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U.S. cattle herd still growing, but at a slower pace

Market Update: Numbers indicate we're still a couple of years away from contraction

The USDA cattle inventory report in late February showed cattle inventory and calf numbers were above a year ago, but the expansionary phase appears to be slowing.

Canadian feeder cattle exports to the U.S. for 2018 had a year-over-year increase of 65 per cent. The larger U.S. calf crop may temper demand for Canadian feeder cattle in the short term. And a larger U.S. calf crop results in higher feedlot placements and higher beef production. This could result in lower demand for Canadian slaughter cattle and Canadian beef products. What does this mean for the coming year?

The number of U.S. cattle and calves on January 1 2019 totalled 94.760 million head, up from the year-ago inventory of 94.298 million. Beef cows and heifers that have calved were 31.765 million head, up one per cent or 299,000 head from last year; heifers for beef cow replacement on Jan. 1, 2019 were 5.925 million head, down three per cent or 183,000 head from Jan. 1 of 2018.

We’ve seen the U.S. cow slaughter edge higher over the past two years. The 2018 U.S. cow slaughter was estimated at 3.069 million head, up 244,000 head from 2017. As a rule of thumb, the U.S. cow slaughter needs to reach up to 3.5 to 3.6 million head to indicate that the cow herd is contracting. The first indication of contractionary behaviour would be when the cow slaughter increases to the higher levels combined with a year-over-year decrease in the number of beef cows. If the annual cow slaughter continues to increase at the current pace, it will be 2021 before we see the U.S. cattle herd moves into contraction.

The 2018 U.S. calf crop was estimated at 36.4 million head, up from the 2017 crop of 35.8 million head. Remember during the winter and spring of 2018, the U.S. Southern Plains had drought-like conditions. This caused feeder cattle to be placed sooner than normal throughout the winter. This year, much of Kansas and Oklahoma have experienced above normal precipitation. Winter wheat, winter rye, and grass pasture conditions are in excellent shape compared to last year.

More feedlot cattle

It’s important to note that since September of 2018, feedlot placements have actually come in below year-ago levels, while feeder cattle numbers outside feedlots were up one per cent from Jan. 1, 2018. This suggests that we are going to see a surge in U.S. feedlot placements during March and April when the feeder cattle move off small grain pasture in the Southern Plains. This will cause the Canadian and U.S. feeder cattle market to trend lower during the spring timeframe.

Canadian feeder cattle exports have been running above year-ago levels over the past year. Canadian feeder cattle exports to the U.S. during March through May are expected to drop under last year as the U.S market absorbs their larger domestic supplies. This could have serious implications for Manitoba and eastern Saskatchewan because a larger percentage of these feeder cattle will move west rather than south.

The U.S. cattle herd continues to expand. During 2018, feeder cattle exports exceeded 2017. The drought in the U.S. Southern Plains in the first quarter of 2018 resulted in feeder cattle being placed sooner than normal. Despite the increase in the calf crop, this enhanced demand for Canadian feeder cattle in the latter half of 2018. For 2019, we expect a surge in feedlot placements during March and April as feeder cattle move off small-grain pasture in the U.S. Southern Plains. I’m looking for lower Canadian feeder cattle prices during the spring due to slower exports. Cow-calf producers and backgrounding operators should have some type of price protection in place for their second-quarter marketings.

About the author

Columnist

Jerry Klassen manages the Canadian office of Swiss-based grain trader GAP  SA Grains and Produits Ltd., and is president and founder of Resilient Capital specializing in proprietary commodity futures trading and market analysis. Jerry consults with feedlots on risk management and writes a weekly cattle market commentary. He can be reached at 204 504 8339.

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