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May 5th: 1st-Quarter Beef & Pork Exports Higher

First quarter 2016 beef and pork exports came in 2% above year-ago after a solid showing in March. According to USDA data compiled by the U.S. Meat Export Federation (USMEF) beef exports of 89,482 MT in March were 3% above year-ago and the value of those exports was down from year-ago, but the highest since December. March pork exports of 195,898 MT were the largest in 11 months and 3% over year-ago; the value of those exports was down 3% from year-ago, but the highest since May 2015.

USDA currently projects 2016 beef exports to be up 8.3% from 2015 and for pork exports to improve by 5.2% from year-ago.

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May 5th: Closing Futures Summary

Live cattle futures enjoyed solid gains throughout the day and ended high-range and up $1.32 1/2 to $2.17 1/2, with nearbys leading gains. Much-overdue short-covering lifted futures, with additional support coming from a weaker tone in the grain markets and signs the beef market is working on a near-term low. After dropping sharply the last two weeks, Choice beef values were firmer this morning on decent movement. After today's sharp gains in futures and due to the fact this week's showlist is tighter than last week, expectations are building for stabilization in the cash market. 

Corn futures were choppy overnight, but faced pressure throughout the day session and ended around 3 cents lower in all but the May contract that ended 1 1/2 cents lower. Futures were pressured by strength in the dollar index, a drop in weekly export sales from the previous week and spillover from sharp selling in soybean futures. Weekly old-crop corn sales of 769,300 MT were 64% below the previous week's impressive tally, which raises some concern about a slowdown in demand.

Soybean futures fell 14 to 21 3/4 cents through the November 2016 contract, finishing at or near their day lows. Funds sold 16,000 contracts (80 million bu.) today. Profit-taking by funds pressed soybean prices after a slightly firmer start to the day session. That higher opening came from impressive weekly export sales, as old-crop sales of 815,800 MT and sales of 430,000 MT for 2016-17 were above expectations. Unknown destinations was the top buyer of old- and new-crop soybeans. But a stronger U.S. dollar index immediately proved a drag on the market and funds followed with sell orders.

Wheat futures favored the upside overnight, but prices softened with the start of the day trading session and remained under pressure through the close. SRW wheat ended around 8 cents lower for the day, while HRW wheat posted losses ranging from 3 3/4 to 5 3/4 cents. HRS wheat ended 3 3/4 to 9 1/4 cents lower. Wheat futures faced renewed selling pressure today as scouts on the Wheat Quality Council tour confirmed strong winter wheat crop prospects. See "Evening Report" for final tour results. 

Lean hog futures closed midrange, finishing 7 1/2 to 52 1/2 cents higher through the December contract. Lean hog futures favored the plus side on spillover from strong gains in the cattle market, steady to higher cash prices and firming wholesale demand. Cash prices were mostly $1 higher in the eastern Corn Belt and steady in the interior Iowa/Southern Minnesota market today.

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"Click Here"to view a Slide Show of Drought Monitor maps for the last 12 weeks
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May 4th: Ranch Group Sues USDA Over Beef Checkoff Fees

Marketing fees collected from U.S. ranchers are being unconstitutionally spent, according to a Billings-based cattle group suing the U.S. Department of Agriculture.

The Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America, or R-CALF USA, filed a federal lawsuit Monday contending that the beef checkoff fees, a mandatory fee of one dollar per animal collected to promote beef, is being misspent.

Last year, ranchers paid $80 million into the checkoff system. 

The gist of the lawsuit is that the government-collected fee is given to private groups that don’t specifically promote U.S beef, but rather beef from anywhere. The practice is offensive to R-CALF members for two reasons, said Bill Bullard, the group’s executive.

First, R-CALF believes marketing funded by U.S. cattlemen should promote U.S. beef. Second, R-CALF contends it’s unconstitutional for the government to fund the speech of a private group.

“We have long complained that the message espoused by checkoff-funded entities has gone astray from our original interests,” Bullard said.

The marketing practices of the Montana Beef Council serve as lawsuit’s main exhibit. R-CALF attorneys cite several examples in which the Montana Beef Council produced advertising campaigns promoting beef, but not U.S. beef specifically or beef from Montana.

One collaboration with Wendy’s Hamburgers in Montana offered extra beef patties to customers during a promotional period, but the closest the campaign came to promoting U.S. beef was to say the beef promoted was from North America.

R-CALF has long objected to the importing of Canadian and Mexican beef to the United States. The imported beef drives down the price ranchers receive for their cattle, R-CALF argues.

Bullard said large meatpackers and their ranch industry ally, the National Cattlemen’s Beef Association, are promoting a message that “beef is beef” no matter where it’s from.

In private groups promoting the message, like the Montana Beef Council, NCBA members are well represented.

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May 4th: Falling Cattle Prices -- Where is the Bottom?

Cattle prices have had a rough spring. After peaking in late 2014 and early 2015, prices have been adjusting downward from very lofty peaks. High prices and profits at that time provided the incentives to expand beef production. Expanding beef production and a remarkable recovery in total meat supplies continues to put downward pressure on cattle prices. Unfortunately, more downward price pressure is expected this summer.

Finished cattle prices reached their year-to-date high in the third week of March near $140 per hundredweight. Since that time, prices have fallen to the mid-$120s with much of this drop coming in the past week or two. This $15 drop is much more than the average seasonal decrease in prices for this time of year.

Prices in the live cattle futures market paralleled the decline in the cash market. June futures had a year-to-date high at $131.35 before closing near $115 at the end of April. The $16 decline for June futures was of similar magnitude to the decrease in cash prices.

Beef production this year has been up three percent. The increase has been composed of about one percent higher cattle numbers and nearly two percent higher cattle weights. So far this year, live marketing weights have averaged 1378 pounds compared to 1352 pounds for the same period in 2015. Going back two years, market weights are up 48 pounds from 1330 pounds during the first four months of 2014. That means weights are up 3.6 percent over the past two years.

An apparent reason for the sharp decline in prices over the past several weeks has been an escalation of slaughter numbers. April numbers were up about five percent on average, but with two weeks being six percent to seven percent above the same weeks in 2015. Cattle on Feed data from USDA suggest that on-feed numbers had grown last fall. This meant that marketings were able to rise this year, thus providing the more recent surge of cattle. Monthly marketings of cattle from feedlots were up five percent in February and seven percent in March.

