Cattle Herd Rebuild Appears To Have Stopped

US cow/calf producers appear to have stopped building the collective herd for now after stepping up the country’s heifer slaughter in November.

Heifer slaughter actually diverged from last year in August and has remained well above the year-earlier rate.  The move was capped by a counter-seasonal increase in November that almost brought the industry back to the 2010-2014 average.

The approach to the five-year average is significant because the average contains more years of herd liquidation than it does of herd building, market sources said.

 

A TALE OF TWO MOVES

 

Moves to halt the US buildup of cattle herds began in August with the sudden upsurge in heifer slaughter.  This contrasted the 2015 move lower and put the 2016 heifer slaughter rate on its own plane.  Up to that point, heifer slaughter had been following the 2015 line very closely.

At the time, many market analysts might have chalked it up to just an unusual move, one that took the seasonal move higher rather than the 2015 move lower.  However, US heifer slaughter has remained above last year, and the November increase seems to confirm the shift in producer intentions, the sources said.

 

POSSIBLE DROUGHT EFFECT

 

There likely are many reasons for the shift in producer tactics, but one major one almost certainly is drought, they said.  The US Drought Monitor from the National Oceanic and Atmospheric Administration Thursday showed the Southeast remains in the throes of a drought.

While the individual size may vary greatly, there are many cow/calf producers in this region of the US, and a collective retrenchment by cow/calf producers could be large enough to be felt in US heifer slaughter numbers.

 

PRICE DECLINE CUTS BOTTOM LINE

 

Profitability of cow/calf producers declined sharply in 2015 and again in 2016, according to data from the USDA.

Cow/calf returns averaged a record $530.22 per cow in 2014, but were slashed to $303.08 in 2015 and fell to an estimated loss of $29.50 in 2016.  The data also projected a $28.72-per-head loss in 2017.

After the heady gains in 2014 and 2015, cow/calf producers likely weren’t willing to add more cows to their herds so heifer slaughter rates increased as they sold them to the feedlots rather than retained them for breeding.

That increase in the number of feeder cattle available to the market likely cut into overall prices, exacerbating the decline that already was in place.  And in fact, the USDA’s Agricultural Marketing Service and NASS data indicate a correlation between an increase in cattle inventory and cow/calf returns.

The upshot is that herd growth may have stopped, the market sources said.  If producer returns remain negative, a decline in herd sizes may not be far away.

 

CASH CATTLE TRADE QUIET

 

Average auction prices Wednesday were $1.40 per cwt higher at $116.79, versus $115.39 a week earlier.  Cash cattle then traded at $116.50 to mostly $118 on a live basis, steady with the upper end of last week’s range.  Dressed-basis trades were reported at $188 versus last week’s range of $188 to $190.

The USDA’s choice cutout Thursday was down $2.10 per cwt at $201.55 per cwt, while select was off $0.91 at $193.39.  The choice/select spread narrowed to $8.16 from $9.35 with 101 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Wednesday was $133.07 per cwt, down $0.60.  This compares with Thursday’s Jan settlement of $128.25, down $0.25.