USDA herd counts influence price for producers and consumers

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Column by Doug Shepherd, Extension Agent

By Doug Shepherd

On Jan. 27, USDA released its annual cattle inventory report, giving the total number of cattle residing in the U.S. as of Jan. 1. As expected, the report suggested that the U.S. cattle industry will continue to experience short supplies and high prices for calves and feeder cattle and as a result higher retail beef prices. 

However, the numbers released also show the trend toward herd reductions may be coming to an end.

The report shows all cattle and calves totaled 90.8 million head, 2 percent below the previous year. This is the lowest Jan. 1 inventory since 1952, and marks the 13th time numbers were reduced in the last 15 years. 

All cows and heifers that have calved were down by 2 percent from a year ago, while beef cows were down by 3 percent — the same percent cow slaughter was up.  All of this occurred despite record high calf values, which normally should encourage stabilization or even expansion.

The drought and forage shortage across much of the Southwest pushed large numbers of calves into feedlots earlier than normal.  As a result, the total for calves less than 500 pounds and other heifers and steers weighing more than 500 pounds outside of feedlots, was down 4 percent. The number of cattle and calves on feed for slaughter was up 1 percent from a year ago at least giving a positive note to short term beef supplies.

The drought effect also was seen in beef cows numbers in the two states most severely affected, Texas and Oklahoma, where cow numbers were down 13 and 14 percent respectively.

Kentucky’s total cattle numbers were 2.15 million head, down 2 percent from 2011. The number of beef cows in the state was 995,000 also down 3 percent, the first time below 1 million head in many years. 

The number of Kentucky dairy cows was 75,000 head, also down 3 percent. Beef heifers held for replacements were down some 10,000 head at 135,000. The state’s total calf crop declined 4 pecent, yet there was a 15,000 head (3 percent) increase in the number of calves weighing less than 500 pounds found on farms. 

Kentucky’s overall cattle numbers and beef cow numbers although showing a decrease, still allow the state to remain the largest cattle state east of the Mississippi River.

Total cattle and calf numbers in Florida were up 5 percent, Mississippi had a 6 percent increase, and the state with the largest percentage increase was Alaska at 7 percent. Nebraska overall increase was only 4 percent, but that amounted to the largest number of head increase at 250,000 head.

Nationally, the only number besides cattle on feed showing an increase was that for beef replacement heifers, which were up by 1 percent from 2011. That increase hints that producers in states with adequate moisture are beginning to respond to market signals by expanding herds or selling heifers as replacements, since replacement heifer prices have been significantly higher recently.

If weather conditions are favorable, the trend toward more heifer retention is likely to continue and may even accelerate.  This removal of additional heifers from the supply of feeder cattle means U.S. beef production will decline further in the coming years since beef production is a very slow biological process.  Reason being, if local producers start keeping back heifers calves born this year to replace aging cows in their herds, those heifers will not be bred until 2013, and will not deliver their first calves until 2014. Those calves will not reach finished weights and contribute to beef production until sometime in 2015. 

In other words, if we started today - we’re at least three years from seeing any major increase in beef numbers or additional supply, that would lower the price of beef in the grocery.           

Retail beef prices increased 10 percent in 2011 reaching record levels.  Experts predict continued beef retail price increases into 2012 from 12-15 percent. Last year there was higher demand for Choice product mainly due to Walmart beginning to offer only premium Choice beef in its meat case last fall.

This demand was seen in a much larger margin/spread between Choice-Select. As a result, some retailers and restaurants may start using lower quality products thus improving the demand for Select products (which are of lower quality than Choice or Prime).  Coupling this with the sluggish economy, consumers most likely will turn to lower priced and ground beef products when making beef purchases. And those restaurants with more diverse offerings and flexible menu pricing will probably fare better than the high quality, “white table cloth” restaurants, since restaurant-goers will be looking for quality dining at a low price.

Daily and weekly price variability and volatility, which is expected to remain during 2012, makes this even more interesting. 

For example, the average 2011 fed cattle price (around $115 per hundred weight or cwt) is nearly $30/cwt above that same average price for the previous eight years. That average is expected to be up at least $5 in 2012. 

Factoring in the historical average range in price from high to low of more than 20 percent, that means the price range from the low to the high market price for the year could be $300 per head.

During 2011, week-to-week price swings two-thirds of the time were between $30 and $40 per head on fed cattle. Those swings are translated back to the feeder cattle markets rapidly, meaning producers need to be more disciplined in managing their price risk through any means possible. That starts with staying abreast of the market on a regular basis.

2012 should be a very interesting year on the production and consumption side of the beef business. Let’s hope that “Beef is STILL what’s for dinner.”

Doug Shepherd is a Hardin County Extension agent for agriculture and natural resources.