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December 17th - Closing Futures Summary

Bearish demand ideas kept depressing the cattle market. Cattle traders clearly believe soaring prices have badly undercut beef demand, which in turn is badly undermining the cattle market. The latest losses probably mark a serious overreaction, but midsession mixed to lower beef quotes didn’t support the bullish cause. February live cattle crashed 2.92 cents to 155.82 cents/pound as Wednesday’s pit session ended, while April futures plummeted 2.55 cents to 155.55. January and March feeder cattle futures once again collapsed the 3.00-cent daily limit to 216.60 and 212.25 cents/pound, respectively.

Corn futures firmed Wednesday. Despite current concerns about the global economic & political situation, corn futures were pretty stable today. News that China is lifting its ban on Syngenta’s Viptera GMO corn is probably providing persistent support, since their ban greatly diminished U.S. corn & DDG exports early this year. The weekly EIA report also implied support from ethanol industry demand. March corn futures settled up 2.25 cents at $4.0825/bushel Wednesday, while July rose 2.25 to $4.2325. 

The soy complex staged a late-session comeback. The unsettled geopolitical and economic situations seemed to support the soybean complex Wednesday, despite worries that global demand will suffer in the changing environment. Conversely, fine spring weather has Brazil looking forward to another record crop, which weighed on bean prices this morning. However, afternoon rebounds by the energy and equity sectors apparently pulled beans and meal higher and limited oil losses. January soybean futures gained 3.5 cents to $10.27/bushel as Wednesday’s CBOT session ended, while January soyoil stalled at 31.77 cents/pound, and January meal moved up $2.7 to $359.3/ton.

Changing Russian rules continued boosting the wheat markets. Russian officials published new rules for the nation’s wheat export industry this morning, although they didn’t explicitly restrict sales. Still, markets apparently gave great credence to industry sources saying the changes will have the same effect. March CBOT wheat jumped 25.25 cents to $6.485/bushel at their Wednesday close, while March KC wheat leapt 26.75 cents to $6.815/bushel and March MWE wheat surged 25.5 to $6.5975.

The hog and pork complex rebounded from limit-down levels. Big pork losses posted Tuesday afternoon caused CME hog futures to dive in concert with cattle prices on today’s opening. Suspicions that the Chicago losses were overdone, especially after calculations showed the CME index will drop rather modestly tomorrow, sparked a sizeable rebound from early lows, but unanimously weak midsession quotes renewed the downward pressure. February hog futures dove 1.20 cents to 80.47 cents/pound in late Wednesday action, while June hogs fell 1.25 cents to 88.90.

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December 17th - Big Bull Move; No Adjustment of CME Limits

Feeder cattle futures are locked down the CME mandated 300-point limit for fifth consecutive day taking live cattle futures along for the ride as fear spreads. There are already more offered limit down today than yesterday as a true snowball effect is underway.

Feeder cattle options are still trading as “market makers” in the feeder cattle options pit are able to complete transactions reflecting, synthetically, where the market may be headed. The options market is the only barometer market watchers have besides the size of the unfilled futures sell orders piling up, totaling over 2600 in Jan FC alone. At this writing, there was a sizeable option trade in Jan feeders at the futures equivalent of $209, $7.60 lower than Jan futures before values slipped further to what constitutes a $208 offer and $207 bid.

Many traders and those in the cattle industry reached out to the CME yesterday, pleading for an expansion of the 300 point limit so that the pressure valve of pent of panic selling can be relieved, but the CME did not act. The only statement they have issued is that “the CME is monitoring the situation closely.”

Big Bull Move; No Adjustment of CME Limits

As cattle prices increased in value over 39 years, from the $20s to the $90s the trading increments became larger, though no change was made to the 150-point limit in cattle futures. It took an extreme situation brought on by BSE in Canada in 2003- which caused the U.S. to slaughter over 700k week after week and fed cattle prices to exceed $100 as the U.S. filled Canada’s void- to force the exchange to expand limits to an appropriate 300 points.

This year, as the biggest bull market in cattle since the late 1970s gained steam, values have increased dramatically. In the last 20 months, feeder cattle futures on a spot basis have risen 46%. The 300 point limit equaled 2.2% of the value in April 2013. That same limit was 2.7% of the value of the contract in 2003, the last time the limit was expanded. Splitting the difference for arguments sake, and applying the same simple methodology, the feeder cattle futures limit based on today’s Jan FC price should be expanded to 550 or even 600 points. There was a rumor yesterday the CME was considering that very change.

When a futures market is functioning properly, it provides a risk management tool that’s heart and soul is basis. Packers offer basis contracts to cattle feeders and end users. Large cattle feeding entities offer basis contracts to feeder cattle producers. Flat price risk is transferred to basis risk. When the underlying futures contract is out of step with the physical side of the market, (today’s weekly feeder cattle index is estimated at $234.73 though the daily number has fallen to $221), basis becomes skewed and even worse. When a disastrous event like the one occurring today is allowed to continue, unchecked, it blows historical basis relationships out the window, which costs all participants sooner or later.

CME cattle futures provide a vital business management tool. The CME profits from the cattle and beef industries’ participation and in return the cattle and beef industry has the right to require a reliable, liquid and responsive marketplace to transact business.

The Beef

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December 15th - Strategic Design

No one likes the position of running a business and lacking control over the primary components. The cattle rancher fears a drought because he is helpless to afford corrective action. Likewise the beef processing company is frustrated when unable to line up sufficient animals to process a complete shift in the beef plant. The feedyard manager can always keep the pens full at some price but when the purchase price results in unsustainable losses, the options available to remedy the problem are lacking.

This industry wide problem puts all participants back on the same footing -- survival and how we make it work. Borne out of the frustration of bad options is innovation. It is human nature to react to seemingly unsolvable problems with new approaches -- some will work and some will fail. The beef plants are encouraging feeders to add more pounds to the target finishing weight in an attempt to increase beef tonnage. Feedlots are responding assisted by the economic need to lower breakeven prices in a time of negative margins. Some feedlots turn to dairy calves in an effort to slow the turnover and find the ever elusive margins.

