Do We Really Have a Cattle Shortage? Not Really.

This week’s article comes from Dr. David Anderson at Texas A&M. There have been a few stories floating around about one particular calculation from the cattle inventory report: the number of cattle outside of feedlots. These stories suggest that since this number is lower than last year, we might have a shortage of feeder cattle. In the article below, Dr. Anderson does a good job of explaining why that logic is shaky after looking at the underlying data.


After digging through USDA’s cattle inventory report, I thought a couple more comments were in order.  I noticed several articles announced that we had a shortage of cattle and that calf prices would remain high due to this shortage. Let’s take a look at the data contributing to this statement.

The idea that there is a shortage of feeder cattle is based on the estimated feeder cattle supply outside of feedlots. This number is calculated by analysts as a potential measure of feeder cattle supplies that might be coming to market in the Spring. Several numbers out of the inventory report are used to estimate this data point, including steers over 500 pounds, other heifers, steers, heifers, and bulls under 500 pounds, and the number of cattle on feed. Several factors can influence how this number works out including the calf crop. A larger calf crop results in more calves available. (It’s interesting to note that while the cowherd was up 3.5 percent in 2017 the calf crop was only up 2 percent. That might suggest some future revisions.) More rapid placements of the year’s calves would result in fewer feeder cattle outside feedlots. More heifers not being held for replacement yields a larger number outside feedlots, or more in feedlots.

So, how does the report shake these numbers out compared to the year before? The calculated number of feeder cattle supplies outside feedlots was 26.1 million head, down 607,000 from the year before. The number of steers 500 pounds and over was down 32,000 head. The number of steers, heifers, and bulls under 500 pounds was up 41,000 head. The number of “other” heifers was up 322,000 head. But the biggest change was the number of cattle on feed, up 939,000 head, or 7.2 percent. So, why was the number of feeder cattle outside feedlots down from the year before? Because they already went to feedlots. Derived demand from packers and feedlots for cattle, fueled by profits pulled cattle ahead. Good beef demand, both domestic and export (record beef export volume), pulled beef ahead. And, the building drought in wheat pasture country led to light weight calves going to feedlots rather than wheat.

Feeder cattle supplies outside feedlots is often used as an anecdotal look at available supplies for the next few months. In this case, it’s viewed as a reason for strong calf and feeder prices this Spring. The fact that lightweight feeder cattle went to feedlots instead of wheat pasture could be seen as an argument for a smaller than seasonal decline in feeder cattle prices this spring. The feeders coming off wheat pasture won’t be there. It’s worth remembering that there is also a demand for feeder cattle. There may also be less demand for those “wheat pasture” feeder cattle because feeders already bought them and put them on feed – back in October, November, and December.

Two other things about the calculated feeder cattle supplies outside of feedlots. One is that it is a residual calculation. The residual is what’s left over. There can be a lot left in, or out of it. The second thing is that while it is an interesting number that can give some insight, it has never proved to be worth much as a predictor of later prices. Many analysts, including this one, have tried to develop models using this statistic with insignificant results.

It doesn’t look like there is a shortage of cattle. A smaller calf crop than expected, drought, and good demand have conspired to move cattle faster through the system.

State Breakdown of Cattle Inventory

Last week we discussed the cattle inventory report as a whole. This week, let’s dig into some of the state-by-state numbers.

In the Southeast, all states other than Florida and Georgia saw an increase in the number of beef cows in their states. Mississippi was up 25,000 head and Alabama up 21,000 head of beef cows. Mississippi, Alabama, and Louisiana each increased their beef cow herds by a little over five percent as compared to January 1, 2017. Missouri increased the number of beef cows by 111,000 head – this is a 5.4 percent increase over last year. This moved Missouri slightly ahead of Oklahoma to once again rank as the second largest beef cow state in the country. Florida, long a top ten beef cow state, dropped to 13th place with 886 thousand head on January 1, 2018; behind Arkansas with 924 thousand head and Tennessee with 910 thousand head.  This is the first time Florida has had fewer than 900 thousand head of beef cows since 1964.

