Cattle & Corn Comments - September 30, 2013 Back »

Early Signs Of Heifer Retention?

Without USDA’s July cattle inventory report to provide a mid-year update as to producers’ intentions to retain beef heifers for breeding (which was not published due to budget cuts), it is necessary to look at other data for signs of potential heifer retention. As of January 1, 2013, producers were retaining 5.36 million heifers for breeding, which was almost 2% more than a year ago. However, by late spring, it appeared like some of those heifers were culled from the breeding herd and diverted into feedyards. Now, though, with improved pasture and range conditions, larger hay supplies, and a record corn crop to be harvested this fall, cash returns to cow-calf production are forecasted to reach $270/head next year, up substantially from this year’s estimated $125/head return.

For the first thirty-six weeks of the year, federally inspected cattle slaughter totaled 22.1 million head, down 1% from the same time period in 2012. During that time period, steer slaughter was 1.2% lower than a year ago while heifer slaughter was 1.8% lower than in 2012. While this indicates that fewer heifers have been on feed, it is likely the drop in fed heifer slaughter relative to steer slaughter would have been larger if additional heifers hadn’t been placed in the spring. Cow slaughter during the first thirty-six weeks of the year was about 0.8% higher than a year ago. Beef cow slaughter was lower than in 2012 during January and February this year as producers sought to grow herds, but increased from March through June as drought conditions and high feedstuff prices prevailed. Interestingly, since July 1, 2013, beef cow slaughter has dropped nearly 11% relative to the same time period in 2012.

The dramatic drop in beef cow slaughter suggests producers are slowing down on culling cows from their herds, which will eventually help stabilize cow numbers. However, it doesn’t provide much evidence of whether more heifers are being retained for breeding. The larger drop in heifer slaughter compared to steer slaughter provides some support for additional heifer retention, as do sharply lower feedlot placements in the last two months. Another indicator to examine is the price relationship between yearling steers and heifers. The higher yearling heifer prices trade relative to steer prices, the more likely it is that additional yearling heifers are being purchased to use as replacements. Often, heifers sold as replacements bring about the same dollars per hundredweight as steers of the same weight, rather than the typical $7-10/cwt discount for heifers destined for the feedyard.

Using Nebraska 700-800 lb yearling steer and heifer prices as a barometer for national price trends, a relationship to the next year’s number of heifer replacements can be observed. Figure 1 illustrates on the blue line the ratio of heifer prices to steer prices during the summer (read the year off of the top axis of the graph). When this ratio increases, yearling heifers prices are increasing relative to yearling steer prices, which again can be an indicator of additional heifers being bought for replacements. The red bars in Figure 1 show the number of heifers being retained for breeding as of January 1 (read the year off the bottom axis of the graph). Note that the price ratio (blue line) is lagged one year from the heifer replacement inventory (red line) on the graph. Actually, the lag is about six months from summer until the end of the year. As Figure 1 shows, generally when the price ratio increases, beef heifer retention increases.

As shown in Figure 1, the summer yearling heifer to steer price ratio stayed between 92% and 93% from 2009 through 2012, which led to only modest increases in heifer retention the following January 1. In fact, these increases in heifer retention were not enough to result in growth in the cow inventory due to accelerated cow cull rates during those years. Interestingly, the summer yearling heifer to steer price ratio increased to 93.6% in 2013, the highest in five years. While the data on beef heifers being held for replacements won’t be available until late January 2014, this does provide some evidence as to an increase in heifers being held as replacements.

One of the interesting questions to be answered by the next January cattle inventory report is whether beef cow numbers will have increased on January 1, 2014 relative to the beginning of this year. While beef heifer replacements could be 2-4% higher, it may not be enough to offset the aggressive cow culling earlier this year. It will depend upon how many additional cows are culled this fall. But, given that many of the older cows would have been culled earlier this year or in previous years, cow culling this fall could be lower than normal. Plus, high feeder cattle prices and cheaper feedstuffs should increase profit opportunities for cow-calf producers in the year ahead. So, it is possible that some growth could be noted in the January 1 inventory numbers. It is likely that growth would be fairly modest though. It will take another year before larger growth in the herd is realized. But, at this point, it appears like 2014 and 2015 be years of larger growth than any in the last cattle inventory cycle.

Figure 1.

The information in this report is believed to be reliable and correct. However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers. The author and South Dakota State University disclaim any responsibility for loss associated with the use of this information. There is substantial risk of loss in trading commodity futures contracts and traders should consult their brokers for a full disclosure of these risks to determine whether such trading is suitable for them in light of their circumstances and financial resources.

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