Weekly Outlook - Cattle Producers Show Surprise Interest in Expansion

While beef supplies will be very short for several more years, the USDA’s Cattle report indicated that the very early stages of beef cattle expansion has begun as beef heifer retention has increased a modest one percent. However, the big picture is that beef cow numbers dropped 3 percent last year and this will mean a smaller calf crop in 2012 that will keep cattle slaughter small for 2013 and 2014. If producers follow through with more heifer retention in 2012 and 2013, slaughter supplies will decline over the next two years and increase finished cattle prices even more.

There have been two dominate drivers of cow numbers in recent years. The first was the dramatic increases in feed prices after calendar year 2007. The beef industry could not pass higher feed costs on to consumers in 2008 and 2009, but rather had to suffer negative margins. Poor returns led to liquidation of beef cows that has continued into the current report. The second large driver was the drought in the southern Plains in recent years that caused further liquidation of cows due to lack of pasture and forages. <Read More>