Analysts Agree: US Beef Cow Herd Still Growing

From slaughter/inventory ratios to auction values, all indicators point to a US beef cow herd that continues to grow.

Two well-known cattle market analysts this week approached the market from two different angles and came to that conclusion.  Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist, said in his Cow/Calf Corner newsletter that Oklahoma auction prices for high-quality cows appeared to be stronger than usual, with high-quality cows in Oklahoma reported at roughly $1,550 a head, or $200 to $250 per head higher than a research model would predict.

Nevil Speer, vice president of US operations for AgriClear, said in his monthly missive for Beef Magazine, that the 2016 cow slaughter rate was below equilibrium, or the point at which the herd size would remain constant.  For this reason, he said the US cow herd was continuing to grow in 2017.

Peel used a research model taking into account various quality factors for bred beef cows, developing an expected price range for cows having a variety of quality factors.  These quality factors included age, perceived quality, weight, stage of gestation, hide color; time of year and location.

OSU research examined 15 years of auction data in Oklahoma to find the effect of these factors on commercial bred cow value.

In the latest weekly combined Oklahoma auction data, bred cow values ranged from $735 to $1,585 a head, Peel said.  The research model suggested that the base value of a four-year-old (fourth gestation), average-quality cow, weighing 1,200 to 1,300 pounds and five months bred was $1,000 to $1,050 a head.

Using his research model and current market conditions (and holding cow weight and the time of year constant) various combinations of age, quality, gestation and hide-color result in a range of bred cow value estimates from about $730 to $1300 per head, Peel said.  The research model appears to be capturing current average bred cow values reasonably accurately.

However, demand for high quality cows appears to be stronger than usual with current values for high quality cows in Oklahoma reported at roughly $1550/head or $200-$250 per head higher than the research model would predict.  This is likely another indication that herd expansion is still going strong.

 

SLAUGHTER RATIOS SUGGEST GROWTH

 

Beef cow slaughter rates are a fairly reliable indicator of how big next year’s cow herd will be, Speer said.  The equilibrium slaughter rate, as a percent of Jan. 1 inventory, runs about 9.3%.  Long-term slaughter rates above or below this 9.3% likely means liquidation, while slower slaughter leads to expansion.

Last year, the cow slaughter rate equaled 8.4% of starting inventory, indicating producers wanted to retail more cows this year, Speer said.

 

 

CASH CATTLE TRADE QUIET

 

Average fed cattle exchange auction prices last Wednesday were $1.36 per cwt higher at $119.02, versus $117.66 a week earlier.  However, only one trade was not from the Southern Plains where cattle sold last week at $120.21, and unsold cattle this week were from the north and were priced at $116 to $117.  Thus, in reality, the market traded about $1.19 lower.

Cash cattle trading was reported at $119 to $120 per cwt on a live basis, compared with last week at $119 to $120.50, mostly $119.75 to $120.50.  Dressed-basis trading was at $185 to $188, compared with $190 to $190.50.

The USDA’s choice cutout Tuesday was up $0.90 per cwt at $191.81, while select was down $0.59 at $189.81.  The choice/select spread widened to $2.00 from $0.51 with 106 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $127.18 per cwt, down $0.11.  This compares with Tuesday’s Mar settlement of $124.55, up $0.47.