Weekly Outlook: 2020 Cattle Inventory—Herd Expansion Comes to an End
The
U.S. beef cattle herd is known to cycle through periods of expansion
and contraction roughly every 10 years or so. The high feed price era
from 2007 to 2013 contributed to one of those contraction phases with
beef cow numbers reaching a low in 2014. Of course, low supplies
translate into higher prices, motivating producers to expand. Currently,
there are about 7% more beef cows in the U.S. than during the low point
in 2014. However, as prices have come back down, it looks like the
expansion of the beef herd has leveled off.
The USDA’s January 1
cattle inventory report corroborates earlier signals from last July’s
report that the expansion phase has come to an end. The total number of
cattle and calves in last July’s report was unchanged from the previous
July at 103 million head. The total inventory as of January 1 is 94.4
million head, down slightly from 94.8 million head a year ago. All cows
and heifers that have calved total 40.7 million head, just 1% below last
year, which mostly reflects 1% fewer beef cows at 31.3 million head, as
milk cows at 9.3 million head were only slightly down from last year.
Another sign that producers are unwilling to continue expanding is that
replacement heifers are down about 2% for beef and 1% for dairy herds
relative to last year. As such, the category of other heifers weighing
500 pounds or more is up 1%. The number of calves under 500 pounds is
also up about 1%. Steers and bulls weighing 500+ pounds are both down
1%.
With 1% fewer cows and heifers calved, the USDA has revised
downward the July estimate of the 2019 calf crop to 36.1 million head,
so that it is now 1% below the 2018 level, which should help hold down
the number of animals on feed and beef production in 2020 and 2021.
In
the recent Cattle on Feed report, the USDA indicated nearly 12 million
head on-feed or about 2% more than on January 1 of last year. In
December, feedlots placed 3% more cattle than a year ago and marketed 5%
more animals. Each of those numbers was only slightly higher than
pre-report expectations. While more animals are on feed, the mix of
steers and heifers indicates that, compared to a year-ago, more heifers
are being sent to the feedlots instead of staying on farm for breeding
stock. Though total cattle on-feed are up 2%, steers on-feed are up only
1% while heifers are up 4% from last year. Looking at it another way,
heifers comprise about 38%-39% of the cattle in feedlots according to
recent reports, as compared to only 31%-33% during much of the last
expansion. This is additional evidence of the leveling off of the brood
cow expansion.
Taking into account the inventory and cattle on
feed numbers, beef production is anticipated to be no more than 1%
higher in 2020 than last year. In terms of domestic demand, per capita
beef consumption is expected to be about 57 pounds per person in 2020
compared to almost 58 pounds in 2019 or around 1% to 1.5% lower.
Meanwhile, exports could be up to 7.5% higher this year. The trade
agreement with Mexico and Canada?the third and fifth largest customers
for U.S. beef, respectively?is in signed into law, and phase 1 of the
trade agreement with China is in place. However, much uncertainty
lingers on the horizon with regard to exports, particularly regarding
trade with China and the coronavirus outbreak there, its spread to other
countries, and implications for economic growth, and hence, demand.
All
things considered, prices in 2020 are likely land in similar ranges as
the last couple of years. Quarterly prices for slaughter steers are
forecast to average about $123/cwt, $120/cwt, $111/cwt, and $113/cwt,
respectively. For 600-700 pound feeder steers, prices are forecast to
average about $148/cwt in the first quarter, rising to $154/cwt in the
second quarter, and then fall to $153/cwt and $149/cwt in the third and
fourth quarters of 2020. Again, the major factors that could result in
notably lower prices are uncertainties surrounding trade and this
coronavirus. If a sick workforce slows down economies that could
translate into demand destruction for U.S. beef exports. If cases of the
virus already reported in the U.S. deter travel and hence restaurant
expenditures, there is the potential for even lower domestic demand as
well.