Jim Hilker: Cattle Inventory, Direction of Cattle Cycle, and Market Update?

Professor Jim Hilker reports on the current Michigan cattle inventory, direction of cattle cycle, and updates market projections.

Jim_Hilker_photo_v1On February 28 USDA/Nass released the annual January 1 Cattle Inventory Report.  While it is a month late due to the government slowdown, it is very much a needed report.  Absolutely better late than never.  While there is a needed mid-year cattle inventory report in July, this is the one report per year that has an update for each state.

 All cattle and calves as of January 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 ten 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 was 5.93 million head, down 3.0 percent from the previous year.  Beef replacement heifers as a percent of the beef cow herd this January 1, 2019 was 18.7 percent.  This ratio is 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 January 1 were down 1.4% at 3.01 million herd.  The 2018 calf crop, beef and milk, was 36.40 million head, up 1.8 percent from 2017.

On January 1, 2019 all cattle on feed of all sizes was up 1.6% at 14.37 million head, up from the January 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 January 1, 2019, up slightly percentagewise from the previous year. 

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

In addition to the cattle inventory report, we have information from the monthly January Cattle on Feed report for feedlots over 1000 head released February 22.  Total Cattle on Feed was the 11.7 million head mentioned above, up 2% from last year and near expectations.  December placements were 98% of last year, 3% below expectations.  This left more feeders for 2019 placements.  And marketed in December were 99% of last year, near expectations. 

Michigan’s all cattle and calves inventory on January 1, 2019 was 1.10 million head, down 10,000 head from the previous January 1, 99% of January 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%, at 108,000 this year versus 102,000 head last January 1.  Milk cows that have calved on January 1 was placed at 422,000 head, 99% 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 was 160,000 head, down 16,000.  The lower milk cow numbers are significant for Michigan cattle feeders who feed primarily diary steers.  There was 210,000 calves under 500 pounds in Michigan on January 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 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 cow herd with the cow herd 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, who 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% for 2019, we also expect beef demand to grow, due to export growth, more people, and higher incomes, at a rate that should keep prices in 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. The first quarter matches up with the futures market, for the next three quarter, the futures would indicate slightly lower.  But 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 7-800 pounds feeder steers are likely to be a bit below last year, perhaps by a couple dollars per cwt.  Last year 7-800 pound feeder steers averaged $150.00/cwt.  It appears in 2019 7-800 weights will average closer to $144-149/cwt. After being lower in the first quarter, 5-600 pound feeder calves will likely be near or above last year by a bit.  For the year, $168-175 versus the 2018 average feeder calf price of 171.39/cwt.

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