The July 1 Cattle Inventory report was released July 21, confirming what many had already believed to be true: The beef cattle herd is still shrinking. The pre-report debate was largely by how much and if any heifer retention was taking place across the U.S. The report does not provide state-by-state inventory data, so the best assessment we have is the national beef heifer replacement number, which was 2.4% smaller relative to last year.
A few thoughts that first came to mind after the report’s release:
• Beef cows lost another 800,000 head from last year, only 2.6% lower than last year. The rate of change has slowed, and we are likely not seeing much, if any, drought-based liquidation.
• Heifer retention does not appear to be happening to any meaningful degree. The other heifers category is also below a year ago but points towards a smaller calf crop. Without heifer retention, this report implies a turn in the cattle cycle will occur sometime after 2025.
• The Livestock Marketing Information Center (LMIC) calculates feeder cattle outside of feedlots based on the calf crop data on July 1. It appears the U.S. has drawn this number down significantly and moved those cattle into feedlots. The estimate for July 1, 2023, is down 1.3 million head, or a 3.6% decline.
• Cattle supplies continue to look very tight for the next few years, and all-time high prices are likely still out in front of us.
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Female slaughter
Female slaughter—heifers and beef cows—has been a number to watch for the last several years as the cattle cycle continues its downward trajectory. Year-to-date total beef cows slaughtered through July 8 was running 244,000 head below last year, while heifer slaughter was only 16,000 head behind 2022. This combination implies the total female slaughter pool is only down 3.6% from last year.
Typically, beef cow slaughter levels pick up in the second half of the year. The five-year average favors second-half slaughter by 2% more than the first six months of the year. Last year was an anomaly in that beef cow slaughter was very close to even, with 49.7% of beef cows moving to slaughter from January through June and 50.3% being slaughtered after July. With a significant reduction in drought pressure, we expect the normal culling patterns to resume, and that second-half beef cow slaughter will likely be higher.
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The large number of heifers in the slaughter supply chain complicates what normally leads to some quick discussion on where we will end up on Jan. 1. The July Cattle on Feed report estimated the number of heifers on feed to be 4.5 million head, exactly even with a year ago. Heifer slaughter looks like it should slow in the second half of the year. LMIC forecasts are using a 2% decline currently in its estimates.
Pasture and range conditions
Pasture and range conditions have improved substantially across the U.S., allowing for a much-needed break in supplemental feeding. The hay situation remains tenuous and expensive for cattle producers, but as of mid-July, less than 25% of the continental U.S. pastures required supplemental feeding compared to 46% at the same time last year. Trouble spots still exist, primarily in the Corn Belt states of the U.S., which are seeing poor and very poor conditions over 30%.
These states, though, have not been affected by drought in the last three years, and it reasons that these pastures will recover with rain quite quickly if the drought breaks after one year. USDA estimates 37% of cattle inventory (including dairy cows) is within drought areas, as primary areas in Nebraska, Kansas and Missouri are still seeing drought values of over 75% of their cattle in those conditions.
Beef on hand
The amount of beef on hand continues to decline, a trend that is expected to continue. Boneless beef stocks dropped to 80% of a year ago, while beef cuts were 76% of a year ago. These levels have now skewed below the five-year average. There will likely still be some seasonal increases this fall, but ending stocks at year end will very likely be below a year ago. Imports were expected to help even out the U.S. beef supply, but those have not picked up as expected.
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Through the first five months of the year, imports are lower than last year but have picked up in recent months. May data showed a 6% bump over 2022. LMIC has lowered its aggressive import forecasts to be more in-line with the first half of the year but is still expecting imports to continue to come into the U.S. market. The current LMIC forecast for imports in 2023 is an 8% increase over 2022 and it will take larger volumes in the second half of 2023 to achieve that number.
Australia, New Zealand and Uruguay have all been sending larger volumes than a year ago, up 24%, 9% and 36%, respectively, year to date. Brazil and Argentina have decreased their shipments to the U.S. and are 11% and 4% lower, respectively, than last year through May. However, May data showed Argentina shipped 33% more product than last year, the largest single month since February.
The prices of U.S. beef were expected to be a headwind for U.S. beef exports, combined with the strength of the U.S. dollar. Exports so far this year are down 11% from last year. May data was similar with those numbers, down 16% from last year. Mexico has been one of the few bright spots this year and is up 10% year to date. However, May data showed it pulled back and was down 5% from last year. Canada, though, had some of the strongest numbers, up 23% from last year. LMIC annual forecasts for 2023 are down 13% and expect further weakness in the second half of 2023.
Conclusions
Consumer demand has been a sticking point for a lot of analysts this year. High beef prices have not appeared to have affected consumers as much as anticipated. The U.S. economy has been stronger than initially thought at the beginning of this year, when many were thinking recession was imminent. The economic picture appears less clear, even now, as the Federal Reserve has paused interest rates hikes, but inflation rates are still high. The complexity of emerging from a pandemic, large-scale supply chain losses, unprecedented stimuli, followed by hardline retightening of money supply, all make it difficult to assess where we go from here. Household debt continues to grow as revolving credit balances fill the inflation-wage gap. We continue to monitor the consumer situation and adjust accordingly.
Cattle supply outlook remains tight for 2024 and 2025. LMIC feels strongly that unless beef demand significantly wanes, higher prices will be persistent and look to set new highs again at some point in the next two years. The breaking of the U.S. drought has breathed new life into the feeder cattle market and the feed-cost outlook has improved from the last several years. Cattle feeders and cow-calf producers are expected to see positive returns in the short term but may fluctuate between now and 2025.