Texas had 125,000 head more beef cows this year than last. This is a 2.8 percent increase. While Texas had one of the largest increases this year, it is interesting to note that they are the state with perhaps the most room for further increases. Even with the recent increase, the number of beef cows in Texas is still 565,000 head lower than it was in 2008.

In the northern plains states, drought conditions did not result in net herd liquidation year over year. South Dakota added the largest number of cows of any state in 2017. The beef cow herd in South Dakota increased 8.2 percent, to 1.8 million head. Beef replacement heifers in South Dakota were up 10.1 percent, suggesting that aggressive beef herd growth will continue in 2018. The beef cow inventory in Montana grew 0.7 percent to 1.5 million head while in North Dakota, the beef cow herd grew 3.2 percent to 985,000 head. This is the largest North Dakota beef herd level since 2002. The drought impacts show in the beef replacement heifers numbers in both states — 8.2 percent smaller in Montana and 7.3 percent smaller in North Dakota. This probably indicates lower growth potential in 2018 in these states.





U.S. Herd Expansion Slowed in 2017

The USDA-NASS Cattle report was released last week and it reports the annual cattle inventory estimates for the U.S. There were no big surprises found in this report but it does provide support for the projections that cattle inventory is still expanding but at a slower rate than in past years.

Dissecting this report gives us a little more detail on specific numbers that are of interest to producers. The U.S. beef cow inventory was up 1.6 percent over January 1, 2017, to 31.7 million head. Perhaps the most positive (for prices) indication from this report was that beef replacement heifers were down 3.7 percent from last year to 6.1 million head.  While beef replacements may have shrunk in 2017, this should not be confused with herd declines. Rather it should be attributed to slower growth during 2017. What does this mean for 2018? It’s hard to make very strong conclusions. Some will look at this report and suggest that herd expansion will end during 2018. However, the data suggest that low levels of expansion are still possible and maybe likely.

The 2017 calf crop was 2 percent larger at 35.8 million head. The current larger beef cow inventory has set the stage for a larger calf crop in 2018. The report also showed feedlot inventory 7.2 percent to 14 million head. This feedlot inventory number is a little different from the monthly cattle on feed number because it includes all feedlots while the monthly report only surveys feedlots with over 1,000 head capacity.

We’ll dig into some of the state-by-state breakdowns next week. But my primary takeaway from this report is that any beef herd expansion in 2018 would likely be limited. However, that will obviously be driven by market conditions in 2018.

January 1 Cattle on Feed Report

The latest cattle on feed report showed the total number of cattle on feed was 8.3 percent higher on Jan. 1 2018 than it was on New year’s day in 2017. In total, 11.5 million head of cattle were in feedlots. This is the largest January 1 total since 2012.

Placements of lightweight cattle continued to outpace year-ago levels during December of 2017. The total number of cattle placed into feedlots was up by 0.8 percent over December 2016 levels. However, a deeper look at this number shows that cattle weighing less than 600 pounds were the primary driver of the increase. The number of cattle placed weighing more than 600 pounds was about 21,000 head below a year ago levels. However, placements of cattle weighing less than 600 pounds increased by 35,000 head. This was an eight percent increase for that weight class over December of 2016 and it continues the trend of larger placements of lightweight cattle that we’ve seen over the past few months. Placements of cattle under 600 pounds were 49 percent larger in the fourth quarter of 2017 than during the fourth quarter of 2016. Poor winter grazing conditions are a primary reason that cattle are coming to feedlots earlier and lighter that might normally happen.

Marketings were either down or up depending on how you look at the numbers. The report shows that marketings were 1.4 percent lower than during December of 2016. This was in line with pre-report expectations. However, there was one less business day during December 2017 than in 2016. So daily average marketings were actually higher than a year ago. On a daily average, marketings were greater than 2016 for every month of 2017. The marketing rate remains important as the increased supplies continue. 

Also in this report was the breakdown on the inventories of steers and heifers. The inventory of steers in feedlots is 4.5 percent higher than a year ago. The inventory of heifers is almost 16 percent higher than a year ago. This implies that a slowdown in heifer retention has occurred. However, the percentage of heifers in the feedlot mix doesn’t yet rise to the level that might suggest herd contraction is in the near future.

