Are cattle producers still expanding herds, liquidating or will the tally book at the beginning of 2019 just show the herd holding steady? How 2018 fits into the cattle cycle is important planning information for the entire beef supply chain. USDA released its mid-year cattle inventory a couple of weeks ago and that might provide some insight, but I have commented over the years that I don’t think the mid-year inventory adds much to the analysis other than a first look at the current year’s calf crop.
USDA’s estimates from their survey showed a 1% increase in the beef cowherd for July 1, and a 2% larger calf crop this year. I believe the final tally on January 1, 2019, will show the total inventory was about unchanged from the prior year while the 2018 calf crop posted a 1.4% gain. The difference between estimate of the calf crop and my estimate is 200,000 head, and probably not worth quibbling about. I largely base my analysis of the calf crop on the sharp increase in both beef cow slaughter and heifer slaughter this year. In herd expansion, large numbers of bred heifers calving is a critical factor leading to a larger calf crop.
The negative impact of severe drought in major grazing regions of the country led to an 11% YTD increase in beef cow slaughter and the highest since 2013. In addition, 49.3% of YTD total cow slaughter is beef cows. This compares to 47.7% in 2017 and the 5-year average of 47.4%. Heifer slaughter YTD is up nearly 9% from 2017’s 11% increase for the same period, and the highest since 2013. In addition to reduced forage, reduced stock water on western ranges in the Pacific Northwest with severe drought conditions and range fires are also issues forcing cows off some ranges early but not necessarily to slaughter.
Heifer and cow slaughter relative to the cowherd and heifer retention provides a basis for estimating the change in the breeding inventory. I expect beef cow slaughter this year will represent 9.7% of the beef cows at the beginning of the year, and the largest percentage since 2013. If the tally of beef cows on January 1, 2019 is down slightly-to-even with 2018, then the number of heifers calving this year (75% in the spring) would be down 9% from a year ago. Remember, heifers that calved this year were retained in 2016 and bred in 2017. Cattle prices dropped sharply in 2016 and many ranchers were pretty negative about the outlook. That is not to mention, their banker’s outlook! Consequently, producers sold more heifers to “beef up” revenue rather than continue to retain and breed them. Thus, the sharp drop in bred heifers that calved this spring.
Also key to the cattle cycle is cow-calf financial conditions which are generally positive. I am projecting the average cow-calf operating margin at about $125 per cow this year (2018). I caution that this figure can vary widely depending upon the circumstances of individual operations. But, there was a time in the beef industry when $125 per head was considered “a great year”. So, I think the financial side is somewhat offsetting to the forage side of the equation.
The story continues to evolve and is mostly contingent upon forage and the outcome of the trade dispute which I expect to be positive and favorable to U.S. agriculture. That’s my take!