Heifer slaughter patterns this year have suggested strongly that the current cattle cycle peaked late last year, and cow slaughter since September basically has confirmed it, a market analyst said.
The result now is that the cattle markets can anticipate fewer calves being born next year and in years following, resulting in a gradual tightening of feeder cattle supplies and rising prices that leads to fewer fed cattle to slaughter and rising prices for slaughter-ready cattle. This will continue until profitability returns to the cattle industry and cow/calf producers feel confident enough to keep heifers for breeding that will be kept as cows for several years.
The cattle cycle is the name given to a cycle of US herd growth and decline that usually spans about 10 to 11 years. Recognizing where the herd is at any given time in the cattle cycle can give hedgers and investors a basic bullish or bearish point of reference in their use of the cattle futures markets.
Cow/calf producers are the first to respond to long-term variables in profitability and increase or decrease their herds accordingly.
The results of their collective decisions to increase or decrease their herds can be seen in the relative numbers of females, heifers and cows, that are slaughtered each week or month. The markets are slow to respond to early indications of peaks or valleys in the cattle cycle since weekly or monthly figures can be skewed by a host of non-market factors like weather, disease or political issues that affect foreign trade.
SOME DATA TO CONSIDER
The Jan. 1, 2019, USDA cattle inventory report put the number of all cattle and calves in the US at 94.76 million head, up 0.5% from a year earlier. This followed a low point in the herd at 88.53 million in 2014, making an increase of 6.23 million head in the last five years.
But that number includes dairy cattle, breeds that are not traded in the CME Group’s live cattle futures contract. The inventory of beef cows on Jan. 1 was 31.77 million, up 1.0% from a year earlier.
The July 1 US inventory of all cows and calves was 103.00 million head, about steady with the July 1, 2018, number. The number is up from the Jan. 1 number as 2019 calves are added into the mix.
A downturn in the cattle cycle will commence with a decrease in the number of heifers kept for breeding, which is marked by an increase in the number of heifers in the slaughter mix, an analyst said. An increase in the number of cows being sent to slaughter will follow as their calves are weaned and they are culled from the herd.
Since February, 2018, the number of heifers slaughtered has been above the 2013-2017 average, and 2019 heifer slaughter has been above 2018 all year.
Cow slaughter also has been above average, rising above 2018 in September.
CATTLE, BEEF RECAP
Cash cattle trading last week took place at $115 to $116 per cwt on a live basis, steady to up $1 from the previous week. Dressed-basis trading was reported at $182 to $182.50 per cwt, up $0.50 to $1.
The USDA choice cutout Friday was down $0.26 per cwt at $240.80, while select was off $1.51 at $214.33. The choice/select spread widened to $26.47 from $25.22 with 66 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Thursday was $147.12 per cwt, down $0.47 from the previous day. This compares with Friday’s Nov contract settlement of $146.25, down $0.37.