Recent heavy placements of cattle into feedlots are keeping futures markets nervous about continued large beef supplies into the summer and fall. Placements were up ten percent in February and up five percent in March. In addition, feedlot managers have been more aggressive at placing heavier cattle that will reach market weights more rapidly this summer. For the first three months of 2016, placements of cattle 700 pounds and heavier have been up eight percent, while placements of cattle weighing less than 700 pounds have been down one percent.

There is more competition for beef this year as meat supplies recover from the 2014 lows. In fact, per capita meat supplies have risen by 13 pounds in the U.S. since 2014. That is over six percent more meat per person in the past two years.

Another possible explanation of low cattle prices is that retail beef prices have not dropped enough to spur the added consumption that is required for the higher level of beef production. Retail beef prices in the first quarter of 2016 were only four percent lower than in the first quarter of 2015. Finished cattle prices, on the other hand, were 17 percent lower. Over time, further reductions in retail prices will likely occur, and these lower prices can help support the live prices of cattle.

With the cash price of finished cattle already in the mid-$120s, the futures market is suggesting that declining prices will continue into the summer and beyond. Current futures forecast are for finished cattle prices to average about $122 in the second quarter and then drop toward an average of only $112 in the third quarter and $113 in the final quarter of 2016. These are in sharp contrast to USDA forecasts that are about $20 higher for the final two quarters of the year. Perhaps prices somewhere between these two extremes are most likely.

One thing is clear, cattle prices are adjusting to more moderate levels after the spike of 2014 and early 2015. This adjustment process is of large magnitude and markets have lost their historic benchmarks. For these reasons, there are dramatic differences of opinion about the level of longer-term prices.

Cow-calf producers will need to reconsider their expansion plans. With current live cattle futures prices and with feed prices showing signs of some strength, calf prices are less likely to be high enough to provide profitable returns from retention of more heifers. Overall, it appears that the expansion of the beef herd will begin to slow in the second half of 2016.

Chris Hurt -- Department of Agricultural Economics -- Purdue University 

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May 4th: Beef & Pork Byproduct Values Up

Byproduct, drop value, offal; these all refer to the same products and represent an important and often overlooked revenue source for packers in both the beef and pork industries.  Cattle byproducts consist of cheek meat, hearts, livers, tripe, tongues, bone meal, tallow, hides, and several other products.  Hog byproducts have a similar list, with the addition of white grease and blood meal, being important.  These byproduct values are driven by international demand, as domestic use is relatively low.  U.S. export volumes are expected to improve from 2015’s depressed levels and this should provide some price support for byproduct values.

The most current beef byproduct values available were at $11.49 per cwt. the week of April 22rd.  That was $2.31 below year ago and $2.19 below the previous five year average.  Historically, the beef byproduct value ranges between $13 and $14 per cwt.  Although it is still tracking below average values, prices have improved $0.84 since the first of the year.  The main contributor to the cattle byproduct value is the hide.  Currently, a Butt Branded steer hide is $72.00 per piece.  A year ago, this hide was $95.00 per piece and the previous five year average was about $90.00.  Economic slowdown in China, along with the increased value of the US dollar, negatively impacted leather demand in the processing sector overseas.  Byproduct values increased dramatically during the second half of 2014 and the first half of 2015 due to a shortage in supply.  Mid-June of 2015 is when significant price drops began for the cattle byproduct value.  If international demand improves even marginally this year, byproduct values could post year-over-year increases during the second half of 2016.

Hog byproduct values have also been negatively impacted by a slowdown in world economies and a rise in the value of the US dollar. Recently though, prices have shown strength.  As of April 22rd, hog byproduct values were $3.61 per cwt.  That was $0.07 above year ago values but still $1.63 below the previous five year average.  Historically, hog byproduct values range between $5.00 and $6.00 per cwt. 

Livestock Marketing Information Center

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May 4th: Beef Market Faces Increasing Supplies

In recent weeks, the fundamental market contrasts between hog/pork and cattle/beef market trends have been important, but last week became even more striking. Directionally, hog and the pork cutout value remained on their seasonal upswing, right on schedule. Fed cattle prices and beef cutout values declined counter seasonally. USDA’s preliminary Federally Inspected (FI) production for last week showed hog output at 457.0 million pounds was generally in-line with seasonal patterns and indications from the USDA-NASS Quarterly Hogs and Pigs report -- pork production was less than 1% below a year ago and the smallest for any week since the week ending January 2, 2016. FI beef production (485.8 million pounds) was up 6.3% year-over-year and was the largest for any week since the week ending December 19, 2015.

Saturday slaughter level is often the swing factor when packers are adjusting output. As with other comparisons, Saturday hog slaughter last week was normal for this time of year and declining generally week-to-week. In contrast, Saturday’s cattle slaughter last week was reported at 31,000 head the same as the prior week and the highest since early February (week ending February 2, 2015). Seasonally, Saturday cattle slaughter should be picking-up, but the increases have been earlier and larger than normal for this time of year.

Steer slaughter and total cattle slaughter levels in April were well above forecasts. The latest break-out of FI slaughter is for the week ending April 16th, when steer slaughter was 9.7% over the same week in 2015. For the last six weeks of data, steer slaughter was up dramatically, jumping 9.0% year-over-year. Steer and heifer slaughter, which combined are often referred to as fed cattle slaughter, over that same six week timeframe was up 4.1% year-over-year (note heifer slaughter was below 2015’s).

Fed cattle marketing rates have returned to normal levels compared to the depressed situation last year, which eventually was a driver of the 2015 price collapse. Dressed steer and heifer weights seem to confirm that (dropping at a more seasonal pace recently). Additionally, it appears that some fed cattle have been pulled forward (marketed quicker than in recent months and quicker than last year), in part supported by dramatically discounted futures prices. Additionally, on the cash side, cattle feeders can replace animals currently onfeed with feeder cattle that will have much lower breakeven sale prices. Packer margins have been highly positive setting the stage for them to pull animals into plants to the extent possible. The Livestock Marketing Information Center estimated packer margins (difference between live steer cost and the value of meat and byproducts) in the last four weeks was fully 30% above a year ago.