The most common change is the movement on the part of beef producers across the country to rebuild the herd. Sky high prices have results in the largest ramp up of new breeders in the history of cattle cycles. It took a long time to happen but now the evidence is everywhere to be seen and realized in the near future.

Old time economics jumps in and fills the voids felt by many sectors of the industry. A strong dollar has made the U.S. a destination for beef from Australia, New Zealand, and South America. Shortages, caused by a cow slaughter running 15% under last year, creates a need for a lot of ground beef. That same strong dollar has made our exports of beef more expensive leaving more beef available for domestic consumption.

All of these factors are attempting to bring into balance the needs of the consumer -- affordable meat. Probably the most important strategic objective of the beef industry is the desire to keep beef at the center of the plate for the consumer. Turkey burgers, chicken sandwiches, and other alternative menu offerings are the retailers and food services attempt to fill in for beef. As the herd rebounds, we want beef reclaiming lost territory on the meat counters of the country.

Ag Center Cattle Report

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December 12th - National Feeder & Stocker Cattle Summary
USDA-MO Dept of Ag Market News

RECEIPTS:   Auctions    Direct   Video/Internet  Total
This Week     246,200     33,000        24,700        303,900 
Last Week     275,600     49,400        21,000        346,000 
Last Year       193,000     21,000        27,200        241,500

Compared to last week, feeder calves under 550 lbs sold mostly steady to 5.00 higher early week, with trends from mid-week on turning mostly 5.00 to instances 10.00 lower.  Bigger calves and yearlings traded weak to 5.00 lower, with spots 10.00 lower after mid-week.  Lightweight calf buyers were aggressive to fill orders as receipts were fairly heavy, with only one more full-week of marketing activity left before buyers and sellers start winding down for the holiday break.  Farmer feeders and backgrounders were especially active in their last opportunities to invest money in feeders before the end of the year.  Bigger calves mostly over 550 lbs and yearlings felt pressure this week as cattle markets got off to a rocky start on Monday as the majority of Live and Feeder cattle contracts closed down the limit with limit down losses on Feeder contracts on Thursday and sharp losses again on Friday. 

Declines in cattle futures and fat cattle markets are looking to find their footing through the end of the year.  Last Friday’s disappointing lower moves in cash fed cattle trade is keeping markets under pressure.  With cattle bulls wanting to head to the exits and bears coming out of the woods has packers not wanting to pay more and feedlots not wanting to take less than they have to.  Boxed beef cut-outs seem to have hit a pre-Christmas slump as poor processing margins will keep packers on the defensive with the seasonal slide in Boxed beef prices.  This has packers pretty much wanting to put a "full court press" on the fat cattle trade. Lightweight calves weighing mostly from 350-450 lbs can hold more options as cattle growers need as long as they can to see if they can grow them efficiently into yearlings next summer. 

Many auctions are holding Special Bred Heifer and Cow sales this month with Public Auction Yards (PAYS) in Billings, MT holding their annual Blue Ribbon Special Bred Heifer and Cow sale a two day auction on Tuesday and Wednesday selling over 7000 head of top quality bred heifers and cows.  A packed house of buyers was in attendance to buy many long strings of reputation bred cows and heifers that were on offer.  Many of the top quality bred heifers weighing over 1000 lbs with Feb-Mar calving period sold from 2800.00-3100.00 and with young bred cows (mostly 3-4 yrs) with Feb-April calving periods selling from 2700.00-3125.00 and very high quality young bred cows at 3550.00-3875.00.  With many auctions holding special bred cow and heifers sales, many farmers and ranchers have gooseneck trailers, plenty of hay and corn to try and pluck one more bred cow or one with enough youth to give it another try. 

USDA’s Supply and Demand Report issued on Wednesday contained few surprises and no large changes before the year’s final estimates come out in January.  USDA left the corn balance sheet unchanged with ending stocks just below 2 billion bushels (1,998 bb) within the range of pre-report expectations.  In Kansas on Friday negotiated cash fed cattle traded 4.00 lower at 164.00 while dressed sales in Nebraska were mostly 7.00-8.00 lower at 256.00-257.00.  For the week,live sales in Nebraska sold 4.00-6.00 lower from 160.00-164.00.  This week’sauction volume included 49 percent over 600 lbs and 40 percent heifers.

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December 12th - Canadian Weekly Cattle Report

New record for steers

  • The Canfax average weighted steer cash price rose to a new record high of $182.28 per hundredweight, up $1.90.
  • That was despite a sharply lower U.S. cash market, where trade developed at U.S. $166-$168 per cwt. in Kansas and Nebraska, down as much as $6 from the previous week.
  • Beef movement over the U.S. Thanksgiving holiday was disappointing and wholesale beef prices fell, pushing packer margins further into the red.
  • The basis level improved in Canada, and producers have the upper hand over packers.
  • American buyers again added competition in the Canadian market. Movement south was light, but U.S. buyers appeared to offer a slight premium
  • Alberta packers appeared a bit more aggressive on groups of longer fed cattle.
  • Packers were buying to fill slaughter for the last week of December or the first week in January.
  • Alberta fed cash-to-futures basis closed at -$7.40, close to the average for this time of year and the strongest since the beginning of September.
  • Canadian fed export to the United States have exceed 10,000 head in four of the past five weeks.
  • The tail end of the summer-placed cattle are being marketed, and there appears to be a lag before yearling volume increases.
  • Market-ready supply is not large, but retailers have booked most of their holiday beef needs and that should work against beef and cattle prices.
  • Processing margins are squeezed, and packers may have to slow the kill.
  • Look for the market to trade at Cdn $176-$181 for the rest of the year.
Cows well supported
  • Good demand meant cows were steady to $1 per cwt. higher.
  • D1, D2 cows ranged $120-$138 to average $127 per cwt., and D3 cows ranged $105-$121 to average $112.42.
  • Rail bids were $243-$248 per cwt. delivered.
  • Butcher bulls rallied $2.50 to average $140.38.
  • Weekly western Canadian non-fed slaughter to Nov. 29 surged 20 percent to 11,350 head.
  • Weekly exports to Nov. 22 fell 11 percent to 8,175.
  • Volumes should continue strong this week, but prices should be steady.
Feeders rise
  • A tighter offering pushed feeder prices higher.
  • The Alberta auction volume fell 33 percent to 36,437 head.
  • Feeder steers 400-800 pounds were steady to $3 per cwt. higher, while similar weight heifers rose $3-$4.
  • Feeders heavier than 800 lb. saw renewed buyer interest, and prices for quality cattle rose sharply.
  • The weighted average steer price rose $3, and heifers rallied almost $5.50.
  • Weekly exports to Nov. 22 fell four percent to 15,827 head.
  • Weekly feeder exports have topped 15,500 head for five straight weeks.
  • Auction volume will dwindle the rest of the month, and prices should remain well supported, helped by end of the year buying for tax reasons.
  • Any large drafts of calves on offer should see keen buyer interest and price premiums.
Beef falls
  • In the United States, Choice cutout was US$254.42, down $2.71, and Select was $240.26, down $3.74
  • Packers have struggling to force beef prices higher and they are now losing about $120 per head.
  • Prices are expected to follow the seasonal downtrend, but the decline could be larger than in the past because prices are nearly 30 percent higher than a year ago.
  • Canadian cutouts for the week ending Nov. 28 were unavailable.
This cattle market information is selected from the weekly report from CanFax, a division of the Canadian Cattlemen’s Association.
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December 12th - "Shootin' the Bull" Weekly Analysis

