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Last Updated on Saturday, 11 February 2012 09:03

Written by Christy Martinez

According to Kansas State University Ag Economist Glynn Tonsor, the overriding comment for USDA’s January cattle inventory report is that the vast majority of its statistics were consistent with expectations.
    “The beef cattle inventory was pegged at a little under 30 million, the smallest since 1962, and the calf crop was the smallest since 1950. Feeder supplies were down nearly four percent, which was a little lower than some expected,” said Tonsor during a Feb. 7 webinar hosted by the meat industry news source meatingplace.com.
    Of the decrease in the calf crop, Tonsor said it’s not anything new.
    “We have to go back to 1994 to find a time when we had an increase in the calf crop,” he noted. “There’s a long-term history, going back to 1970, of a pull-down in the number of calves that comprise the U.S. calf crop.”
    He added that feeder cattle that reside outside of feedlots, at 25.5 million head, are notably lower than any other point going back to 1982.
    “That’s one of the multiple reasons we have what people are calling a ‘red hot’ calf market – there are a lot of people chasing a dwindling supply of calves,” said Tonsor.
Bunk space exceeds beef cattle numbers
    He said the economic environment for cattle producers is also being driven by the mismatch between the number of beef cows and the bunk space in the feedlot sector and hooves in the packing sector.
    “We have an overcapacity of hoof and bunk space, relative to the number of cows, and feeder cattle supplies outside of feedyards are quite low, by historical standards,” he noted.
    That situation, Tonsor explained, reflects pulling animals forward through the second half of 2011.
    “Lighter animals were placed, and animals were being pulled forward into yards, which is one way the feeding industry responds to excess capacity in the short term,” he explained. “That can’t go on forever, and the shortage is signaling the impact of that practice.”
    In response, there has been a reduction in the number of feedyards that handle less than 1,000 head.
    “There were 85,000 in 2007, and that’s down to 75,000 in 2010,” said Tonsor. “One would suspect that number is lower yet for 2011, but we don’t yet have the numbers.”
    He said those smaller feedyards that left the business were most likely a part of a farmer/feeder operation, and he noted that the number of feedyards with more than 1,000-head capacity hasn’t changed much.
1.4 percent won’t ‘move the needle’
    Returning to the January inventory report, Tonsor said one partial surprise was the increase in heifers held back as replacements – a 1.4 percent increase compared to 2011.
    “That was the first time we’ve had an increase in six years, but we have to look at the context. A 1.4 percent increase is hardly enough to move the needle, and that’s also relative to 2011, which was a particularly low year,” he commented. “If we compare the number held back, and ignore 2011, we have to go back 20 years to find a period with that few of heifers held back.”
    “This is the first signal that expansion might start to initiate, but it’s hardly enough to move the needle,” he cautioned. “We haven’t yet seen a signal of really starting to expand for the country.”
    Tonsor said the drought map is aligned with the five states that had the largest decrease in heifer retention.
    “The largest decreases in retention occurred in Texas, Oklahoma, Missouri, Arkansas and New Mexico, where the drought has been the worst,” he said. “They had a 10 to 20 percent decline in heifer retention.”
    He said the story is opposite in the five states with the largest increases in retention.
    “Nebraska had 55,000 more heifers held back, which is an 18 percent increase from the year before, and Colorado had a 29 percent increase year over year,” he said. “None of that is surprising, but those percentage changes are large, and they’re part of at least a short-run story on where the herd might be placed. Going forward, we might have a repopulation in the Southern Plains, but it looks like expansion in the short term will occur north of Interstate 80.”
Cowherd declines are
ongoing
    Looking at the big picture of the last 10 years, or 2012 versus 2002, Tonsor said there’s been a nearly 10 percent reduction in the beef cowherd, or a little over three million fewer beef cows.
    “A little less than half of that decline comes from Oklahoma and Texas,” he said. “The decline in Texas has come over multiple years, while in Oklahoma it’s been only over the last 12 months.”
Tight supplies will remain
    “The tight supplies are here to stay – at least for this calendar year and probably for two or three years,” said Tonsor. “A 1.4 percent increase in heifer retention isn’t really a strong signal of expansion, because it’s compared to a low the previous year. The tight supplies will have staying power.”
    He also said the excess feedlot and packer capacity relative to the beef cow herd is here to stay, and will put upward pressure on calf prices throughout 2012.
    Speaking of demand, Tonsor said he’s been pleasantly surprised that demand has been more robust than he expected.
    “Going forward through 2012, the ability for demand to remain strong will be a critical part of the ultimate prices experienced in 2012,” he said.
Variable is the new normal
    “I think the characterization of variable, volatile markets is becoming the new normal, and it will be up to the industry to learn how to live and manage in that environment going forward,” said Tonsor. “I expect 2012 to be similar to the last couple years on that front.”
    Christy Martinez is managing editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .

Website helps with heifer retention decisions
    “The cow/calf sector will continue to benefit this year from very tight supplies. If and when there is heifer retention, that will simply further the story on tight supplies in the short term, which would put additional upward support under calf prices,” said Kansas State University Ag Economist Glynn Tonsor during a webinar hosted by meatingplace.com.
    “Cow/calf producers are well positioned to benefit from that, especially if a producer is in a situation to expand and/or if they have a forage and moisture base,” continued Tonsor.
    “What expected return is needed for expansion of the cowherd?” asked Tonsor. “The answer will vary a lot across producers.”
    Tonsor said producers can visit agmanager.info for help in making decisions about heifer retention.
    “On the site, you can do a calculation on what you can pay for a replacement animal to get a 6.5 percent return on your investment,” he explained. “The current going rate for bred animals is consistent with some of the lower cost operations, and they are well-positioned and can bid in excess of the current going rate for replacement animals and still earn a 6.5 percent return.”
    “Replacement animal prices are justified in the marketplace right now, and there is more upward movement to be had in that arena, and the website’s decision aid is available to help producers make those decisions,” he said.

Weather will influence 2012 beef markets
    “The issue about if and when there will be drought recovery for the Texas, Oklahoma and New Mexico region will weigh on the markets in 2012, and it will have a lot to do with if and when we start to have some herd rebuilding,” said Kansas State University Ag Economist Glynn Tonsor during a webinar hosted by meatingplace.com.
    Tonsor said rebuilding the U.S. cowherd will also have a lot to do with forage procurement, and the extent to which forage is hauled south again this year.
    “Forage will be a big factor regionally, and is the extent to which producers in the Southern Plains will be able to take advantage of the current bullish environment for their output,” he stated.
    Also related to weather, Tonsor described recent concerns over the 2012 corn crop.
    “In addition to issues in South America, there’s also concern closer to home, in pockets of Minnesota and Iowa,” he said. “In the event those pockets remain dry, the concerns for what the U.S. corn crop might be may well grow, which will lead to additional volatility in that market.”
    “We’re already talking about weather for the corn crop, and it’s only early February, and that warrants attention,” said Tonsor. “The corn market will be a big part of the final profitability story for the year.”