In the beef market, did the cart get ahead of the horse? That is did beef packers produce more than featuring gear-up and short-term needs of retailers and other buyers had in place? And as a result, did that contribute to pressure on fed cattle prices last week? Based on wholesale price action and slaughter levels in recent weeks the answer could be yes. If that turns out to be true, then some price rebound would be expected. Still, the long-term trend is a beef market that faces more-and-more product after several years of tightening supplies.

CME Daily Livestock Report

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May 4th: Mixed Results for Restaurants

The National Restaurant Association recently published their monthly business conditions survey for March. Same-store sales and customer traffic results were mixed. Still, the Restaurant Performance Index (RPI) remained in the expansion zone above 100 in March. The RPI stood at 100.7 in March, down 1.4 percent from February’s LeapYear-bolstered level of 102.1. Same store sales were a mixed bag of results, but similar to those of late 2015 and January’s. 

Only 26% of restaurant operators reported an increase in customer traffic between March 2015 and March 2016, while 46% reported a traffic decline. In both December and January, about one-third of restaurant operators reported an increase in customer traffic. Restaurant operators remained cautiously optimistic about business conditions in the months ahead. 

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May 3rd: Beef Production Surges in April

Spring sprung early this year as fed cattle prices have dropped sharply from their highs in early Spring.  Texas-Oklahoma fed cattle prices averaged $139.05 for the week of March 20, 2016.  A month later they averaged $126.87, down 9.1 percent.  Cattle moved lower to end the month quoted at $124, for a full 10.8 percent decline.  One of the important factors at work in lower prices is beef production.

Beef production is made up of two parts, the number of cattle slaughtered and their weights.  Steer and heifer slaughter in April 2016 was up an estimated 1.8 percent over the year before.  The final daily slaughter data through April 16 indicated that while steer slaughter is above a year ago, heifer slaughter is lower than in April 2015. 

Dressed weights continued to decline seasonally.  Steer weights were the lowest, at 878 pounds, of the year so far, and the lowest since July 2015.  But they remained above a year ago by 6 pounds.  Heifer weights did increase by 2 pounds to 820 pounds, but except for the previous week were the lightest since September 2015. 

The combination of the number of head and weight per head pushed estimated beef production for the last 5 weeks to about 2.3 billion pounds, up 6.2 percent from last year.  The 485 million pounds for the week ending April 30 was the largest weekly beef production since the week ending October 17, 2015. 

Increasing beef production is certainly pressuring cattle prices, which in turn is pressuring feeder and calf prices lower.  But there are a few things that may provide some support to cattle prices going forward.  One, it appears that cattle are being pulled ahead to market sooner.  The number of cattle on feed more than 120 days has fallen below year ago levels.  Pulling cattle ahead can reduce the number ready for slaughter later in the Spring and Summer.  Weights are declining seasonally.  Beef by-product values have been increasing, up nearly $1 per cwt. in the last 2 months.  The live-to-cutout spread was the third largest weekly estimated figure, at $257 per head, going back to 1991. 

While there might be some good reasons for higher cattle prices coming soon, the reality is lower prices now.  Large beef production is a major culprit in lower cattle prices.  The long term trend is for more beef production and lower prices as cattle numbers expand.

The Markets:

The fed cattle market gave up another almost $3 last week to end at $123.79.  The wholesale boxed beef market dropped another $7.  Compared to a year ago the live market has declined by a larger percentage than the cutout.  Digging deeper into the cutout value reveals that the middle meats that led the brief spring price rally have led the market lower.  For the most part, calf and feeder markets were down as well.  Not much change is evident in the feed market compared to a year ago in corn prices, but DDGS continues to be dramatically lower than a year ago. 

David P. Anderson, Texas A&M AgriLife Extension Service

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May 2nd: Red Meat May be Taxed in Denmark to Fight Climate Change

Climate change has become an ethical issue in the eyes of the Danish Council for Ethics, which suggested last week that the government consider a tax on beef, and eventually all foods depending on climate impact.

Denmark is considering a nation-wide tax on red meat. This would encourage people to eat less of it, which is necessary if global climate change is to be kept below the recommended limit of 2°C.

The Danish Council of Ethics, which proposed this tax, has called the Danish way of life unsustainable and said in a press release that “Danes are ethically obliged to change [their] eating habits.” The Council recommends that the tax start with beef, then eventually extend to all red meats, with the long-term goal of applying to all foods depending on their climate impact.

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April 29th: National Feeder & Stocker Cattle Summary
USDA-MO Dept of Ag Market News

RECEIPTS:  Auctions   Direct   Video/Internet  Total
This Week     165,700     36,500        59,400         261,600
Last Week     164,700     35,500           900           201,100 
Last Year       180,200     66,400        56,100         302,700 

Compared to last week, feeder steers and heifers continued mostly 5.00-10.00 lower throughout the week.  The only bright spot was Wednesday when things looked to be turning around with a couple Wednesday auctions showing some strength, despite the CME board closing slightly lower after trending higher Monday and Tuesday.  The mid-week weakness in the futures was a the spark that ignited the fire, confirming that early week gains would be short lived, as Thursday the board open lower and finish sharply lower.  Last Friday’s afternoon Cattle on Feed Report had April 1 inventory 0.5 percent higher than last year at 10.85 million head; placements at 104.6 percent and marketing’s at 107.1 percent.  Inventory was slightly lower than expected, with placements lighter than expected and marketing were higher than expectations.  The report was more bullish than expected, but was not enough for the bearish outlook. 

A combination of decreased imports and the fed cattle futures decline appeared to play a role in placement during the month of March, as profit outlooks for late summer and fall looks bleak.  USDA’s Cold Storage report showed total beef in storage down from last year and just slightly under the 5 year average, which can be viewed as a positive moving into grilling season.  However, even the few supportive signs than can be gleamed from those two reports are certainly not enough to change the current market’s bearish position.  Protein sources are plentiful and beef demand is modest at best. 