In my opinion, the fundamentals of the cattle industry is changing.  Production is running at full steam.  While this may be at a significantly reduced level, the throttle is wide open.  Every sector of the industry is attempting to increase supply and widen profit margins.  This is finally becoming apparent through the reflection of price.  It has been perceived for sometime that a great deal of the buying of feeder cattle has come from entities that are not feed yards, but back grounding lots or wheat grazers attempting to put more weight on and capture the climb in prices. 

With the fall of the year having seen significant increases in sales of feeders, placements in feed yards and now the price moving down, I anticipate the entities that are not feed yards will begin pulling back on bids.  This leaves the feed yards and I do not anticipate them to be aggressive buyers with corn moving higher and fats moving lower.  The rally lasted longer than I had anticipated.  However, it is perceived complete with the sharp rise in the positive basis. 

Futures contracts are moving lower in anticipation of the cash markets softening.  This is apparent in both fats and feeders, but it is dramatic in the feeder market.  It is perceived going to be difficult to hedge inventory under current market conditions.  Option premiums are inflated and futures have been locked limit down Thursday and Friday, making it difficult to execute positions.  It may take just a little imagination, but if one views the March feeder cattle contract, the left side and head of a head and shoulders pattern is perceived to have been formed.  Therefore, I anticipate the right side of the neck line to move to the same level as the left side.  This would produce a decline to the August low per respective contract month.  Therefore, another $20.00 plus is anticipated to come off feeder prices in the near term.  The immense positive basis suggests to make sales as soon as possible as the future suggests $12.00 to $15.00 lower at today's price level of January. 

This week, I made the recommendation to buy December '14 corn with a sell stop at $4.05.  ***This was a sales solicitation.***  If followed, most positions were garnered around the $4.20 level.  As I write this, the December '15 contract has come to within a half a cent of the current retracement high from contract low.  If $4.32&1/4 is exceeded, it will lead me to anticipate a resumption of the trend up with a target of $4.77. 

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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December 12th - Reasons for Oil's Plunge

Oil’s stunning price collapse is undoubtedly one of 2014’s top stories and will remain a major theme for investors in 2015. Indeed, oil futures have plunged almost 41% from the beginning of the year, including carnage in Thursday trading that saw oil settle below $60, at $59.95, marking its lowest settlement price since July 14, 2009, while Brent is down about 43.5% for the year. Prices continued lower on Friday, with WTI racing to levels south of $58 a barrel after the International Energy Agency cut its outlook for global demand.

Here’s a look at the factors that have led to the largest price decline since the 2008 financial crisis:

Shale oil

It's impossible to talk about oil’s plunge without talking about the supply glut. And it’s impossible to talk about the supply glut without talking about U.S. shale. Persistently high oil prices helped to spur the fracking revolution, which in turn triggered a boom for North Dakota and other shale-oil-rich regions.

Falling prices will weigh on production of oil from shale and other resources as energy firms cut back on projects, but investors are debating exactly how sensitive shale production will prove to be.

“In fact, we can even imagine initially higher output, as many shale players will scramble for survival and cash flow becomes crucial,” wrote analysts at JBC Energy. “This will push them to reduce the backlog of already drilled and fracked wells, while focusing new wells on their most promising assets.”

On Wednesday, the U.S. Energy Information Administration reported a surprise increase in U.S. supplies of 1.5 million barrels in the week ending Dec. 5., which may reflect the push for producers to squeeze as much oil from their existing sites now as possible.

Price war

It’s not just the U.S., other major producers are also pumping away. OPEC, meanwhile, is keeping the spigots open in what many strategists see as nothing less than a price war aimed at routing shale and other higher-cost producers. The cartel opted at a closely watched November meeting to make no changes to its production levels, prompting another jarring decline for oil futures.

“This makes any rapid recovery of oil prices unlikely, especially as additional supply looks set to reach the market from northern Iraq and Libya,” wrote Carsten Fritsch, commodity strategist at Commerzbank in Frankfurt.

Weak demand

Then there’s the other side of the supply-demand equation. Slowing Chinese economic growth and a sputtering European economy have helped to keep demand growth under wraps. On Friday, The International Energy Agency cut its 2015 forecast for global-oil demand growth by 230,000 barrels per day, to 900,000 barrels. That said, demand should receive a boost from the declines in oil prices that have already taken place, said Julian Jessop, economist at Capital Economics.

OPEC, in its monthly report on Wednesday, forecast that demand for its oil would drop to 28.9 million barrels a day in 2015 versus 29.4 million barrels a day this year.

