USDA’s mid-year cattle inventory and cattle on feed reports were both bullish for cattle producers, showing year-over-year declines in cattle numbers.
Total inventory of all U.S. beef and dairy cattle on July 1 was down 1.3% to 100.9 million head. The number of cattle being fed for slaughter in large feedlots was also down 1.3% to 11.3 million.
The inventory report also suggests tighter supplies ahead. While the 2021 calf crop is projected to be only slightly lower year over year, the number of beef cows was down 2% and replacement beef heifers were down 2.3%.
The report also estimated feeder cattle supplies outside of large feedlots at 1.6% lower than a year earlier, with the total inventory in all feedlots, not just large ones, down 1.5%.
Both of the reports were positive in direction, and both were bullish in what was expected, said Don Close, senior animal protein analyst with Rabobank.
The industry was anticipating the right direction, but the decline in numbers was more aggressive than the market anticipated, he said.
“We actually got positive news for a change,” he said.
The decline in cattle on feed showed the market is finally working through the backlog of COVID cattle. The decline in overall inventory was more of an indication of drought in the West, with producers unwilling to buy hay at these high prices, he said.
Every category in the inventory report was on the low side, but the 2% decline in beef cow numbers was a big surprise, he said.
Cattle markets are already starting to see some recovery, with fed cattle trending toward $130 per hundredweight by year’s end. That price could rally to $135 in the spring, he said.
Given the price of feeder cattle, there’s a slug of calculated feed yard breakevens at $135 to $140, even as high as $150 from some auction prices out there, he said.
“The prices these guys are willing to pay for feeder cattle looks like they’re betting it all to me,” he said.
The Chicago Mercantile Exchange feeder cattle index on 850-weight steers is in the $152 to $154 slot. Fall future prices are in the low to mid $160 level, he said.
“I think the market’s ahead of itself, particularly with the feeding uncertainty and vulnerability in the corn market,” he said.
Given the drought, he thinks calves and feeder cattle are both going to move earlier this year. The bulk of those cattle could already have moved by October and early November, he said.
Farther out, a smaller calf crop and additional cow liquidation could bring a sizeable decline in feeder cattle outside feed yards a year from now, he said.
July 1. U.S. cattle inventory
Class 2020 2021 percent change
All cattle and calves 102.2 100.9 -1.3
Beef cows and heifers that have calved 32.0 31.4 -2.0
Replacement beef heifers 4.4 4.3 -2.3
Calf Crop 35.1 35.1 -0.1
Cattle on feed, placements, marketing, and other disappearances (feedlots with 1,000 head capacity or more)
Item 2020 2021 percent change
On feed July 1 11.4 11.3 -1.3
Placed on feed during June 1.79 1.67 -7.1
Fed cattle marketed during June 1.96 2.02 2.7