A monthly column on the US market written exclusively for Beef Central by Steve Kay, publisher of US Cattle Buyers Weekly

GREEN grass – or lack of it – is usually the determining factor whether beef producers expand or reduce their cow herds.

The past two years in Australia and the US have definitely proved this point. The national herd (dairy cows included) in the former has declined in two years by 3.14 million head to its lowest level in 20 years. Conversely, the US herd has expanded by 3.462 million head to its highest level in five years.

The Australian herd has been ravaged by drought for the past two years. So it is expected to be at 26.2m head by June 30 and decline again in 2017 to 25.9m, according to Meat & Livestock Australia. Its 2017 forecast would make the herd Australia’s smallest since 1993, it says.

Drought from 2010 to 2022 also took its toll on the US beef herd. It began contracting in 2007 and numbers fell for seven straight years. Producers eventually wanted to expand their herds because of favorable per cow returns. But drought ravaged pastures from Texas to Missouri. Texas’s beef cow numbers dropped from 5.025m head in 2011 to 3.91m in 2013.

US cattle feeders are coming off their worst-ever year and will hoping to buy feeder cattle quite a bit cheaper this year as part of their financial healing process

However, most of the impact of the drought had disappeared by 2014 and producers responded to record high returns of nearly US$500 per cow by holding back beef cows and more heifers. Texas’s beef cow numbers increased last year by 160,000 head. The returns declined somewhat last year but the expansion continued even more aggressively. This resulted in a return to a herd above 90m head for the first time since 2012.

Such an increase is welcome news for cattle feeder and beef processors, although not so positive for cow-calf producers. US cattle feeders are coming off their worst-ever year and will hoping to buy feeder cattle quite a bit cheaper this year as part of their financial healing process. Forecasts are for US calf and feeder cattle prices to be at least 10 percent down this on last. But per cow returns will remain positive and producers are likely to keep expanding at least for another year or so.

Fed beef processors in the US in turn depend on cow-calf producers for the raw material to run their plants efficiently and offer consumers a steady supply of beef products at a reasonable price. The past year illustrated only too well how reduced cattle slaughter and beef production impacted plant utilisation rates and consumer demand for beef.

It’s thus welcome news that US cattle slaughter will be larger this year and beef production will increase 3.5pc or more from last year. A year-on-year increase of as much as 900 million pounds (410,000t) will make beef slightly cheaper at home and abroad. But pork production will increase 2pc as well, so beef will still face plenty of competition.

USDA’s annual Cattle Inventory report published January 29 confirmed that producers expanded their beef cow herds for the second year in a row.

The report had several fascinating aspects. USDA downward-revised its January 1, 2015 totals in seven categories, so year-on year increases were enlarged. Notable was a 378,000 head downward revision in the 2014 calf crop. Analysts had expected USDA to raise the total. This in part meant the Jan 1 2015 cattle total was revised down by 657,000 head to 89.14m head. This January’s total was up 3.2pc at 91.99m head.

Cow returns declined to less than US$300 last year, but US producers expanded their herds again. This showed up in record low beef cow slaughter last year and fewer heifers on feed.

The January Cattle on Feed report showed 7pc fewer on feed on Jan 1 than a year ago. Expansion will likely continue this year, albeit at a reduced rate, as cow-calf returns will still be close to US$200/cow. Pasture conditions remain good to excellent in most regions except California and hay stocks are at their largest levels since 2010.

US producers increased their herds primarily through more beef cows. That number on Jan 1 totaled 30.33m head, up 1.03m or 3.5pc on last year. Meanwhile, the number of beef replacement heifers totaled 6.29m head, up 199,000 or 3.3pc.

Notably, USDA upwardly revised its Jan 1 2015 beef replacement heifer total by 309,000 head to 6.09m head. This meant producers retained heifers more aggressively in 2014 (up by 535,000 head from 2013) than in 2015. The 2015 calf crop totaled 34.3m head, up 780,000 head or 2.3pc.

A state-by-state breakdown revealed that Texas at 11.7m head had the same number of cattle and calves as a year ago. But it increased its beef cow numbers to 4.29m. Nebraska at 6.45m head increased its total numbers by 200,000, with a 96,000 head increase in beef cows. Kansas at 6.25m head increased its numbers by 350,000, with a 61,000 head increase in beef cows. Despite widespread drought, California increased its beef cow numbers by 35,000 head to 625,000.

Even better, decent rains returned to the state this winter.

Will a similar pattern emerge in Australia?