Dissipating geopolitical fears

Oil had rallied into midyear, buoyed in part by geopolitical tensions surrounding Russia’s annexation of the Crimea, civil war in Syria, and broad advances by Sunni insurgents across northern Iraq. But the risk premium soon dissipated as investors came around to the view that none of the scenarios posed an imminent danger to supply. In Iraq, for example, southern oil fields remained well insulated from the turmoil.

Still, the prospect for disruptions can’t be ignored and it’s possible that a geopolitical shock could spur a rebound at some point.

Strong dollar

Commodity prices are inversely correlated to the dollar. The oft-cited rationale is that a stronger currency makes dollar-priced commodities more expensive to buyers using other currencies.

The ICE dollar index, a measure of the currency against a basket of six major rivals, is up more than 10.8% since the beginning of the year. Moreover, the index is up more than 10.3% since the beginning of May.

Binky Chadha, chief global strategist at Deutsche Bank, argues that the strong dollar is the primary factor in oil’s decline. After all, oil supplies have been building for a long time. It’s hard to believe that investors just “suddenly woke up” to the oil glut at midyear, he said.

Oil’s plunge started not long after the dollar rally began to accelerate, Chada notes, observing that it usually takes a rallying dollar a year and a half to cover the ground it’s gained in the last five months, Chadha told reporters on Thursday, which might make finding a bottom in oil “a function of where the dollar stalls.”

MarketWatch

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December 12th - 2015 Omnibus Appropriations Bill Friendly to Cattlemen

The House passed the 2015 Omnibus Appropriations Bill, funding much of the government through Sept. 30, 2015. National Cattlemen’s Beef Association President and Victoria, Texas cattleman, Bob McCan says this appropriations bill contained many of the priorities for cattlemen and women.

“We were very happy to see a number of issues that have affected our producers addressed in this legislation,” said McCan. “It is clear that Congress recognizes and agrees that the Administration’s regulatory zeal has gone too far and if left unchecked, it will impede the economic growth of rural America.”

Key for cattlemen and women, the report language for the USDA contained a provision instructing the Secretary of Agriculture to submit a report with his recommendations for any changes in the Federal law required to bring the Country of Origin Labeling program into compliance with our international trade obligations. This report would need to be submitted within 15 days of the appeal decision from the WTO or by May 1, 2015, whichever comes first.

“The WTO ruling on the COOL rule was very clear that this provision discriminates against our largest trading partners,” said McCan. “Moreover, this failed legislation has cost U.S. cattle producers in the form of lost revenue and added costs for labeling, all for a program that has not shown benefits to consumers or greater consumption of beef. It is time to fix COOL before our economy is damaged by retaliatory tariffs or our trade relationships are permanently damaged. Failure to abide by our trade obligations sends a signal to our current and future trade partners that they too can pick and choose what provisions to abide by.”

The report also directs the Secretary of Agriculture, not to implement a duplicative beef checkoff.

“The Beef Checkoff Program is the most effective tool for cattle producers to invest in research, education and promotion of our product,” said McCan. “With 78 percent support by cattle producers and an $11.20 return on every dollar invested, the Beef Checkoff has been an immense success. Congress has made it clear that they support cattlemen and women and oppose a government-run, duplicative beef checkoff under the 1996 Generic Commodity Promotion, Research and Information Act.”

Importantly for producers the bill would also direct the Environmental Protection Agency to withdraw the Waters of the United States Interpretative rule.

“The EPA’s Interpretative rule would have had unintended consequences for agricultural producers nationwide, making the Natural Resources Conservation Service a regulatory agency by prescribing limited production practices,” said McCan. “While we, along with all of agriculture, were disappointed Congress did not defund EPA’s larger Waters of the United States efforts, this was a first step demonstrating the concerns of landowners.”

The bill also contained language to continue the defunding of the GIPSA provisions and language on a number of environmental regulations. Specifically, the bill prevents funding for the EPA to require cattle producers to obtain greenhouse gas permits for livestock and to prevent mandatory reporting of greenhouse gas emissions from manure management systems. Finally, the bill prohibited the Department of Interior from listing the sage grouse on the Endangered Species list, threatening the viability of ranching in the West without a corresponding benefit to the sage grouse.

National Cattlemen's Beef Association

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December 10th - USDA World Agricultural Supply & Demand Estimates

In its monthly World Agricultural Supply and Demand Estimates report, USDA increased by 0.4% the forecast of 2014 beef production, but lowered their forecast of next year's production by 0.5%. They now predict 2014 beef production will be down 4.9% from last year and next year's beef production will be 3.2% lower than this year. This year's beef production is the lowest since 1994.

USDA's forecast for fed cattle prices is for the average to be close to $154.40/cwt this year and in the upper $150s next year. These are far above last year's record of $125.89/cwt.

USDA left the majority of its corn and soybean forecasts unchanged, including production and average farm prices.

According to the report, the average farm price of corn is expected to remain under $4 per bushel, ranging from $3.20 to $3.80 per bushel. Production was left unchanged, estimated at 14.4 billion bushels. 

The USDA made few changes to its oilseed forecast as well. The U.S. season-average soybean price for 2014-2015 was left unchanged, expected to range between $9.00 and $11.00 per bushel. It pegged soybean production at 3.9 billion bushels – also unchanged from last month’s report.

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December 5th - US Cow Slaughter Down Massively

Beef and dairy cow slaughter are down sharply compared to a year ago, Beef - 17.9 per cent and dairy -10.5 per cent.

One of the first things to do when the market demands higher production levels is to stop liquidating the breeding stock.

Over time producers will seek to expand that stock, especially if demand is sustained but the immediate response is to stop culling. That has been the theme in the cattle market for much of this year, with beef and dairy cow slaughter down sharply compared to a year ago.

In the first 10 months of the year beef cow slaughter in the US was 2.146 million head, 468,800 head(- 17.9 per cent) lower than a year ago. Dairy cow slaughter at 2.343 million head also was 276,000 head (-10.5 per cent) lower than last year.

