Current Situation and Analysis - 2/5/2017

Monday, February 6, 2017
U.S. CATTLE INVENTORY UP 2% AS OF JANUARY 1

As reported by USDA’s National Agricultural Statistics Service (NASS), the U.S. cattle herd increased for the third consecutive year during 2016, adding 1.6 million head over the course of the year, a 2% gain. The increase was not as big as 2015, when 2.8 million cattle were added to the herd. The big difference between 2015 and 2016 was the accelerated pace of cattle marketings from feedlots during the past year. Year-over-year Federally Inspected steer slaughter increased by 1.2 million head in 2016 and heifer slaughter was up 300,000 head. In 2015, steer slaughter was unchanged from the year prior and heifer slaughter declined 1.0 million head which augmented an increase in calves that were born from 2014 to 2015.

            The U.S. beef cow breeding herd was up one million head as of January 1st compared to a year earlier, a 3% increase. Dairy cow numbers grew by 39,000 head over the course of 2016, a change of less than half a percent. Nationwide, calves born in 2016 were up 1 million head or 3% from 2015’s.

Generally good regional forage and pasture conditions in recent years led to some rather dramatic changes in cow numbers by state. Most notable were Oklahoma, Texas, Missouri and New Mexico.  In the last year, the beef cow population in Oklahoma increased by 172,000 (+9%), Texas was up 170,000 (+4%), Missouri gained 150,000 (+8%) and New Mexico increased 50,000 (+12%). The opposite situation was seen in some Southeastern states that were dealing with drought during 2016. Mississippi beef cows declined 24,000 head (-5%). Year-over-year, beef cow counts in Georgia and South Carolina dropped 8,000 head (-2%) and 5,000 (-3%), respectively.

            The biggest surprise in composition of the cattle herd at the beginning of 2017 was the number of heifers being held for beef cow replacement purposes. That category of the cattle herd was estimated by NASS to be up 1% from a year earlier. Market expectations were generally for a decline of 5%-7%, driven by the trend in calf prices, which posted a 50% decline from the peak in the spring of 2015 to the fall of 2016. Individual states that reported change contrary to expectation were North Dakota (+23,000) head, South Dakota (+20,000), Montana (+20,000), Texas (+20,000), Kansas (+20,000), and Missouri (+15,000). States apparently showing more sensitivity to declines in cattle prices reported heifers for beef cow replacement below a year ago were Oklahoma (-15,000) head and Idaho (-20,000).

            Steers and heifers counted weighing over 500 pounds were close to unchanged from a year earlier. That was a minor surprise, as the increase in steer and heifer slaughter during 2016 was expected to bias the count of these cattle to the downside. Such was not the case, as the cattle industry continues to show signs of improving efficiency at getting calves to gain weight quickly after weaning, and having bigger calves at weaning. So, the 1 million head year-over-year increase in calves born during 2016, steers and heifers less than 500 pounds were up only 300,000 head from the start to the end of 2016.

            The supply of steers and heifers outside of feedlots to start 2017 is calculated to be up 2% from a year earlier, the second consecutive annual increase. A year ago, that increase was 5%. It is worth noting that if heifers retained for beef cow replacement had come in as expected, the supply of steers and heifers available to be placed into feedlots would have been up 4% on January 1, instead of 2%.

CATTLE FEEDING PROFITABILITY, FINALLY

Cattle sold by feedlots during January were in the black in January for the first time several months. In January, fed steer prices are the highest for any month since June 2016. January’s closeout profit was the largest for any month since the summer of 2014. Estimated closeouts by the Livestock Marketing Information Center (LMIC) showed that for the last seven months of 2016 every month had red ink. In fact, only two months since January 2015 were profitable when all economic costs were considered. Even though returns have improved, due to huge financial losses in recent years, cattle feeders will likely remain rather cautious when bidding for feeder cattle

As calculated by the LMIC, which assumes a feeder steer weight of 700-to 800-pounds, the January breakeven steer sale price was estimated at $112.00 to $114.00 per cwt. Breakeven sales prices for the next several months will remain low, ranging from about $108.00 to $112.00 per cwt. throughout the spring months. That is the lowest since early 2011.

Important adjustments between the prices of feeder steers and fed animals began in the summer of 2015 as cattle feeding losses began to eliminate huge calf and yearling premiums (i.e. feeder price premiums per cwt. relative to fed cattle prices in the same timeframe were much larger than normal).  In the summer of 2015, that premium for a 700-to 800-pound steer at times exceeded $75.00 per cwt. in the Southern Plains. By year-end, that had dropped to just over $30.00. As 2016 progressed, that premium remained well below levels of earlier years. Rising fed cattle prices compared to feeder animals pushed that price difference even lower in January of this year. The lower feeder cattle prices also reflects bigger calf crops.

SHEEP AND LAMB INVENTORY DECLINES

As of January 1, 2017, the U.S. inventory of sheep and lamb posted a year-over-year decline of 2%, according to USDA’s National Agricultural Statistics Service (NASS). Looking as slaughter data from USDA and this report indicates that producers were very cautious in 2016 and lacked optimism to hold onto ewe lambs to become breeding stock. At the forefront were government policy/regulations regarding larger operations to maintain hired shepherds to manage flocks.

            All sheep and lambs in the U.S. totaled 5.2 million head. The breeding sheep count was 3.86 million head as of January 1st, down 2% year-over-year. Market lambs were reported at down 1% from a year ago. In 2016, the national lamb crop was 3.25 million head, declining 1% compared to January 1, 2016. The national lambing rate (lambs per ewe one year and older) was 105%, just slightly below 2015’s.

NASS shows sheep and lamb numbers for 33 states. Twenty had declines in the number of breeding animals compared to a year ago. In order by size, the states with the largest number of breeding animals are: Texas, California, Wyoming, Utah, Colorado, Montana, South Dakota, Idaho, Oklahoma, and Iowa. Of those states, only California (+5,000 head) and Wyoming (+10,000 head) had an increase compared to a year ago in their breeding animal count. Four states continue to dominate the market lamb numbers, in order of head they are: California, Colorado, Texas, and Wyoming.