Long Awaited USDA Cattle Inventory report provides market direction for 2019 | Michigan Farm News

Long Awaited USDA Cattle Inventory report provides market direction for 2019

Category: Livestock

by Jim Hilker, Professor and Extension Economist Department of Agricultural, Food, and Resource Economics

Cattle-MFN_3.8.19
Photo courtesy of Meg Sprague Photography

On Feb. 28, the USDA/Nass released the annual Jan. 1 Cattle Inventory Report.

While it is a month late due to the government slowdown, it was a much-needed report —absolutely better late than never! While there is a needed mid-year cattle inventory report in July, this is the one annual report that has an update for each state.

All cattle and calves as of Jan. 1, 2019, were up about a half percent at 94.76 million head relative to a year earlier. This puts the number of cattle in the country just slightly higher than 2009 levels after dropping to a low of 88.53 million head in 2014, with an increase of 6.23 million head in the last five years. A question becomes, how much longer will the cattle herd grow? While there is a lot of variation in the length of cattle cycles, the average is about 10 years. Are we halfway through the cattle cycle?

All cows and heifers were up a little over a half a percent year to year at 41.12 million head. Beef replacement heifers were at 5.93 million head, down 3.0 percent from the previous year. Beef replacement heifers as a percent of the beef cow herd this Jan. 1, 2019, was 18.7 percent, down from 19.4 percent one year ago as heifer retention moves closer to levels consistent with zero herd growth.

All milk cows that have calved were down 0.08 percent at 9.35 million head and milk replacement heifers on Jan. 1 were down 1.4 percent at 3.01 million herd. The 2018 calf crop, beef and milk, was 36.40 million head, up 1.8 percent from 2017.

On Jan. 1, 2019, all cattle on feed of all sizes were up 1.6 percent at 14.37 million head, up from the Jan. 1, 2018 total of 14.1 million head. Cattle on feed in feedlots with capacity of 1,000 or more head, at 11.7 million head, accounted for 81.3 percent of the total cattle on feed on Jan. 1, 2019, up slightly percentage-wise from the previous year.

To calculate the feeder cattle supply for 2019, we add all the calves under 500 pounds (up 1 percent) to all the steers and other heifers (the heifers not kept for breeding, up 3 percent) over 500 pounds, and subtract all the cattle on feed. That estimate was 26.38 million head, up 1 percent from last Jan. 1.

In addition to the cattle inventory report, we have information from the monthly January Cattle on Feed report for feedlots over 1,000 head released Feb. 22. Total Cattle on Feed at 11.7 million head is up 2 percent from last year and near expectations. December placements were 98 percent of last year, 3 percent below expectations. This left more feeders for 2019 placements. And the number marketed in December were 99 percent of last year, near expectations.

Michigan’s all cattle and calves inventory on Jan. 1, 2019, was 1.10 million head, down 10,000 head or 1 percent from Jan. 1, 2018. All cows and heifers that have calved came in at 530,000 head, the same as the previous year. Beef cows that have calved were up 6 percent, at 108,000 this year versus 102,000 head last Jan. 1. Milk cows that have calved on Jan. 1 were placed at 422,000 head, 99 percent of last year when we had 428,000 head.

Beef cow replacements in Michigan was 25,000 head, up 1,000 head. Milk cow replacements were 160,000 head, down 16,000. The lower milk cow numbers are significant for Michigan cattle feeders who feed primarily dairy steers. There were 210,000 calves under 500 pounds in Michigan on Jan. 1, up 5,000 head. The report does not separate out beef versus milk calves under 500 pounds.

What does all this mean for the cattle sector in 2019? The larger 2018 calf crop and the resulting increase in estimated feeder supplies mean that feedlot production will remain higher in 2019, meaning increased beef production in 2019. The slightly larger 2019 cowherd with the cowherd replacements implies than the 2019 calf crop will be as large or slightly larger year-over-year and will maintain feeder cattle supplies through 2020.

Derrell Peel, my counterpart at Oklahoma State, has closely followed the cattle sector for many years sums it up as follows: “It appears that herd expansion is nearly over although the level of beef replacement heifers is large enough to support a minimal level of additional herd expansion in 2019. While cyclical expansion may be mostly complete, there is no indication of herd liquidation at this time.”

Average cattle prices are expected to continue at current levels and seem likely to hold cattle numbers steady in 2019. Future market conditions, good or bad, could prompt additional expansion or liquidation in 2020 and beyond. Producers should continue to monitor domestic and international market conditions to see what new cattle market direction emerges in the coming months.

While we expect beef production to be up about 1.5 percent for 2019, we also expect beef demand to grow, due to export growth, more people, and higher incomes at a rate that should keep 2019 live steer prices in the same range to a bit higher than this past year’s average price of $117.12/cwt.

With about the same seasonal pattern, the first quarter of 2019 is expected to average about $125-126/cwt, the second quarter $118-120/cwt, the third quarter $109-112/cwt, and the fourth quarter $115-119/cwt.

While the first quarter matches up with the futures market, futures would indicate slightly lower prices for the next three quarters. That assumes the basis has returned to “normal,” which it has for the last couple months after several years of not following long term averages.

The 700-800 pounds feeder steers are likely to be a bit below last year, perhaps by a couple of dollars per cwt. Last year, 700- to 800-pound feeder steers averaged $150.00/cwt. It appears in 2019, the 700 to 800 weights will average closer to $144-149/cwt.

After being lower in the first quarter, the 500- to 600-pound feeder calves are currently at $168-$175 and will likely be near or above last year’s average feeder calf price of 171.39 per cwt.