But there are constraints beyond the producers control in this matter. Weather may dictate that as much as you wish to hold on to all the cows you have, some of them have to be culled if there is not enough pasture to support all of them.

The drought of 2011-13 was a case in point when Texas producers had to reduce the cow inventory by a million head due to lack of available feed.

The beef cow inventory in Texas was 5.140 million head as of 1 January, 2010. It had dropped to 3.910 million head by 1 January, 2014. The decline in cow slaughter has impacted overall beef supplies, especially supplies of lean grinding beef.

Keep in mind that much of the beef harvested from beef and dairy cows becomes ground beef.

The supply hole created by the drop in cow slaughter has been filled in part by higher imports. Beef entries from Australia through the end of November were up almost 70 per cent from a year ago.

In part the lean beef shortage has been filled by more fed beef cuts going into the grinder. It should not be surprising that round and chuck primals have contributed the most to the rise in cutout values.

Going forward, it is unlikely we will see a rebound in beef and dairy cow slaughter. Hay supplies this year appear to be more than adequate to support the current stock over the winter. Costs of other feeds also are down thanks to a record corn crop.

Weekly cow slaughter was hovering around 110-115,000 head per week during the first quarter of 2014. It will be notably lower than that in the first quarter of 2015. This will continue to limit the supply of lean beef in the market and provide support to the beef cutout.

Beef imports are expected to remain strong as US prices currently are extremely strong relative to other markets. A strong US dollar has further bolstered US import competitiveness. Having said that, imports always are a wild card, as late spring and summer rains in Australia (somewhat of a long shot at this point) could crimp beef import availability.

But if imports decline, it could further bolster lean beef values in the US.

CME Daily Livestock Report

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"Click Here" to view a Slide Show of Drought Monitor maps for the last 12 weeks
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November 21st - November Cattle on Feed Report:

United States Cattle on Feed Up Slightly

  • Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.6 million head on November 1, 2014. The inventory was slightly above November 1, 2013.
  • Placements in feedlots during October totaled 2.36 million, 1 percent below 2013. Net placements were 2.26 million head. During October, placements of cattle and calves weighing less than 600 pounds were 690,000, 600-699 pounds were 570,000, 700-799 pounds were 462,000, and 800 pounds and greater were 635,000. For the month of October, placements are the second lowest since the series began in 1996.
  • Marketings of fed cattle during October totaled 1.69 million, 8 percent below 2013. October marketings are the lowest since the series began in 1996.
  • Other disappearance totaled 97,000 during October, 28 percent above 2013.
Analysts regarded the report as neutral to slightly bearish because of the placement total and the weight distribution. October placements were 3.4% higher than analysts’ average forecast and marketings were 0.4% below the average forecast. This meant the Nov 1 COF total was 0.3% above the analysts’ average forecast and the first time this year it was above a year ago (by 48,000 head).

The trend of feeding more cattle up north continued. Minnesota, Nebraska and South Dakota each had COF totals above a year ago, while Iowa’s was the same as last year. Washington had 11% more cattle on feed while California had 15% fewer cattle on feed. Texas had the most cattle on feed (2.550M head). Nebraska was second with 2.450M head and Kansas was third with 2.080M head. 

Five states, Idaho, Iowa, Minnesota, Nebraska and South Dakota, placed more cattle than a year ago. The weight breakdown showed the only year-on-year increase was in the heaviest weight category. The under 700 lbs category saw a 2.9% or 38,000 head decline. The 700-799 lbs category saw an 8.5% or 43,000 head decline. But the 800 lbs and over category saw a 10.4% or 60,000 head increase.

Only Iowa, Minnesota and South Dakota marketed more cattle in October than a year earlier. Kansas marketings were down 20% while Texas marketings were down 2%. Nebraska marketed 10,000 more cattle than Texas in the month. 
 

Cattle on Feed Inventory in 1,000+ Capacity Feedlots as of November 1st
Millions of Head
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Number of Cattle Placed on Feed in 1,000+ Capacity Feedlots in October
Millions of Head
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Number of Cattle Marketed from 1,000+ Capacity Feedlots in October
Millions of Head
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Cattle on Feed by State as of November 1st
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November 21st - Cold Storage Report
  • Total red meat supplies in freezers were down 2 percent from the previous month and down 9 percent from last year.
    • Total pounds of beef in freezers were up slightly from the previous month but down 15 percent from last year. 
    • Frozenpork supplies were down 4 percent from the previous month and down 7 percent from last year. 
    • Stocks of pork bellieswere down 18 percent from last month but up 5 percent from last year.
  • Total frozen poultry supplies on October 31, 2014 were down 5 percent from the previous month and down 9 percentfrom a year ago. 
    • Total stocks of chicken were up 5 percent from the previous month but down 9 percent from last year.
    • Total pounds of turkey in freezers were down 19 percent from last month and down 10 percent from October 31, 2013.
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 November 20th Seasonal Drought Outlook

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November 17th - USDA Projects Lower Beef Supply

USDA projects total beef supply down 1 billion pounds in 2015

  • Beginning beef stocks in 2015 are projected at 495 million pounds, down 89 million pounds from 2014.
  • Beef production in 2015 is projected at 23.736 billion pounds, down 794 million pounds from 2014.
  • Beef imports in 2015 are projected at 2.7 billion pounds, down 123 million pounds from 2014.
  • Total beef supply (production + imports) in 2015 is projected at 26.931 billion pounds, down 1 billion pounds from 2014.
  • Beef exports in 2015 are projected at 2.525 billion pounds in 2015, down 74 million pounds from 2014.
  • Beef consumption in 2015 is projected at 23.921 billion pounds in 2015, down 922 million pounds from 2014.
  • Beef consumption per capita in 2015 is projected at 52.2 pounds, down 2.4 pounds from 2014.
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May 21st - As Fundamental Change Moves an Industry

It doesn't feel any different as you walk around but beneath the surface some large and monumental plates are shifting and the foundations of an industry are undergoing change. The day to day business continues and we wake every morning to new bids and offers, new grain prices, the drought, and other continuing influences but there are some big picture developments that are occurring while we move day to day.

