increased 8.2pc.

Texas continues to have by far the largest cattle population of any state. Its Jan 1 total was 12.5 million head, up 200,000 from a year earlier. Nebraska is number-two with 6.8 million, up 350,000, and Kansas is number-three with 6.3 million head, down 100,000.

Texas also heads the states with the most beef cows. It had 4.585 million head on Jan 1, up 25,000 from a year ago. Missouri was second with 2.166 million, up 111,000, Oklahoma was third with 2.131 million, up 36,000 head, and Nebraska was fourth with 1.91 million, down 10,000 head. South Dakota was fifth with 1.8 million, up 137,000 head.

South Dakota also added 40,000 beef cow replacements in 2017, more than any other state. A year-to-year increase in its calf crop of 150,000 head was also larger than in any other state.

The surge in its beef cow, beef replacement number and calf crop reflects the reopening of a beef processing plant in Aberdeen and the movement of cattle from Montana because of drought (as noted above). The state’s Jan 1, 2018 Cattle on Feed total of 430,000 head was up 50,000 head or 13.2pc from a year earlier, suggesting the plant is also encouraging more cattle to be finished within the state.

The surprise in the report was the feeder cattle and calf supply outside feedlots, says analyst Andrew Gottschalk of HedgersEdge.com.

He calculates this number to be down 608,000 head from January 1, 2017. While a reduction was not unexpected, the magnitude of the decline is a shocker.

The reduction should lend support to the fed cattle sector during the fourth quarter. There will be fewer cattle to be placed on feed and these placements will be measured against sharp increases in monthly placements during 2017. Significant rainfall in grazing regions this spring could further reduce the availability of this supply, he says.

As for continued herd expansion, female slaughter increased in 2017 but remains well below liquidation levels, notes Gottschalk. During the most recent US herd liquidation period (2007-2013), annual female slaughter versus total commercial slaughter averaged 48.4pc. Last year, total female slaughter averaged 45.1pc of total commercial cattle slaughter, he says.

US processors may struggle to find enough labour to process the abundance of cattle

Meanwhile, concerns are growing that not enough fed cattle are being marketed to avoid what might be a serious backlog of cattle by late spring-early summer. An unprecedented ten months of year-over-year increases in feedlot placements put the January 1 Cattle on Feed total up 884,000 head or 8.3pc on last year.

It means that front-end cattle supplies will be larger than a year ago into the third quarter. Cattle feeders need to accelerate their marketings from now on to avoid a prolonged buildup, say analysts.

Ironically though, weekly US cattle slaughter has gotten off to a slow start this year, with the total the first four weeks up only an estimated 56,000 head on last year. Given that the increase in placements began last March, analysts expected that packers would need to start harvesting more cattle than they have so far this year.

This month however might not see much of an increase as February usually has the lowest monthly slaughter level of the year.

This year’s total commercial cattle slaughter might increase by 1.206 million head from 2017 to 33.387 million, says the Livestock Marketing Information Center. That’s after a 1.6 million head increase in total slaughter in 2017 from 2016.

Questions remain whether US beef packers will have sufficient labor to be able to raise their slaughter levels to accommodate the projected increase in slaughter numbers.

 

 

HAVE YOUR SAY

Your email address will not be published.

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.

Comments

Get Beef Central's news headlines emailed to you -
FREE!