Fed cattle trade was pretty much wrapped up by late afternoon Thursday with live sales at 124.00, 3.00 lower than last week’s trade and northern dressed sales at 196.00, 4.00 lower than last week and losing 20.00 in just two weeks.  Some packers appear to be bought up through the month of May and asking for extended delivery.  With the last two week’s estimated weekly cattle harvest numbers coming in as the two biggest weeks so far this year, indicates packer margins are favorable.  A large portion of the field work in the Corn Belt has been slowed as a result of wide spread thunderstorms early in the trading period. This should change early next week and allow planting to resume.  Despite the temporarily slowed planting progress, we should still be able to maintain our near record planting pace.  The early start to corn planting likely brought some additional acres into production.  At the same time, we are hearing reports that the rally in soybeans has encouraged some production of that crop.  Auction volume this week included 52 percent weighing over 600 lbs and 40 percent heifers.

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April 28th: Demand for Beef is “Elastic” and Why It Matters:

About 15 months ago, cattle prices began a descent that continues today, and depending on the class of cattle, prices have plummeted by 30% to 50%. There is a wide spectrum of opinions as to why this has occurred ranging from manipulation of the cattle futures to the packer oligopoly colluding to maximize their profits. Even though these may be contributing factors, the major factor was the theory propagated several years ago by numerous analysts, pundits, academia, and by cattlemen themselves, that because of a record low cow herd, a pedal-to-the-metal herd expansion was essential to supply the demand for beef.  Not to do so would result in additional loss of market share to chicken and pork and jeopardize the survival of the industry.  This fueled the "irrational exuberance" which emerged in 2013 and accelerated in 2014, to expand the herd at any cost, resulting in record prices that have proven to be disastrously unrealistic.

Today, astute cattlemen realize that in the end, consumer demand for beef determines the value of cattle. 

However, waiting on improved consumer demand for beef to drive cattle prices higher may be a long wait.  The U.S. and International economies, despite the efforts of governments and central banks to stimulate economic growth with quantitative easing, are still struggling and continue to experience anemic growth and stagnant wages. This was confirmed as recently as today when the Commerce Department announced that the U.S. economy slowed in the first quarter to the lowest growth in two years, expanding just 0.5% as businesses slashed investment by the steepest rate since the Great Recession. Additionally, consumer confidence tumbled in April as Americans’ views of the economy in the future darkened.  The University of Michigan’s April sentiment index fell to 89.0 from 91.0. The index is now 7.2% lower than its level a year ago, a decline driven largely by the expectations component. It fell 4.8% during the month to 77.6, and is 12.6% lower than in April 2015.

All of this forms the basis for the economic reality facing the cattle industry: Compared to pork and chicken, beef is not competitive. 

It can be argued that many consumers prefer beef but this overlooks the fact that beef has "elastic demand."  Elasticity is a measure of how much the quantity demanded of a service/good changes in relation to its price, income or supply.

HOW IT WORKS:

If the quantity demanded changes a lot when prices change a little, demand for the product is said to be elastic. This often is the case for products or services for which there are many alternatives, or for which consumers are relatively price sensitive. For example, if the price of Cola A doubles, the quantity demanded for Cola A will fall when consumers switch to less-expensive Cola B.

When there is a small change in demand when prices change a lot, the product is said to be inelastic. The most famous example of relatively inelastic demand is that for gasoline.  As the price of gasoline increases, the quantity demanded doesn't decrease all that much. This is because there are very few good substitutes for gasoline and consumers are still willing to buy it even at relatively high prices.

WHY IT MATTERS:

Elasticity is important because it describes the fundamental relationship between the price of a good and the demand for that good. Elastic goods and services generally have plenty of substitutes. As an elastic service/good's price increases, the quantity demanded of that good can drop fast. Examples of elastic goods and services include non-essential food, jewelry, automobiles, professional services, and entertainment.

Inelastic goods have fewer substitutes and price change doesn't affect quantity demanded as much. Some inelastic goods include gasoline, electricity, water, medicine, basic clothing, tobacco, food staples, and oil.

WHAT NEXT?

So even if most consumers prefer beef, many aren't able or willing to pay 3 to 8 times more for beef than the cost of competing meats.  Since it is unlikely the cost of pork and chicken will increase significantly in the foreseeable future, which would make beef more competitive, the cattle industry has 3 options:

  • Continue "as is" with reduced profitability, or in many cases, losses.
  • Wait for the less profitable producers to exit the industry resulting in lower production and a supply of beef that better matches the demand from consumers who are willing to buy expensive beef.  This means there would be a smaller cow herd owned by a reduced number of producers or “survivors” who would meet the demand for beef, primarily for higher-income households or as a “special occasion” treat such as lobster is today.
  • Produce less expensive beef through improved management, increased efficiency, and innovation. Obviously, this is easier said than done but it is likely that many producers will have to change their business plan if it is based on "That's the way we've always done it."  Although successful implementation will obviously benefit individual producers, widespread and long-term profitability in the cattle/beef industry will only occur when an industry-wide "makeover" is implemented.
The bottom line is that consumers don't care how much it costs to produce beef but only how much it costs them to buy it and the market action is saying that beef is still too expensive.

TCR

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April 28th: Canadian Weekly Cattle Report