Next week I’ll discuss the annual January 1 cattle inventory report that will be released on January 31st.

Cattle Market Outlook: LMIC’s Jim Robb in Mississippi

Jim Robb, Director and Senior Agricultural Economist at the Livestock Marketing Information Center in Colorado, spoke to the attendees at Mississippi Farm Bureau Winter Commodity Conference today. The topic was the outlook for the cattle and dairy markets. Jim has been an industry expert for many years and is one of the most respected analysts when it comes to the cattle markets.

During his presentation, Robb said he was pleasantly surprised with prices in 2017 after the tough market conditions of late 2016. He pointed toward growing consumer confidence around the world as a reason for the strong demand for beef during 2017. Beef exports in 2017 were the largest year ever in terms of both tonnage and value. Consumer confidence has increased in the U.S. and in Asia. Robb said beef “featuring” by retailers in 2017 was also a reason for the strong demand in the U.S.

While prices were strong in 2017, Robb is forecasting lower year-over-year prices in 2018 and probably in 2019. He noted the larger amount of red meat and poultry supplies available as the primary headwind to the market. Per person disappearance of red meat and poultry is projected to be 223 pounds in 2018. This would be the largest annual total ever. He made the analogy of swimming upstream to portray the challenge that the market faces with larger supplies coming.

These are just the “big” points of his presentation. In total, I found Robb’s presentation to be an excellent evidence-based analysis of the current market conditions and the outlook for the future. He engaged the audience with an entertaining presentation while also telling us what we need to hear about the lower forecasted prices. Thanks to the MS Farm Bureau for bringing great speakers to Mississippi.

Live Cattle Market Situation

Last week’s live cattle average price was just under $120 per cwt. This was the “5-area” average price which simply means that it was the average of the five major feeding and processing areas: Texas/Oklahoma/New Mexico; Kansas; Nebraska; Colorado; and Iowa/Minnesota. The live cattle market is heavily influenced by beef demand as this is the stage of the beef production chain where cattle can be turned to beef. If packers need more beef to fill orders and meet demand, then they can bid more aggressively on live cattle. If beef demand is light, then packers may not bid as strong for live cattle. A “normal” year would see live cattle prices peak in the early Spring ahead of the summer holiday and grilling season. The late winter and early Spring months are also the months with the lowest number of cattle slaughtered.

Also important is the supply of “market-ready” cattle available. This represents the number of cattle that are sitting in feedlots that are ready to go to packers. The best observation of the price point where beef demand and the supply of market-ready cattle come together is found in the live cattle market. The term “market-ready” captures a pretty wide range of cattle because it can differ depending on the market situation. For example, in the Spring of 2017, higher live cattle prices led feedlots to market some lighter cattle than normally would have. During this time there were not enough heavier cattle to meet beef demand.

We are starting 2018 at very similar live cattle prices to what began 2017 even if some of the underlying market forces are different from a year ago. Higher placements of cattle into feedlots throughout 2017 might suggest there will be plenty of market-ready cattle available to meet the expected seasonal increases in beef demand in the coming months. That probably makes it unlikely that we will see a supply-driven surge into the $140s like we did in 2017. However, even with the larger number of cattle placed, feedlots remain very current. Strong marketings throughout 2017 ensured that feedlots didn’t swell with market-ready cattle waiting to be sold. The number of cattle on feed over 120 days was actually below the prior 5-year average in December.

The current situation is that prices are relatively strong despite the increased supplies. Strong domestic and international beef demand is allowing for outlets for the increased beef production without forcing market prices to very low levels. It is also helping move cattle through feedlots which is important for feeder markets. When and how high the peak in the live cattle market will be in 2018 will have implications throughout the beef production chain.

International Trade and Cattle on Feed

Happy New Year! This week’s newsletter will focus on two main topics: (1) the latest international trade data released today and (2) the December Cattle on Feed Report released on December 22nd.

(1) The latest Livestock and Meat International Trade Data was released by USDA ERS today. Total beef and veal exports were up 2.65% during November of 2017 as compared to November 2016. Year-to-date (through November), total beef exports were up 13% over the first 11 months of 2016. Among our top 5 trading partners, exports were up 21.4% to Hong Kong, 13.3% to Japan, and 2.5% to Mexico.These increases were partially offset by export decreases of 18.9% to Canada and 5.6% to South Korea. In total, November saw beef exports of 261 million pounds and imports of 212 million pounds.

