The beef industry had another year of contraction as was confirmed by the January Cattle Inventory Report last week. Twice a year USDA gives us an inventory list of live cattle that the industry uses to make predictions abut long-term supplies from the present into the next two years. The report itself typically has little-to-no bearing on near term fed cattle or feeder cattle prices.
Producers expand by doing two things, slowing cow slaughter and holding heifers for the breeding herd. A heifer held back from the sale barn in the year of its birth will be bred the next year, then give birth as a two-year old. We can track the number of cows, the number of heifers ready to give birth, and compute the number of your open heifers just held back. The numbers on those categories for beef breeds are 99.0%, 95.9% and 97.4%, respectively. Essentially we brought down the cowherd and it will not be replaced during 2008 with these ready to birth heifers. It is easy to say that the beef cowherd will be down by January 1, 2009 as well.
Officially, the cow/calf sector had an extended contraction from 1996 to 2004. In 2004 producers slowed cow slaughter and began holding a few more heifers back. This showed up on the January 1, 2005 numbers. The same thing happened during 2005, which showed up on the January 1, 2006 numbers. However, after two years of expansion the situation has changed. During 2006 drought hit the plains in a hard way and producers began liquidating their cowherds. Beef cow slaughter in 2006 was up 18% and producers sold those open (not bred) heifers. On January 1, 2006 we computed the number of open heifers just held back from the 2005 calf crop up 5.9% from the previous year. After the 2006 drought the number of heifers expected to calve as of January 1, 2007 were down 0.3%. All those fresh young heifers were sent to the feedlot. That is a dramatic change. The drought, which started in 2006, carried over into 2007. In 2007 beef cow slaughter was up 7%. At the start of 2007, producers were holding back 0.6% fewer open heifers than a year ago. After 2007, at the start of 2008, those same heifers, which now should be pregnant and ready to calve, were down 4.1%.
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