Fed cattle lower

  • Weighted average steer prices slipped $4 to $163.38 per hundredweight and heifers were $163.63, down $1.10.
  • Alberta dressed trade was $272-$277 per cwt. delivered, with prices a little lower for deferred late May delivery.
  • Chicago cattle futures fell all week in anticipation of lower cash prices.
  • U.S. wholesale beef was slack and more cattle were for sale than the week before.
  • The effects of weakness in the American market were compounded by a stronger loonie.
  • The Alberta cash-to-futures basis strengthened sharply to +$3.49.
  • Weekly western Canadian fed slaughter to April 16 fell one percent to 30,145 head.
  • Western Canadian slaughter this year is 417,934 down eight percent.
  • Weekly fed exports to April 9 rose 24 percent to 7,097 head. For the year exports are up 27 percent.
  • The window of opportunity for a spring price rally is dwindling despite bullish North American fundamentals.
  • The strong Canada-U.S. basis will continue to discourage American interest in Canadian cattle.
Cows steady
  • D1, D2 cows ranged $92 to $108 to average $100.83 down $1.17. D3 cows ranged $80 to $95 to average $88.83 up $1.33.
  • Dressed bids were mostly steady at $197-$202 delivered.
  • Butcher bulls averaged $128.73, down $1.90.
  • Weekly western Canadian non-fed slaughter to April 16 rose eight percent to 5,634 head.
  • Slaughter this year is up 11 percent at 109,835 head.
  • Exports to April 9 rose 28 percent to 5,389 head.
  • But for the year they are down 10 percent.
  • Auction volume should remain manageable and prices should be steady to modestly higher.
Feeders lower
  • There was pressure across the entire calf and feeder market this week.
  • Steers were mostly down five to nine cents, while heifers were down two to nine cents.
  • Heifers in previous weeks had seen prices drop further than steers.
  • Rising corn prices kept pressure on Chicago feeder futures.
  • Western Canada feeder supply is ample and demand is weaker as the futures fall and the Canadian dollar rises.
  • Feedlots face significant red ink.
  • Calf prices have fallen in seven of the last eight weeks.
  • Meanwhile, 850 pound steers have dropped 15 out of the 16 weeks this year.
  • While 550 lb. steers are $105 lower than last year, they are $8 higher than 2014.
  • The feeder basis strengthened $1 over the week, and is following the five-year basis trend closely.
  • While the futures may be due for a bounce, the feeder market will continue to struggle as the feeding sector has to get margins back in line and the strong Canadian dollar weighs on the market.
This cattle market information is from the weekly report from CanFax, a division of the Canadian Cattlemen’s Association.
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April 22nd: Cattle on Feed Report
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United States Cattle on Feed Up 1 Percent
  • Cattle and calves on feed for the slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.9 million head on April 1, 2016. The inventory was 1 percent above April 1, 2015. The inventory included 7.36 million steers and steer calves, down 1 percent from the previous year. This group accounted for 68 percent of the totalinventory. Heifers and heifer calves accounted for 3.49 million head, up 4 percent from 2015.
  • Placements in feedlots during March totaled 1.89 million head, 5 percent above 2015. Net placements were 1.83 million head. During March, placements of cattle and calves weighing less than 600 pounds were 352,000 head, 600-699 pounds were 275,000 head, 700-799 pounds were 495,000 head, and 800 pounds and greater were 770,000 head.
  • Marketings of fed cattle during March totaled 1.75 million head, 7 percent above 2015.
  • Other disappearance totaled 62,000 head during March, 10 percent below 2015.
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Cattle on Feed Inventory in 1,000+ Capacity Feedlots as of April 1st
Millions of Head
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Number of Cattle Placed on Feed in 1,000+ Capacity Feedlots in March
Millions of Head
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Number of Cattle Marketed from 1,000+ Capacity Feedlots in March
Millions of Head
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Cattle on Feed by State as of April 1st
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April 22nd: Shootin' the Bull Weekly Analysis
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In my opinion, the futures markets performed this week as they were purposefully designed for.  That is, to provide a substitute market when the cash market provides no or unacceptable bids or offers.  It is perceived that with wheat pasture cattle coming off, at heavier weights and more of them, producers sought a bid and it was either discounted severely or nonexistent.  Hence the alternative became the futures market and that is perceived a significant portion of why the futures are down so much with seemingly not much else having transpired.  The same for fats except they are just needing to be slaughtered instead of coming off pastures. 

An interesting observation made, perceived due to the above factor, is the potential exposing of how severe the capital loss has been to the industry as a whole.  At this time, the structure of the basis is such that it is perceived exceptionally beneficial towards purveyors.  The ability to secure a significant positive basis, with risk limited to the premium of a call option, appears exceptionally advantageous in the fat market.  However, even if this is being taken advantage of, it appears in such small quantities that it doesn't come close to offsetting the selling pressure. Feed yards are not quite afforded the same width of the basis when attempting to buy replacement inventory.  However, the basis does remain beneficial.  Now, I understand this has nothing to do with anything if prices are going to continue to drop.  However, the situation is perceived that with the wide basis, risk of loss increases by as much as what it may decrease by being short.  This is an example for the August feeder cattle in an attempt to explain.  Basis will narrow to within $1.00 at expiration of the futures contract. 

The feeder cattle index, for which the basis is derived from, is $151.11 as I write this.  August settled today at $142.10 producing a positive basis of $9.01.  If one is locking in August feeders at $142.10 and they go down to $130.00 and then back up to $155.00 at expiration, you will have gained $3.89 of the index and lost $9.80 on your futures position.  Regardless of what price you market inventory at on the futures, you are not only assuming risk of up and down fluctuation, but the potential for the narrowing of the basis.  So, it is for this reason I have been so wishy-washy on my analysis and what appears to be reservations in pushing sales very hard.  It is because that using futures or options at this time appears to be increasing risk at an equal rate than it could potentially mitigate it.  Long story short, my analysis suggests that the immediate situation is from a lack of physical buyers to be in a position to assume your risk.  A substitute for the physical market is futures or options and producers are perceived using them to stifle the anticipation of lower prices to come.  I've encouraged purveyor's to use the current width of basis this week.  All though emotions are sensitive, business as usual would dictate owning the basis. 

I have not done as good a job at marketing this go around as last summer.  Although bear put spreads and put ownership were recommended while at more elevated prices than current, the inability to anticipate new contract lows, and hedge to that extent, is irritating.  There remains factors to over come with the wave count.  One being that the current move down is only perceived as 3 waves at this time.  Another would be that there appears to be a minor 5 wave pattern on the close only for the August feeders that suggests it could have completed a larger C wave or would be due a small rally to correct this weeks decline.  I can see some similarities in chart structure to the December '15 lows.  The news was the worst, prices had dropped sharply and no one wanted to own cattle.  Then it reversed.  So, however you may view my indecisiveness recently, know that the reason is justified in my analysis due to risks perceived elevated beyond up and down price fluctuation. 

Grain traders blew the roof of the board this week.  Although by weeks end giving it all back plus some gains from the week prior, at least we know that corn traders are still around.   The only recommendations made this week on corn and beans was to eliminate all old crop through cash sales and forward contract the portion you wish with the elevator.  I remain friendly towards corn as this is just one wave up.  Even if this is not the beginning of a bull market, another wave to the upside to equal or exceed this weeks high is anticipated. 

