Beef herd expansion moving faster than anticipated, economist says

Beef herd expansion moving faster than anticipated, economist says

Purdue's Chris Hurt recaps numbers in USDA's cattle report, shares expectations for expansion into summer

The nation's cattle producers are expanding the herd at a somewhat faster rate than had been anticipated. In the semi-annual update of cattle numbers, USDA said that the total number of cattle and calves had increased by somewhat more than 1%.

Related: USDA cattle report pegs more expansion than traders expected

According to a Purdue University Extension economist, this is the first increase in the cattle inventory since 2007. The declining cattle numbers from 2007 to 2014 were due to poor brood cow margins as a result of high feed prices and a lack of pasture and forages in the Southern Plains from extended drought.

Purdue's Chris Hurt recaps numbers in USDA's cattle report, shares expectations for expansion into summer. (Photo by Scott Olson/Getty Images)

"There were multiple incentives to expand in 2014," said Chris Hurt. "These were led by record-high cattle prices, with finished cattle averaging near $155 per live hundredweight and Oklahoma 500-550 pound steer calves averaging $250 per hundred.

"The other part of the incentive was more abundant feed due to a retreating drought in the Central and Southern Plains that restored range conditions and to favorable feed crop production in 2013 and 2014, which lowered corn and protein feed costs," he said.

Related: Should You Expand Your Beef Operation?

Hurt said the most significant expansion is under way in the beef herd where beef cow numbers are up 2% from year-ago levels. The number of beef heifers being held back to enter the breeding herd is up 4%.

Significantly, the number of those retained heifers that will calve this year is up 7%, Hurt said. This means that 61% of the beef heifers that have been retained to enter the breeding herd were already bred at the start of this year.

Regional differences >>

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Hurt continued, saying that producers in all areas of the country are expanding beef cows except in the northeastern region and the western region where the drought and thus forage supplies remain a concern.

There were 610,000 new beef cows added across the country in 2014. The Southern Plains had lost the most cows since 2007 and are now the strongest region to rebuild. The Southern Plains expanded their cow numbers by 375,000 head in 2014, representing about 60% of the country's expansion. Texas cow numbers were up 270,000 head (7%), and Oklahoma cow numbers were up 105,000 head (6%).

Related: Beef Producers' Guide to Planning for Profit in 2015

The western Corn Belt added 96,000 cows, led by Missouri with 61,000 cows, and Iowa with 25,000 cows. The Central Plains were led by Kansas with 63,000 new cows and by Colorado with 35,000 new cows. Eastern Corn Belt beef cow numbers expanded by 3% (40,000 cows), and the southeastern United States added 32,000 head.

Expectations for future expansion
"Although producers expanded cow numbers more than expected in 2014, the expansion of the beef herd is likely to continue for multiple years," Hurt said. "It's common for the beef herd to be in expansion for four to six years. With 2014 registering as the first year of expansion, expansion could continue through most of this decade. If so, peak beef production on this cycle would not be expected until early in the next decade."

Dairy cow numbers were up 1%, and the number of dairy heifers being held back to enter the herd were also up 1%. The 2014 calf crop was larger than anticipated as the calving rate of 88.5% of total cow numbers at the start of 2014 was the highest in a number of years. This larger-than-expected pool of calves will increase slaughter supplies, especially late in 2015 and into 2016.

Related: Watch These Things To Predict Cattle Market Behavior in 2015

According to Hurt, beef supplies in 2015 may not be down as much as the nearly 2% USDA has been anticipating due to the larger calf crop and to anticipated heavier marketing weights this year. Most recently, in December and January, marketing weights have been up 1 to 2%. With feed prices in 2015 expected to be the lowest in five years, those higher weights will likely continue and beef supplies for 2015 could be in a range from down 1% to up 1%.

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"Beef will face strong competition from higher supplies of competitive meats in 2015, where poultry supplies could be 3% higher and pork 4 to 5% higher," Hurt said. "On the other hand, beef demand should benefit from moderate growth in consumer incomes and from lower fuel prices."

Related: Economist: Livestock's 'Mini-boom' Likely to Last for a While

Hurt said that, with beef supplies not much changed in 2015, one might anticipate prices to be near the $155 finished cattle price for 2014. However, 2014 was an exceptional year, and meat prices in general may be lower. Currently, futures markets are heavily discounting cash cattle prices, suggesting 2015 average finished cattle prices in the higher $140s.

"However, I expect finished cattle prices to average $150 to $157 in 2015, with prices in early spring in the upper $150s and the lower $160s, falling to near $150 in summer and then end the year in the mid-$150s," Hurt said.  "Given the uncertainties in the United States and world economies, concerns about commodity deflation, an unusually high-priced year in 2014, and a period of rapidly rising, competitive meat supplies, it seems like a time of caution for beef market participants," he said.

For daily livestock market updates, follow the Morning Livestock Review by John Otte

Source: University of Illinois

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