Inside the Latest Cattle Inventory Report

The Cattle Inventory report from USDA offered few surprises. ( Wyatt Bechtel )

The latest Cattle report issued by USDA-NASS in late January provides cattle inventory estimates that confirm what happened in 2017 and shape our expectations for 2018. In general, the report was well anticipated and presented no major surprises. USDA made relatively few and small changes to 2017 numbers so the year over year changes in the report were easy to interpret. 

The all cattle and calves inventory was up 0.7 percent at 94.4 million head. The beef cow inventory was up 1.6 percent to 31.7 million head.  Beef replacement heifers were down 3.7 percent to 6.1 million head. The dairy sector was up slightly with dairy cows up 0.6 percent to 9.4 million head and dairy replacement heifers were up 0.5 percent to 4.8 million head. The 2017 calf crop was up 2.0 percent to 35.8 million head. The feedlot inventory for all feedlots was up 7.2 percent to 14.0 million head.

There are a couple of points to note in this report. First, the decrease in beef replacement heifers is generally taken as a sign that herd expansion is over. That may well be but a look at the absolute numbers suggests that a limited amount of additional beef herd expansion is possible in 2018. The January 1 beef replacement heifer inventory was 19.3 percent of the herd inventory. This is down from record levels the past three years but it is still higher than the average level of 17.3 percent for the 25 years prior to the beginning of herd expansion in 2014.  You have to recognize just how unusual the current herd expansion has been. Beef heifers as a percent of herd size shot up over 20 percent for the first time ever in the years 2015-2017, peaking at 21.0 percent in 2016. Thus, the current level of 19.3 percent, while down from recent years, is still above the levels seen in the previous full herd expansion in 1990-1996, with an average of 18.3 percent in the years 1993-1995. Any beef herd expansion in 2018 would likely be limited to less than one percent but, for example, a rate of 0.5 percent for the year is quite consistent with all the numbers in my analysis. I expect that the market conditions that play out in 2018 will determine whether any additional herd expansion is forthcoming.

Secondly, using the inventory categories for steers and other heifers over 500 pounds along with calves under 500 pounds and subtracting off the cattle already in feedlots, leaves a January 1 estimated feeder supply outside of feedlots of 26.1 million head, down 2.3 percent year over year. How can feeder supply drop when cattle numbers are still increasing? In fact, the total inventory of steers, other heifers and calves was up 0.8 percent. But large feedlot placements in 2017 pulled the feedlot inventory up 7.3 percent year over year, meaning that more of those feeder cattle are already in feedlots on January 1. Aggressive feedlot placements and marketings were key factors in the strong 2017 market performance and will be again in 2018.  The deceased feeder supply also reflects drought conditions at the end of 2017 that forced many lightweight cattle into feedlots early at the end of 2017. The point is that this tighter feeder supply will help support feeder cattle markets in the coming weeks and sets us up to deal with the still growing cattle numbers in 2018 in the best possible shape.

Next week, a look at some interesting state by state numbers in this report.