Christopher B. Swift is a commodity broker and consultant with Swift Trading Company in Nashville, TN. Mr. Swift authors the daily commentaries "mid day cattle comment" and "Shootin' the Bull" commentary found on his website @ www.shootinthebull.com

An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits.  You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

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April 22nd: USDA Cold Storage Report
  • Total red meat supplies in freezers were down 3 percent from the previous month and down 6 percent from last year.
    • Total pounds of beef in freezers were down 5 percent from the previous month and down 3 percent from last year. 
    • Frozen pork supplies were down 2 percent from the previous month and down 9 percent from last year. Stocks of pork bellies were up 6 percent from last month but down 5 percent from last year
  • Total frozen poultry supplies on March 31st were up 1 percent from the previous month and up 6 percent from a year ago. 
    • Total stocks of chicken were down 2 percent from the previous month but up 5 percent from last year.
    • Total pounds of turkey in freezers were up 8 percent from last month and up 6 percent from March 31, 2015.
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April 21st: Monthly Livestock Slaughter Report

Record High Pork Production for March

  • Commercial red meat production for the United States totaled 4.26 billion pounds in March, up 5 percent from the 4.07 billion pounds produced in March 2015.
  • Beef production, at 2.10 billion pounds, was 8 percent above the previous year. Cattle slaughter totaled 2.53 million head, up 6 percent from March 2015. The average live weight was up 23 pounds from the previous year, at 1,370 pounds.
  • Veal production totaled 6.4 million pounds, 8 percent below March a year ago. Calf slaughter totaled 35,900 head, down 10 percent from March 2015. The average live weight was up 7 pounds from last year, at 302 pounds.
  • Pork production totaled 2.15 billion pounds, up 2 percent from the previous year. Hog slaughter totaled 10.09 million head, up 2 percent from March 2015. The average live weight was down 1 pound from the previous year, at 284 pounds.
  • Lamb and mutton production, at 14.3 million pounds, was down slightly from March 2015. Sheep slaughter totaled 205,900 head, slightly above last year. The average live weight was 138 pounds, down 1 pound from March a year ago.
January to March 2016 commercial red meat production was 12.2 billion pounds, up 3 percent from 2015. Accumulated beef production was up 5 percent from last year.
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April 21st: USDA Annual Meat Production Summary 
  • Total red meat production for the United States totaled 48.5 billion pounds in 2015, 2 percent higher than the previous year. Red meat includes beef, veal, pork, and lamb and mutton. Red meat production in commercial plants totaled 48.4 billion pounds. On-farm slaughter totaled 87.8 million pounds.
  • Beef production totaled 23.8 billion pounds, down 2 percent from the previous year. Veal production totaled 87.8 million pounds, down 12 percent from last year. Pork production, at 24.5 billion pounds, was 7 percent above the previous year. Lamb and mutton production totaled 155.6 million pounds, down 3 percent from 2014.
  • Commercial cattle slaughter during 2015 totaled 28.8 million head, down 5 percent from 2014, with federal inspection comprising 98.4 percent of the total. The average live weight was 1,360 pounds, up 30 pounds from a year ago. Steers comprised 54.2 percent of the total federally inspected cattle slaughter, heifers 26.0 percent, dairy cows 10.3 percent, other cows 7.9 percent, and bulls 1.6 percent.
  • Commercial calf slaughter totaled 452,600 head, 20 percent lower than a year ago with 98.4 percent under federal inspection. The average live weight was 310 pounds, up 27 pounds from a year earlier.
  • Commercial hog slaughter totaled 115.4 million head, 8 percent higher than 2014 with 99.3 percent of the hogs slaughtered under federal inspection. The average live weight was down 2 pounds from last year, at 283 pounds. Barrows and gilts comprised 97.3 percent of the total federally inspected hog slaughter.
  • Commercial sheep and lamb slaughter, at 2.22 million head, was down 4 percent from the previous year with 89.9 percent by federal inspection. The average live weight was up 1 pound from 2014 at 136 pounds. Lambs and yearlings comprised 94.3 percent of the total federally inspected sheep slaughter.
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 April 21st Seasonal Drought Outlook
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April 18th: Global Meat Market Overview

The Foreign Agricultural Service of USDA recently released the latest Livestock and Poultry: World Markets and Trade publication.  This provides an opportunity to review meat production, consumption and trade among major countries.  Pork production is the number one meat with 2016 production forecast at 109.3 million metric tons (MMT), 42 percent of global meat production.  Broiler meat ranks second with 2016 production forecast at 89.7 MMT, 34 percent of the global meat total.  Beef production is forecast at 59.0 MMT in 2016, 23 percent of total meat production.  Total meat production in 2016 is forecast to increase slightly year over year with a 1.0 percent increase in beef and a 1.1 percent increase in broiler production offsetting a 0.9 percent decrease in world pork production.  Total meat exports are forecast to increase 3.6 percent with pork exports up 5.7 percent; broiler exports up 4.7 percent; and beef exports up 0.8 percent.

China is by far the largest pork producer and consumer with 2016 production forecast at 53.5 MMT, 49 percent of total global pork production.  The European Union is second (21 percent) with the U.S. third in pork production (10 percent) with Brazil and Russia rounding out the top five pork producing countries. The same countries are the top five pork consuming countries with Russia in fourth place, slightly ahead of Brazil.  The European Union is the largest pork exporting country, slightly ahead of the U.S., followed by Canada, Brazil and China in the top five.  Total pork exports represent 7 percent of total world pork production. Japan is the largest pork importing country, slightly ahead of China in second place and Mexico in third followed by South Korea and the U.S. 

The U.S. at is forecast in 2016 to be the largest broiler producer at 18.8 MMT (21 percent of world total), followed by Brazil (15 percent), China (14 percent), the European Union (12 percent), and India (5 percent). The same five countries are the top broiler consuming nations in the following order: U.S., China, European Union, Brazil and India.  Brazil is the largest broiler exporter, followed by the U.S., the European Union, Thailand and China.  Total exports among major broiler countries represent 12 percent of total production. The five largest broiler importing countries are Japan, Saudi Arabia, Mexico, European Union and Iraq.