  • Climate: There are major changes occurring in the climate. Extreme weather patterns are more severe and long lasting. Drought in some areas continues. Flooding in other regions is causing its own problems. We can debate whether it is man made or not, but large and serious weather patterns are at work and no one impacted more than agriculture.
  • Geography: Nebraska took over Texas's spot as top feeding state. The image below clearly demonstrates the loss of feeding capacities in Texas and increases else where. Processing plants follow the feeding locations for cattle and the southern plains has lost processing capacity to the northern plains -- but both have suffered plant closings and slow downs as the herd grows smaller.
  • Basis: Cattle and grain are moving towards cash markets trading basis the futures. Cattle cash trading has ceased to be reported in Texas and lightly reported elsewhere. Poor grain basis pricing, south of Amarillo, is pressuring south plains feedyards in competitiveness.
  • Sustainability: This is a term used by everyone and understood by no one. Beef retailers are being pressured to act on assuring the industry is observing best management practices to deliver a sustainable agriculture.
  • Mandatory ID: Whether it is a trading scandal involving phantom cattle or a disease threat that can't be traced, animal ID won't go away. International trade and exports will demand it or penalize our products without it.
Downsizing is no fun and lots of money has been lost in processing and feedings. Downsizing is always painful but it also can build a better and stronger industry through change.


The Cattle Report

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May 5th - 2012 Census of Agriculture Reveals Trends

There are now 3.2 million farmers operating 2.1 million farms on 914.5 million acres of farmland across the United States, according to the 2012 Census of Agriculture, released today by the U.S. Department of Agriculture. The agriculture census presents more than 6 million pieces of information, which provide a detailed look at the U.S. farm sector at the national, state and county levels.

"Once every five years, farmers, ranchers and growers have the unique opportunity to let the world know how U.S. agriculture is changing, what is staying the same, what's working and what we can do differently," said Dr. Cynthia Clark, the retiring head of USDA's National Agricultural Statistics Service, which administered the survey. "Today, we can start to delve into the details." 

Census data provide valuable insight into the U.S. farmer demographics, economics and production practices. Some of the key findings include:
 

  • Both sales and production expenses reached record highs in 2012. U.S. producers sold $394.6 billion worth of agricultural products, but it cost them $328.9 billion to produce these products. 
  • Three quarters of all farms had sales of less than $50,000, producing only 3 percent of the total value of farm products sold while those with sales of more than $1 million - 4 percent of all farms - produced 66 percent. 
  • Much of the increased farm income was concentrated geographically or by farm categories. 
  • California led the nation with 9 of the 10 top counties for value of sales. Fresno County was number one in the United States with nearly $5 billion in sales in 2012, which is greater than that of 23 states. Weld County, Colorado ranked 9th in the top 10 U.S. counties. 
    • The top 5 states for agricultural sales were California ($42.6 billion); Iowa ($30.8 billion); Texas ($25.4 billion); Nebraska ($23.1 billion); and Minnesota ($21.3 billion). 
  • Eighty-seven percent of all U.S. farms are operated by families or individuals. 
  • Principal operators were on average 58.3 years old and were predominantly male; second operators were slightly younger and most likely to be female; and third operators were younger still. 
  • Young, beginning principal operators who reported their primary occupation as farming increased 11.3 percent from 36,396 to 40,499 between 2007 and 2012. 
  • All categories of minority-operated farms increased between 2007 and 2012; the Hispanic-operated farms had a significant 21 percent increase. 
  • 144,530 farm operators reported selling products directly to consumers. In 2012, these sales totaled more than $1.3 billion (up 8.1 percent from 2007). 
  • Organic sales were growing, but accounted for just 0.8 percent of the total value of U.S. agricultural production. Organic farmers reported $3.12 billion in sales in 2012, up from $1.7 billion in 2007. 
  • Farms with Internet access rose from 56.5 percent in 2007 to 69.6 percent in 2012. 
  • 57,299 farms produced on-farm renewable energy, more than double the 23,451 in 2007. 
  • 474,028 farms covering 173.1 million acres were farmed with conservation tillage or no-till practices. 
  • Corn and soybean acres topped 50 percent of all harvested acres for the first time. 
  • The largest category of operations was beef cattle with 619,172 or 29 percent of all farms and ranches in 2012 specializing in cattle. 
Conducted since 1840, the Census of Agriculture accounts for all U.S. farms and ranches and the people who operate them. The Census tells a story of how American agriculture is changing and lays the groundwork for new programs and policies that will invest in rural America; promote innovation and productivity; build the rural economy; and support our next generation of farmers and ranchers.
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February 14th - USDA Long-Term Projections

Despite lower prices for many agricultural products in the near future, USDA is projecting U.S. farm income to remain historically high through 2023. Analysis for the report was conducted prior to completion of the Agricultural Act of 2014, and was based on the assumption of continuation of policies in the 2008 Farm Bill. Projections range from long-term economic growth, global production and consumption trends, global trade trends, commodity prices, farm income and more.

USDA projects global economic growth to average 3.2 percent annually over the next decade, with stronger growth projected in developing countries, including China, India, and countries in Africa and Latin America. The U.S. economic growth is projected to average 2.6 percent over the next decade. “Steady global economic growth supports longer term gains in world food demand, global agricultural trade, and U.S. agricultural exports,” according to the report.

While prices for many of the major crops are projected to decline in the next few years, long-term growth in global demand, a low-valued U.S. dollar, and demand for biofuel, will hold prices for corn, oilseeds and other major crops above pre-2007 levels, according to the report.

As a result of recovering from high feed prices in recent years and drought, USDA is projecting livestock production and per capital red meat consumption to increase through 2023.
While beef production is projected to decline through 2016 as producers retain heifers to grow the overall herd, production is expected to begin increasing in 2016. USDA is projecting that beef cow numbers will increase from 29 million today to more than 33 million in 2022-2023. The total cattle inventory is projected to expand to approximately 96 million in 2023, and increasing slaughter weights add to increased beef production projections. USDA is projecting beef cattle prices to increase through 2017, then fall but increase again through 2023.

