Long Run Of Profitability Hasn't Spawned Expansion

The U.S. cow-calf sector has been profitable since 1999 and returns the last three years have been the highest the industry has experienced in more than 25 years. Ordinarily, such a record would be enough to encourage producers to increase their herd size, primarily by holding back heifers, says Jim Mintert, Kansas State University economist. But that's not the case thus far in 2007.

Writing at www.lmic.info, Mintert reports combined beef and dairy cow slaughter were about 15% larger in the first quarter of 2007 than in 2006. The biggest slaughter increase was in the beef-cow sector as federally inspected beef-cow slaughter was 17% greater than in 2006. Dairy-cow slaughter was up 13% compared to last year.

"It looks like cow slaughter will remain large relative to last year until mid-to-late spring. Percentage increases in cow slaughter will likely moderate by late spring because cow slaughter last year increased sharply from about June forward," he says.

To gauge whether producers are actually reducing the size of the U.S. herd, it's useful to examine the ratio of female (cow and heifer) slaughter to steer slaughter. When female slaughter exceeds steer slaughter, it indicates herd liquidation is underway. When female slaughter falls far below steer slaughter, herd rebuilding is usually underway.

"So far this year, female slaughter has averaged about 97% of steer slaughter. The implication is U.S. producers are still holding the nation's cowherd steady," Mintert says. "If forage production prospects this summer improve substantially compared to last year, it could still encourage some producers to think about herd expansion, but that hasn't happened yet."
-- Livestock Marketing Information Center