The US cattle herd may have contracted more than current estimates of 1% to 2%, said Elliott Dennis, Livestock Economist at the University of Nebraska, Lincoln, in a letter to Extension Agents via the Livestock Marketing Information Center called In The Cattle Markets.
Drought and high feeder cattle prices likely changed the plans of many cow/calf producers that were included in the January 2020 USDA Cattle (inventory) report, Dennis said.
COW SLAUGHTER UP
Last year’s beef cow slaughter finished about 10% higher than in 2020 and 12% more than in 2019, he said. This is the most aggressive year-over-year beef cow slaughter since 2016.
Larger consumer incomes, combined with consumer expectations of supply shortages and higher beef prices, increased beef demand, Dennis said. One effect of this was atypically high cull cow prices during the third and fourth quarters. With high feed prices, helped by 2021 crop production and drought, the decision to sell likely was much easier than in previous years.
HEIFER PLACEMENTS RISING
The number of retained heifers, and their effect on herd contraction has been relatively ignored, Dennis said. USDA-NASS data suggests heifer placements into feedlots, as a percentage of total cattle on feed, have been increasing.
Some of this is the natural cattle cycle, he said. But drought and higher feeder cattle prices may have accelerated the pace last year.
One way to look at this is to examine the heifer placement rates by the severity of the drought a region experienced, Dennis said. There appears to be no direct evidence suggesting large increases in the number of heifers placed in feedlots because of worsening drought.
The exception to that would be Washington state, which saw worsening drought conditions and a significant increase in heifer placements, he said. This suggests that while the drought may have accelerated the timing of placements, it does not appear that it has affected the proportion of heifers entering feedlots.
All of this suggests that current estimates of a 1% to 2% reduction in the national beef cow herd would be conservative, Dennis said. Also, beef cow herd contraction is not evenly distributed.
That has implications for local marketing strategies as well as increased awareness of basis patterns and hedging performance, he said. Basis can widen during both market growths and declines. Plus, the effects of current heifer placements on herd contraction will affect the 2022 and 2023 USDA cattle inventory report through beef heifer replacement numbers.
Taken together, the supply of feeder cattle should be less in 2022 compared to 2021, Dennis said. Futures seems to support this idea with fall 2022 deferred contracts trading in the $180’s.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $137.18 to $141.00 per cwt, compared with last week’s range of $139.49 to $141.00. FOB dressed steers and heifers went for $212.87 to $216.93 per cwt, versus $216.27 to $218.77.
The USDA choice cutout Thursday was up $1.38 per cwt at $292.98, while select was up $1.75 at $282.18. The choice/select spread narrowed to $10.80 from $11.17 with 109 loads of fabricated product and 20 loads of trimmings and grinds sold into the spot market.
The USDA reported that basis bids for corn from feeders in the Southern Plains were unchanged at $1.45 to $1.65 a bushel over the Mar futures and for southwest Kansas were unchanged at $0.35 over Mar, which settled at $6.06 a bushel, down $0.05.
The CME Feeder Cattle Index for the seven days ended Wednesday was $161.20 per cwt down $0.04. This compares with Thursday’s Jan contract settlement of $161.17 per cwt, down $0.22.