African Swine Fever, trade, plant-based protein, flooding in the Midwest, a packing plant fire – all led to market uncertainty in 2019. But they also represent opportunity and the beef industry is poised for higher prices during 2020. While the focus has been on export opportunities, particularly in the face of ASF in China, reduced cattle numbers will be significant to next year’s cattle market.
Both cattlemen and dairymen rigidly culled herds during 2019 as low prices pressured returns. For the 2019, I am projecting both beef and dairy cow slaughter to be up 3% from a year earlier and the 5th straight year of increased cow slaughter.
Beef cow slaughter will represent 10% of the cows at the beginning of the year. While this is not nearly as high as during 2012 and 2013 when producers liquidated the U.S. cattle inventory to a 60-year low, it is the highest beef cow slaughter relative to the overall herd since 2013. In the face of significant financial stress due to low milk prices, dairy cow slaughter will likely account for 35% of the dairy cow herd this year. This is the highest since 1977. Remember that period. It led to the 1984 Dairy Termination Program.
Not only were producers culling herds more deeply in 2019, they retained significantly fewer heifers from the 2018 calf crop for herd replacements. Heifer slaughter into mid-October was still up 7% year-to-date and in addition, USDA indicated on their October 1 Cattle on Feed report that the number of heifers on feed for that date was still up 2% from a year earlier. So, both the beef and the dairy industry liquidated herds during 2019. Consequently, I am projecting a 1% decline in the size of the U.S. cattle inventory at the beginning of 2020 compared to January 1, 2019.
This brings up another issue – USDA showing only a slight drop in 2019 calf crop on their July 1 estimate. I believe USDA overstated that estimate. I am estimating a nearly 1% decline for this year’s calf crop compared to a year ago. Based on steer slaughter this year, I would even suggest that the 2% increase in the 2018 calf crop estimate was over-stated.
While I don’t want to get into a debate with USDA, the calf crop estimate is key to projecting future supply and in 8 years out of 10, the July 1 estimate is larger than the last estimate on the January 1 Cattle Inventory Report. While it will get resolved when we know how many cattle are slaughtered, I would like to know before the fact rather than after the fact - just saying!
So, given my assessment of cattle numbers for next year – and if demand holds at least steady – and I believe it will continue to improve, particularly with regard to exports, live cattle prices from fed cattle to calves are likely to be up at least be up 3 – 4% during 2020.