Just under 2 million pounds of U.S. beef was shipped to mainland China in November. This is the highest monthly total of 2017 and I expect we will continue to increase exports to China. For the year (through November), about 7 million pounds of beef has been shipped to mainland China.


(2) The latest Cattle on Feed report showed the December 1 feedlot inventory at 11.5 million head. This was 8 percent higher or an additional 864,000 head in feedlots compared to December 2016. This is also the largest monthly on-feed total since March of 2012 and the highest December feedlot inventory since 2011. Much of the increase is due to a 20.3 percent increase in placements under 700 pounds. This report didn’t necessarily suggest that there were a lot more calves out there that no one knew existed, it just showed that many cattle were placed into feedlots at lighter weights than might have been expected. Lightweight feeders placed now will not be available for placement later. These lightweight placements will be marketed later and are not bunched up with earlier placements.

2017 in Review & Market Factors to Watch in 2018

We have covered a lot of ground in the cattle industry in 2017. It was a year that exceeded nearly all expectations in terms of cattle prices. 2017 ushered us out of the market lows we saw in late 2016 – we’ve probably all tried to forget those few weeks of 95 cents/lb. for 600-700 pound steers just 14 months ago. Since then, the market has shown impressive strength in the face of larger supplies. About 1.3 million more calves hit the ground in 2017 than in 2016. Higher than expected prices in 2017 was certainly a positive sign for the cattle industry as we grapple with continued herd expansion.

We began 2017 talking about the Trans-Pacific Partnership (TPP). This was the trade deal that was would have gradually decreased tariffs on U.S. beef entering Japan, our leading U.S. export market. Of course, U.S. participation in TPP fell apart due to larger political reasons & the U.S. remains at a tariff disadvantage for sending beef to Japan. Beef trade, in general, was the storyline for most of 2017 due to trade renegotiations (or talks of renegotiation) with our biggest trading partners including Japan, Canada, Mexico, and South Korea. These four countries represent over 70 percent of the U.S. beef export market and negotiations (or discussion of negotiation) are ongoing. Despite the presence of trade discussions, our export markets flourished in 2017 and were up over 14 percent year-over-year through October. We also gained access to mainland China for the first time since 2003. Export totals to China have been modest as the market adjusts to the additional requirements for beef qualified for shipment to China.

Now is also a good time to discuss a few questions that will be critical to markets in 2018. While there are many factors to watch, I want to point to three in particular. The first and likely most important is “at what rate did expansion continue in 2017?” We’ll get a good measure of this when the annual inventory data is released on January 31st. I anticipate that expansion has continued, but not as rapidly as in the past few years. The second question is “can we continue to expand our beef export markets at a rapid pace?” I believe are export markets are a primary reason for stronger than expected prices in 2017. With even more supplies coming in 2018, can export markets exceed expectations again in 2018? The final question is “how will expansion of total meat production impact beef?” While beef production is increasing, chicken and pork production is also expanding. This has set the stage for 2018 to be largest total meat consumption year of the past decade. How will this increased production get sorted out at the grocery meat case by consumers?

If one thing is for sure, it is that 2018 will bring surprises just like every year. Here’s to hoping that like 2017, most of those surprises will be good for cattle producers. Happy New Year!

2018 Cattle Market Outlook Radio Segment

Last week I recorded a segment on Farm and Family Radio with Amy Myers to discuss the 2018 Cattle Market Outlook (listen to the radio segment HERE). I thought the transcript of that conversation would be of interest to readers of this newsletter, too – so here it is!

Amy: Today, we’re speaking with Josh Maples, Mississippi State University Livestock Extension Economist. Dr. Maples, first off, tell us a little bit about what all information you consider when studying the cattle market.

Josh: Thanks for having me Amy. The cattle market is a fascinating combination of many different factors and understanding how these factors impact prices is important when forecasting what prices might be in the future. We are operating in a global environment where the amount of U.S. beef consumed in countries around the world can have real impacts on the prices we receive for our calves here in Mississippi. We’re really just trying to estimate supply and demand. But each of those include many aspects of our industry.

