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Stage Is Set For Herd Expansion, But…

Stage Is Set For Herd Expansion, But…
With inventory signals pointing toward herd expansion, near-normal forage and crop production this year should set the stage for stronger calf prices.

“If weather helps restore feed and forage supplies this summer, a more aggressive expansion of beef heifers should be anticipated beginning in the fall of 2013 and continuing into 2014,” says Chris Hurt, Purdue Extension agricultural economist.

If precipitation returns to near-normal levels for the 2013 growing season, CattleFax predicts farmers in the U.S. will plant a record number of acres in both corn and soybeans.

“If we see anything close to trend line yields, we’ll see relief on the supply side (feed grain) and the result will be price relief, particularly in the second half of 2013,” says Chad Spearman, CattleFax grain market analyst.

In the meantime, Derrell Peel, Oklahoma State University Extension livestock marketing specialist, points out in his weekly market comments that recent adjustments to 2012 Cattle Inventory report data mean the inventory of beef replacement heifers at the beginning of 2012 was up 2.4%. He points out the estimated inventory of beef replacement heifers for Jan. 1 this year is up another 1.9%. So, it appears some building blocks for expansion are being laid.

“The report (inventory) suggests, collectively, cattlemen have been adding youth to their breeding stock as heifer replacements are up from last year while the beef cow herd has declined, reflecting ongoing culling,” explains Glynn Tonsor, Kansas State University agricultural economist, in last week’s In the Cattle Markets. “…while heifer replacements are higher than estimates for 2011 and 2012, they remain lower than any other year since 1990, suggesting ‘real expansion’ has yet to be initiated. It is also important to recognize that this aggregate ‘youth movement’ is not occurring uniformly across producers. Besides geographic differences, the number of cow-calf operations is likely continuing a trend downward and those adding heifer replacements may represent a minority of operations. This is consistent with the finding of an August 2011 producer survey that perhaps only one-half of those who liquidated herds in 2011 would restock when conditions improve…”

According to Peel, the 2013 beef replacement heifer inventory is 18.3% of the beef cow herd inventory, the highest replacement percentage since 1995.

“However, it depends entirely on whether drought condition moderate to determine what percentage of those heifers may actually enter the herd in 2013,” Peel says. “In any event, even with a larger pool of potential replacement heifers, the potential for herd expansion in 2013 is still rather limited. It would require another significant drop in beef cow slaughter combined with a high percentage of this heifer pool to be actually placed into the herd to achieve more than stabilization of beef cow herd numbers. Limited beef cow herd expansion is possible in 2013 but it will require almost perfect conditions with respect to cow culling and heifer placement. The ongoing drought conditions do not make that likely.”

A Closer Look: Thoughts On Repopulating A Beef Herd After Drought

“If crop and forage production return to near normal, the cattle industry is poised for multiple years of favorable returns and expansion,” Hurt says. “Cheaper feed and increased heifer retention will set the stage for very strong calf prices and new record high prices for finished cattle in 2014.”

CattleFax is projecting average prices will be higher for all classes of cattle during 2013 compared to last year.

Fed cattle prices are expected to average $126 this year, 2.5% more than last year's $123 average. Yearling prices are expected to average $155, an increase of 5% from the 2012 average of $147. According to Good, the average calf price is estimated to be $175, up 5% from last year’s average of $167.

According to the latest World Agricultural Supply and Demand Estimates, fed steer prices for the first quarter are estimated at $125-$129; $125-$134 for the year.

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