In the 2016 forecast, the U.S. is the largest beef producing country at 11.3 MMT (19 percent of the global total), followed by Brazil (16 percent), the European Union (13 percent), China (12 percent) and India (7 percent).  India includes meat from water buffalo (carabeef).  The U.S. is also the largest beef consuming nation, followed by Brazil, the European Union, China and Argentina. For the third consecutive year, India is forecast to be the largest beef exporter in 2016 with Brazil, Australia, the U.S. and New Zealand rounding out the top five beef exporters.  Total beef exports represent 16 percent of total production. The U.S. is the largest beef importer, followed by rapidly growing beef imports in China.  Japan, Russia and South Korea are the remaining top five beef importers.

India has the largest cattle inventory, forecast at 302.6 million head in 2016 followed by Brazil (219.2 million head), China (100.3 million head), the U.S. (92 million head) and the European Union (88.8 million head). 

Derrell S. Peel, Oklahoma State University Extension 

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April 14th: USDA World Agricultural Supply & Demand Estimates

The 2016 forecast of total red meat and poultry production is raised from last month as higher expected cattle slaughter and heavier carcass weights more than offset a lower pork production forecast. The Quarterly Hogs and Pigs report, released March 25, estimated that growth in pigs per litter in the first quarter was slower than expected and that producers expected to farrow fewer sows in March-May than previously intended. Coupled with slower-than-expected first quarter slaughter, forecast pork production is reduced. No change is made to broiler and turkey production.

The beef import forecast is raised and the export is reduced from last month based on recent trade data. The strength of the U.S. dollar continues to make the United States an attractive market for imports and constrains exports. Pork imports are raised on the strength of the dollar, but improving demand in several importing countries is providing support for increased exports. The broiler export forecast is unchanged from last month, but turkey exports are reduced on a slower pace of export recovery.

The cattle price forecast is reduced from last month on relatively weak demand and larger expected fed cattle supplies. Hog prices are lowered on weaker demand. No change is made to 2016 broiler and turkey prices.

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March 9th: United States & Canadian Cattle Inventory Up 3 Percent

All cattle and calves in the United States and Canada combined totaled 104 million head on January 1, 2016, up 3 percent from the 101 million head on January 1, 2015. All cows and heifers that have calved, at 44.4 million head, were up 2 percent from a year ago.

All cattle and calves in the United States as of January 1, 2016, totaled 92.0 million head, 3 percent above the 89.1 million head on January 1, 2015. All cows and heifers that have calved, at 39.6 million head, were up 3 percent from a year ago.

All cattle and calves in Canada as of January 1, 2016, totaled 12.0 million head, up slightly from the 11.9 million on January 1, 2015. All cows and heifers that have calved, at 4.79 million, were up slightly from a year ago.

United States and Canadian Sheep Inventory Up Slightly

All sheep and lambs in the United States and Canada combined totaled 6.15 million head on January 1, 2016, up slightly from the 6.12 million on January 1, 2015. Breeding sheep, at 4.60 million head, were up slightly from a year ago and market sheep and lambs, at 1.55 million head, were up slightly from last year.

All sheep and lambs in the United States as of January 1, 2016, totaled 5.32 million head, 1 percent above the5.28 million head on January 1, 2015. Breeding sheep, at 3.97 million head, were up 1 percent from a year ag o, while market sheep and lambs, at 1.36 million head, were up 1 percent from last year.

All sheep and lambs in Canada as of January 1, 2016, totaled 829 thousand head, down 2 percent from last year's number of 844 thousand. Breeding sheep, at 634 thousand head, were down 1 percent from last year. Market sheep and lambs, at 195 thousand head, were down 3 percent from a year ago.

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March 9th: WASDE: Red Meat and Poultry Production Projected Higher
USDA

LIVESTOCK, POULTRY, AND DAIRY: The 2016 forecast of total red meat and poultry production is raised from last month as higher forecast first-quarter broiler and turkey production more than offsets small reductions in beef and pork. First-quarter beef production is reduced on the pace of slaughter and lower carcass weights; pork production is reduced on slightly lighter carcass weights. Broiler and turkey production for the first quarter is raised as the pace of slaughter to date has been higher than expected. The egg production forecast is raised on increased table egg production as the sector continues to rebuild following last year’s Highly Pathogenic Avian Influenza outbreaks. Historical poultry and egg production estimates are adjusted to reflect revisions in production data.

Beef import and export forecasts are unchanged from last month. The pork export forecast is lowered from last month on recent trade data. The pork import forecast is raised on expectations of relatively large exportable supplies in the EU and continued strength of the U.S. dollar. Broiler export and turkey export forecasts are lowered on slower-than-expected sales in January.

Annual cattle and hog prices for 2016 are unchanged from last month. Broiler prices are lowered on current prices and expected higher production. The turkey price forecast is unchanged but the range is narrowed. Egg prices are reduced on higher forecast production.

Projected U.S. feed grain ending stocks for 2015/16 are unchanged this month with only small offsetting increases for barley imports and exports and no changes to supply and use projections for the other feed grains.

The projected season-average farm price ranges are narrowed 5 cents on each end for corn, sorghum, and barley, leaving the midpoints of the ranges unchanged on the month. The midpoint for the projected corn price remains $3.60 per bushel. The oats farm price range is projected 10 cents lower on the high end reducing the midpoint by 5 cents to $2.15 per bushel based on the latest reported prices.

Corn food, seed, and industrial use is lowered slightly for 2014/15 reflecting a 9-million bushel reduction in estimated corn used in ethanol production based on revisions to monthly data reported in the March 1 Grain Crushings and Co-Products Production 2015 Summary. An offsetting change is made to 2014/15 feed and residual use as trade and ending stocks are known.

Global coarse grain supplies for 2015/16 are projected 1.6 million tons lower. Much of the decline reflects lower corn beginning stocks for Brazil with 2014/15 exports raised this month.

Global 2015/16 coarse grain production is lowered with reductions for South Africa and Philippines corn and India millet more than offsetting an increase for Indonesia corn.

Corn production is lowered 0.5 million tons for South Africa with a continuation of drought reducing area and yield prospects further. Philippines corn production and India millet production are each lowered 0.3 million tons on lower yields resulting from dryness. Indonesia corn production is raised 0.3 million tons with higher expected area reflecting both an increase to reported area for 2014/15 and indications that reduced rice planting will boost corn area in 2015/16.