With regard to global beef trade, USDA is projecting world meat consumption to increase by about 1.9 percent annually from 2014-2023 and world meat trade to increase by 22 percent during that same period. Stagnate beef export projections from Australia resulted in the top four beef exporting nations, according to USDA, to be Brazil, India, the United States and Australia. On the import side, China and Hong Kong are projected to increase beef imports by 55 percent in the next decade as China’s middle class grows from 300 million today to an expected 640 million by 2020.

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February 13th - USDA Projects Net Farm Income to Fall in 2014

While USDA’s latest farm income projections indicate an overall decline in net farm income of around 26.6 percent in 2014, there are some positive projections in the report, especially for livestock producers.

“Livestock receipts are up marginally,” said USDA Chief Economist Joe Glauber. “They’re up at $183.4 billion. It’s the first time in a long while that we’ve seen livestock and crop receipts at around roughly the same magnitude.”

Crop receipts are projected at $189.4 billion in 2014, down more than 12 percent and back to pre-2011 levels. According to the report, declines in cash receipts are expected for almost all major crop categories, including food grain, feed, oil, fruits/tree nuts, and vegetables/melons. Large anticipated declines in the 2014 price for corn are impacting farmers’ decisions regarding other major crops. According to the report, use of corn for ethanol is expected to rise in 2014. Additionally, USDA is projecting declines in hay, wheat and soybeans receipts as well.

USDA is projecting a 0.7 percent increase in livestock receipts in 2014. For cattle and calves, steady receipts are projected due to lower production levels. Additionally, USDA is forecasting a decline in beef and veal export quantities in 2014.

Overall, net farm income, earnings only from current year production, is forecast to be $95.8 billion in 2014, down 26.6 percent from 2013 and projected to be the lowest since 2010. Net cash income, which includes income from carryover stocks from 2013, is forecast at $101.9 billion, down 22 percent from 2013.

For just the second time in the last 10 years and the first time since 2009, USDA is projecting a decline in production expenses, with an expected $3.9 billion decrease in 2014.

“Expenses are down,” Glauber said. “We’re forecasting them at $310 billion. That’s down almost $5 billion from last year, and that’s largely lower feed costs.”

Feed expenses are expected to decline by $6.6 billion, 11.3 percent, but livestock and poultry purchases are projected to increase, driven by an expected double-digit increase in the price of feeder steers due to tight supplies and strong beef demand. The overall expenses for the two major livestock-related expenses, however, are projected to fall by 6.1 percent, or $5.1 billion.

Other farm expense projections include a 4.7 percent decline for the three major crop-related expenses – seed, fertilizer and pesticides; a 9.6 percent decline in net rent to non-operators; a 4.6 percent increase in total labor; and a 3.2 percent increase for miscellaneous expenses, including things like animal health and breeding expenses, contract production fees, irrigation water, and general production and management decisions.

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All Cattle & Calves... State Rankings & Change
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January 1, 2014 Inventory vs. 2013 Inventory... Compiled from USDA National Agricultural Statistical Service Data
Rank
State
2014
2013
% Change
2014 as
% of Total
 
1
Texas
10,900,000
11,300,000
-3.54%
12.42%
2
Nebraska
6,150,000
6,300,000
-2.38%
7.01%
3
Kansas
5,800,000
5,850,000
-0.85%
6.61%
4
California
5,250,000
5,300,000
-0.94%
5.98%
5
Oklahoma
4,300,000
4,200,000
+2.38%
4.90%
6
Missouri
3,800,000
3,650,000
+4.11%
4.33%
7
Iowa
3,700,000
3,850,000
-3.90%
4.22%
8
South Dakota
3,650,000
3,850,000
-5.19%
4.16%
9
Wisconsin
3,350,000
3,450,000
-2.90%
3.82%
10
Montana
2,550,000
2,600,000
-1.92%
2.91%
11
Colorado
2,480,000
2,600,000
-4.62%
2.83%
12
Minnesota
2,280,000
2,390,000
-4.60%
2.60%
13
Idaho
2,190,000
2,370,000
-7.59%
2.50%
14
Kentucky
2,090,000
2,240,000
-6.70%
2.38%
15
North Dakota
1,770,000
1,790,000
-1.12%
2.02%
16
Tennessee
1,760,000
1,830,000
-3.83%
2.01%
17
Arkansas
1,660,000
1,600,000
+3.75%
1.89%
18/19
Florida
1,620,000
1,660,000
-2.41%
1.85%
18/19
Pennsylvania
1,620,000
1,610,000
+0.62%
1.85%
20
Virginia
1,530,000
1,610,000
-4.97%
1.74%
21
New York
1,450,000
1,400,000
+3.57%
1.65%
22
New Mexico
1,290,000
1,340,000
-3.73%
1.47%
23
Oregon
1,280,000
1,280,000
+0.00%
1.46%
24
Wyoming
1,270,000
1,290,000
-1.55%
1.45%
25
Ohio
1,250,000
1,230,000
+1.63%
1.42%
26
Alabama
1,240,000
1,220,000
+1.64%
1.41%
27
Illinois
1,130,000
1,120,000
+0.89%
1.29%
28
Michigan
1,120,000
1,120,000
+0.00%
1.28%
29
Washington
1,100,000
1,150,000
-4.35%
1.25%
30
Georgia
1,000,000
1,020,000
-1.96%
1.14%
31
Mississippi
930,000
910,000
+2.20%
1.06%
32
Arizona
920,000
900,000
+2.22%
1.05%
33
Indiana
870,000
810,000
+7.41%
0.99%
34
North Carolina
810,000
820,000
-1.22%
0.92%
35
Utah
800,000
770,000
+3.90%
0.91%
36
Louisiana
790,000
780,000
+1.28%
0.90%
37
Nevada
455,000
460,000
-1.09%
0.52%
38
West Virginia
380,000
410,000
-7.32%
0.43%
39
South Carolina
360,000
355,000
+1.41%
0.41%
40
Vermont
260,000
270,000
-3.70%
0.30%
41
Maryland
182,000
192,000
-5.21%
0.21%
42
Hawaii
130,000
132,000
-1.52%
0.15%
43
Maine
85,000
85,000
+0.00%
0.097%
44
Connecticut
47,000
48,000
-2.08%
0.054%
45
Massachusetts
39,000
39,000
+0.00%
0.044%
46
New Hampshire
32,000
33,000
-3.03%
0.036%
47
New Jersey
29,000
31,000
-6.45%
0.033%
48
Delaware
16,000
18,000
-11.11%
0.018%
49
Alaska
10,000
12,000
-16.67%
0.011%
50
Rhode Island
5,000
4,600
+8.70%
0.006%