Amy: What are some of the most important factors in our industry right now?

Josh: As we end this year and move into 2018, there are a few big storylines that are impacting expectations for our markets as we move forward. The first is increasing cattle and beef production, the second is total meat production, and the third is international trade. These are probably the three most important aspects of our industry right now in terms of forecasting market prices.

Amy: You mentioned increased production. What is happening and how will it impact cattle prices moving forward?

Josh: We’ve been pretty rapidly expanding the herd in the U.S. over the past three years. Producers have retained more heifers and more calves have been born each of the past three years. Larger supplies of calves are turning into increased beef production. The number of cattle processed is six percent higher in 2017 than it was during 2016. With a larger calf crop on the ground this year, too, the number of cattle processed next year will also be larger. This means beef production is increasing. Increasing production means we either have to increase the number of consumers, or current consumers will have to eat more beef. Generally, increasing consumption across the same number of people requires lower prices.

Amy: What about total meat production?

Josh: It’s not just beef production that is increasing. Poultry and pork production are also increasing at the same time. Pork and poultry are competing meats at the grocery store. The price of those meats impacts the amount of beef purchased. For 2018, we’re forecasting about 215 pounds of meat disappearance per person in the U.S. That’s the largest since 2008.

Amy: That is a lot of meat! What is going on with international trade?

Josh: Increased exports of U.S. beef have been an extremely positive storyline of 2017. We have increased exports by about 14 percent over 2016 levels. This is much higher than most expected and it has provided some support to prices. Anytime that we can find new customers for beef, that supports beef and cattle prices because it offsets some of the supply increase. Exports to our largest trading partner, Japan, have been exceptionally strong. Exports to Japan are up nearly 30 percent above 2016 levels.

Amy: Tying all of this together, what does the market look like for 2018.

Josh: 2018 will likely bring slightly lower calf prices for producers in Mississippi, on average. Right now, I’m forecasting prices to be about $5 per hundred weight lower than they have been last year for 500 to 600 pound Mississippi calves. That would put the Mississippi average around $145 for those calves. Now this doesn’t mean prices will be lower all year long – that is my forecast for the 2018 average compared to the 2017 average. There will likely be some opportunities for stronger prices throughout the year.

Amy: Can the factors you mentioned above impact this forecast?

Josh: Absolutely. For example, a primary reason prices have been stronger in 2017 than we forecasted this time last year is that exports have exceeded expectations. My forecast for 2018 uses a more “normal” expectation about growth in exports for 2018. If we grow another 14 percent next year, that will certainly provide some support for prices above what I’ve forecasted. However, we know that supplies are going to be larger in 2018. So the upside to be surprised will likely have to come from stronger than expected demand both domestically and internationally.

Amy: Thanks so much. Today, we’ve been speaking with Livestock Extension Economist Josh Maples. I’m Amy Myers, and this has been Farm & Family. Have a great day!

Cattle on Feed Report

The latest cattle on feed report again shows strong placement totals. During the month of October 2017, placements were 10.2 percent higher than during October 2016 – some of which can be attributed to one additional slaughter day in October 2017. While higher than average pre-report estimates, this number was within the range of estimates. Still, the market reaction was bearish as nearby live cattle futures prices were about $1.50/cwt and feeder futures prices down about $2/cwt at the end of trading today.

This marks the eighth consecutive month of higher placement totals than last year. February has been the only month that showed lower placement numbers in 2017 than in 2016 (although just slightly lower). For the year-to-date, placements have been 9.1 percent higher than the same period last year.

While the high placement totals are filling feedlots, aggressive marketings continue to keep cattle moving through feedlots at an impressive pace. October marketings were 6 percent above October 2016. The strong marketings seen in 2017 have kept a large bottleneck of market-ready cattle from building up in feedlots.

As of November 1st, the on-feed count was 11.3 million head. This is 6.3 percent larger than November 1st, 2016 and a year-over-year increase of 667,000 head. This is the largest inventory for November 1st since 2011.