Global coarse grain consumption for 2015/16 is raised 0.5 million tons with higher corn use for India and South Africa and increased barley feeding for China more than offsetting a reduction in corn use for Venezuela. Global 2015/16 coarse grain imports are raised.

Corn imports are increased for South Africa, Philippines, and Mexico and barley imports are raised for China. Partly offsetting are small reductions in corn imports for Indonesia and Venezuela.

Corn exports are raised for Indonesia and South Africa, with the increase for South Africa reflecting higher expected trade with neighboring countries where drought has also affected corn production. Global coarse grain ending stocks for 2015/16 are lowered with corn ending stocks down 1.8 million tons mostly reflecting smaller stocks in Brazil.

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February 19th: Farm Income Forecast for 2016

USDA’s Economic Research Service (ERS) recently released its Farm Income forecast for 2016.  Net cash income and net farm income (which includes the value and costs of items like depreciation, home consumption of farm goods, and unsold inventory) are both expected to fall slightly compared to 2015, but by much less than last year. Net cash income is expected to fall by 2.5%, or about $2.3 billion, and net farm income by 3%, or about $1.6 billion. Last year net cash income fell by 27% and net farm income by 38%.

A large portion of the forecast decline is from lower livestock receipts, expected to be down by about $7.9 billion. Crop receipts are also forecast to be lower by $1.6 billion. On the other hand, input costs are forecast to be down by $3.8 billion, and government payments are expected to be $3.3 billion higher.

The cost of production relative to projected sales remains tight for most commodities.  Returns over variable costs leaves very little additional revenue to cover cash rent or pay the operator.  As a result, it is likely farmers will continue to rely on reserves built up when farm incomes were record high and to lower costs wherever possible, including renegotiating rental contracts, minimizing input costs, and possibly taking out more operating loans.

A slightly higher debt (mostly from operating loans) and lower assets (from some erosion in land values) will result in a slight increase in the debt-to-asset level in 2016. While such an increase indicates rising financial pressures, those ratios still remain near historic lows.  The lowest debt-to-asset ratio we have seen for decades was 11.3% in 2012, and the highest was 22.2% in 1985 during the farm financial crisis.   This year the ratio is forecast to be 13.2%, compared to 12.7% in 2015.The higher the debt is relative to assets (the lower the equity), the greater the indication of financial stress in the sector. For example, the peak farm bankruptcy rate coincided with the high debt-to-asset ratios of the mid-1980s.

The slower rate of decline in farm income forecast for 2016 may indicate we have leveled off at new price and production patterns.  Projected prices in the USDA’s long-run baseline through 2025 for most major commodities remain flat over the next 5 years, before growing slowly again nearer the end of that period. This pattern is consistent with the long-term trend of falling, but flattening real prices for food commodities since World War II. Although modest compared to last year, continued softening in farm income adds to the economic strain being felt by many rural communities -- especially in areas that are farming-dependent.

While overall net farm income is down, some sectors are showing gains.  Focusing on the 850,000 farms that are classified as farm businesses, net cash income is actually forecast higher in 2016 for most crop specializations -- corn farm net cash income is forecast to rise by 2%, soybeans and peanuts by 3%, wheat by 10%, and cotton and rice by 23%; specialty crops net cash income, however, is expected to fall by 5%.  Dairy and hog farm net cash income is forecast down (31% and 3%, respectively), as is poultry and egg farm net cash income, by about 2%; but beef farm net cash income is expected to rise by 3%.

If we take a closer look at farm household income, which includes income from both on-farm and off-farm sources, we can see that median farm household income has grown more rapidly than U.S. median household income since the recession, mainly as a result of improved off-farm income. Nearly all U.S. farm households have some income from off-farm sources, making a stronger U.S. economy important for farm households, even though it may also mean a strong dollar and more difficult trade opportunities. For family farm households, median farm income is up slightly, unlike 2015, and median off-farm income is up 4%.  Overall, median total farm household income is forecast up 5% in 2016 to a record level of $81,666. That trend is forecast to hold across all farm households, regardless of size or type.

USDA Chief Economist -- Dr. Robert Johansson

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All Cattle & Calves Inventory: January 1, 2016 vs. 2015
Compiled from USDA National Agricultural Statistical Service Data
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Beef Cows Inventory: January 1, 2016 vs. 2015
Compiled from USDA National Agricultural Statistical Service Data
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Replacement Heifers Inventory: January 1, 2016 vs. 2015
Compiled from USDA National Agricultural Statistical Service Data
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January 29th: January 1 Cattle Inventory Up 3 Percent
USDA - National Agricultural Statistics Service (NASS)

All cattle and calves in the United States as of January 1, 2016 totaled 92.0 million head. This is 3 percent above the 89.1 million head on January 1, 2015.

  • All cows and heifers that have calved, at 39.6 million head, are 3 percent above the 38.6 million head on January 1, 2015.
  • Beef cows, at 30.3 million head, are up 4 percent from a year ago. Milk cows, at 9.32 million head, are up slightly from the previous year.
  • All heifers 500 pounds and over as of January 1, 2016 totaled 19.8 million head. This is 3 percent above the 19.3 million head on January 1, 2015. 
  • Beef replacement heifers, at 6.29 million head, are up 3 percent from a year ago. 
  • Milk replacement heifers, at 4.82 million head, are up 2 percent from the previous year. 
  • Other heifers, at 8.71 million head, are 3 percent above a year earlier.
  • All Calves under 500 pounds in the United States as of January 1, 2016 totaled 14.1 million head. This is 4 percent above the 13.5 million head on January 1, 2015. 
  • Steers weighing 500 pounds and over totaled 16.3 million head, up 4 percent from one year ago. 
  • Bulls weighing 500 pounds and over totaled 2.14 million head, up 2 percent from the previous year.
Calf Crop Up 2 Percent
  • The 2015 calf crop in the United States was estimated at 34.3 million head, up 2 percent from last year's calf crop. 
    • Calves born during the first half of 2015 were estimated at 24.8 million head. This is up 2% from the first half of 2014. 
    • The calves born during the second half of 2015 were estimated at 9.50 million head, 28% of the total 2015 calf crop.
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