Heifer Feds and Price Reports Suggest Expansion Underway

Heifer Feds and Price Reports Suggest Expansion Underway

Two economists think heifer and cow numbers could show increase this year but suggest 2014 likely a bigger growth year.

Two economists suggest heifer retention could be increasing this fall but both say there is little data yet and overall increases likely would be small.

The delayed October Cattle on Feed report, due out October 31, is expected to show a significant decrease in heifers on feed, says Derrell Peel, livestock market analyst for Oklahoma State University.

Heifers on feed dropped sharply in the last half of 2012 then increased relatively in the first half of 2013. By July of this year, heifers on feed were still down year over year, but down only 3.5% compared to a 9.5% decrease on January 1, 2013.

Two economists think heifer and cow numbers could show increase this year but suggest 2014 likely a bigger growth year.

It appeared that more heifers entered feedlots in the first half of the year, Peel says. This is further indicated by the fact that heifer slaughter has been higher by 2.7% since July after being down 3.7%, year over year, in the first half of the year. He says this bulge in heifer slaughter should be nearly finished and decreasing heifer slaughter is expected for the remainder of the year.

Meanwhile, Peel says auction market reports indicate replacement heifer demand is picking up. A partial check of auction reports from around the country for the last week indicates at least ten markets where replacement heifers are noted in the feeder heifer auction summaries. The majority of these reports are in Nebraska and South Dakota but also in several other states as well.

Heifers labeled as replacements are bringing significantly higher prices than feeder heifers of the same weight and class, Peel says. The replacement heifers are priced with small discounts to comparable steers or even higher prices in a few instances.

Peel further says based on Oklahoma City auction prices, 525-pound heifers, classed medium to large-framed No. 1, have been discounted to steers an average of 11.6% over the period 2008-2012. So far in 2013, the discount has averaged a little larger at 12.8%. In several specific cases last week, the replacement heifers were discounted only 2-4% from comparable steers, with some examples of heifers priced higher than steers.

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"In what is likely a hint of much more to come, the October 24, 2013 auction summary for Valentine, Nebraska, is the most dramatic current example of breeding versus feeder demand for heifers," Peel says.

The Valentine summary includes several sets of four-weight to six-weight heifers selling as replacements. Several lots sold on a per-hundredweight basis, but denoted as replacements, and several lots sold on a per-head basis, bringing even higher prices.

Heifers (Med/Large #1), ranging from 521 to 567 pounds, sold from $169.27/cwt. to $173.60 as feeder heifers but sold at $185/cwt as replacements or by the head for $1,197.75 (527 pounds), which is equivalent to $227.28/cwt; and $1,274.38 (564 pounds), i.e., $225.95/cwt.

In contrast, steers ranging from 519 to 574 pounds sold from $192.24 to $205.76/cwt. Of the five-weight heifers in this summary, 45% sold as replacements, with only 55% selling as feeder heifers.

"I expect to see more of this range of heifer values, if not this fall, certainly next spring as long as forage conditions look promising," Peel says.

"I suspect that market reporters will have increasing difficulty accounting for the differences in feeder heifer and breeding heifer values," he adds.

He says in addition to the "replacement" comment used when it is clear that heifers are being purchased for breeding, the "fancy" label, which is applied to both steers and heifers of known superior quality, is likely in the case of heifers to increasingly represent breeding demand as market reporters attempt to account for price differences in heifers.

"I expect the overall discount of heifers to steers of the same weight to be smaller on average for the next couple of years if herd expansion is indeed underway," he concludes.

Darrell Mark, adjunct professor of economics at South Dakota State University, adds that going back to Jan. 1, 2013, cow-calf producers were retaining 5.36 million heifers for breeding, which was almost 2% more than a year ago.

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Whether those replacement heifers will translate to an increase in the cow herd by the end of this year, however, is less uncertain, and he thinks any increases accounted this year will be relatively small.

"By late spring, it appeared likely some of those heifers were culled from the breeding herd and diverted into feedyards," Mark says. He adds that by the end of summer several factors came together which should improve cow-calf producers' profitability and incentivize them to increase the size of their herds including:

* Improved pasture and range conditions.

* Iincreased hay supplies.

* A record-large corn crop.

He notes a decline in fed-heifer slaughter this year could suggest more heifers are being held for breeding b.

"For the first 36 weeks of the year, federally inspected steer slaughter was 1.2% lower than a year ago, while heifer slaughter was 1.8% lower than in 2012," he says. Even with a modest increase in heifer retention, it is difficult to see overall beef cow numbers increase because cow slaughter has been so high in recent years, including parts of 2013.

Mark explained that cow slaughter during the first 36 weeks of the year was 0.8% higher than a year ago. Beef cow slaughter was lower than in 2012 during January and February this year as producers sought to grow herds, but it increased from March through June as drought conditions and high feedstuff prices prevailed.

However, since July 1, 2013, beef cow slaughter has dropped nearly 11% relative to the same time period in 2012. "The recent dramatic drop in beef cow slaughter suggests producers are slowing down on culling cows from their herds, which will eventually help stabilize cow numbers," Mark said.

Mark also examines the price relationship between yearling steers and heifers for a gauge as to whether more heifers are being bought for potential breeding. Using Nebraska 700-800 pound yearling steer and heifer prices as a barometer for national price trends, Mark said a relationship to the next year's number of heifer replacements can be observed.

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"When this ratio increases, yearling heifers prices are increasing relative to yearling steer prices, which can be an indicator of additional heifers being bought for replacements," he said.

The summer average yearling heifer-to-steer price ratio stayed between 92% and 93% from 2009 through 2012, which Mark said led to only modest increases in heifer retention the following Jan. 1.

"These increases in heifer retention were not enough to result in growth in the cow inventory due to accelerated cow cull rates during those years," he said.

However, in 2013, the summer yearling heifer-to-steer price ratio increased to 93.6%, the highest in five years. While the data on beef heifers being held for replacements won't be available until late Jan. 2014, Mark said this does provide some evidence as to an increase in heifers being held as replacements.
"One of the interesting questions to be answered by the next January cattle inventory report is whether beef cow numbers will have increased on Jan. 1, 2014 relative to the beginning of 2013," he said.

"While beef heifer replacements could be 2-4% higher, it may not be enough to offset the aggressive cow culling earlier this year. It will depend upon how many additional cows are culled this fall. But, given that many of the older cows would have been culled earlier this year or in previous years, cow culling this fall could be lower than normal."

He added that high feeder cattle prices and cheaper feedstuffs should increase profit opportunities for cow-calf producers in the year ahead.

Mark surmises from that some growth may be counted in the January 1 inventory numbers but he suspicions it would be modest. He suggest it will take another year before larger growth in the herd is realized.

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