-
Total
87,730,000
89,299,600
-1.76%
 100.00%
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Beef Cows... State Rankings & Change
.
January 1, 2014 Inventory vs. 2013 Inventory... Compiled from USDA National Agricultural Statistical Service Data
. Rank
. State
2014
2013
. % Change
2014 as
% of Total
 
 
 
 
1
Texas
3,910,000
4,015,000
-2.62%
13.46%
2
Missouri
1,820,000
1,757,000
+3.59%
6.27%
3
Oklahoma
1,805,000
1,754,000
+2.91%
6.22%
4
Nebraska
1,797,000
1,805,000
-0.44%
6.19%
5
South Dakota
1,635,000
1,688,000
-3.14%
5.63%
6
Montana
1,476,000
1,506,000
-1.99%
5.08%
7
Kansas
1,414,000
1,328,000
+6.48%
4.87%
8
Kentucky
1,012,000
1,028,000
-1.56%
3.48%
9
North Dakota
943,000
922,000
+2.28%
3.25%
10
Iowa
885,000
925,000
-4.32%
3.05%
11
Arkansas
882,000
851,000
+3.64%
3.04%
12
Florida
877,000
908,000
-3.41%
3.02%
13
Tennessee
864,000
912,000
-5.26%
2.97%
14
Colorado
700,000
715,000
-2.10%
2.41%
15
Wyoming
694,000
694,000
+0.00%
2.39%
16
Alabama
671,000
651,000
+3.07%
2.31%
17
Virginia
657,000
686,000
-4.23%
2.26%
18
California
600,000
610,000
-1.64%
2.07%
19
Oregon
516,000
527,000
-2.09%
1.78%
20
Georgia
480,000
490,000
-2.04%
1.65%
21
Mississippi
477,000
486,000
-1.85%
1.64%
22
Louisiana
450,000
454,000
-0.88%
1.55%
23
Idaho
445,000
510,000
-12.75%
1.53%
24
New Mexico
387,000
390,000
-0.77%
1.33%
25
North Carolina
360,000
364,000
-1.10%
1.24%
26
Illinois
359,000
360,000
-0.28%
1.24%
27
Minnesota
350,000
375,000
-6.67%
1.21%
28
Utah
325,000
315,000
+3.17%
1.12%
29
Ohio
293,000
290,000
+1.03%
1.01%
30
Wisconsin
240,000
260,000
-7.69%
 0.83%
31
Nevada
226,000
231,000
-2.16%
 0.78%
32
Washington
209,000
221,000
-5.43%
 0.72%
33
Indiana
192,000
191,000
+0.52%
 0.66%
34
West Virginia
191,000
200,000
-4.50%
 0.66%
35
Arizona
178,000
175,000
+1.71%
 0.61%
36
South Carolina
174,000
174,000
+0.00%
 0.60%
37
Pennsylvania
170,000
155,000
+9.68%
 0.59%
38
Michigan
114,000
113,000
+0.88%
0.39%
39
New York
105,000
90,000
+16.67%
 0.36%
40
Hawaii
68,800
69,900
-1.57%
0.24%
41
Maryland
38,000
41,000
-7.32%
 0.13%
42
Vermont
12,000
12,000
+0.00%
 0.041%
43
Maine
11,000
11,000
+0.00%
0.038%
44
New Jersey
8,000
9,000
-11.11%
0.028%
45
Massachusetts
6,000
6,500
-7.69%
0.021%
46
Alaska
4,300
4,900
-12.24%
0.015%
47
Connecticut
4,000
6,000
-33.33%
0.014%
48
New Hampshire
3,000
3,500
-14.29%
 0.010%
49
Delaware
2,800
4,000
-30.00%
 0.010%
50
Rhode Island
1,500
1,500
+0.00%
0.005%






-
Total
29,042,400
29,295,300
-0.86%
100.00%
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February 4th - Rabobank Report: Structural Changes Needed to Keep U.S. Beef Industry Competitive

Consumption shift requires better cost control as U.S. becomes a “Ground Beef Nation”

Rabobank has published a new report on the U.S. cattle industry, calling for changes in the way beef is produced in order for the industry to remain competitive. In the new report, “Ground Beef Nation,”, Rabobank says that changing consumer preferences and a production model tailored to production of top-shelf steaks has put the U.S. cattle industry in a position of losing market share to competitive proteins.

“Under the existing business model, the U.S. cattle industry manages all fed beef as if it were destined for the center of the plate at a white table cloth restaurant,” notes Rabobank cattle economist Don Close. “The industry is, essentially, producing an extraordinarily high-grade product for consumers who desire to purchase a commodity. More than 60% of U.S. beef consumption is ground product. If the U.S. cattle industry continues to produce ground beef in a structure better suited to high-end cuts, the result will be continued erosion of market share.”

The report goes on to explore the trend of changing consumer preferences and the role pricing plays in the notable decline in beef consumption. The industries that produce competitive proteins such as pork and chicken have grown and become more efficient, making the products more readily available at competitive prices.

“The industry must change to a production model that determines the best end use of an animal as early as possible, in order to compete in a ‘ground beef nation’,” notes Close. “A new system for end-use categorization that influences calf selection, cattle management, production costs, and feeding regimen throughout the life of the animal is vital to keeping beef competitive with other choices at the meat counter.”

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USDA Cattle Inventory Report... January 1 Cattle Inventory Down 2 Percent

All cattle and calves in the United States as of January 1, 2014 totaled 87.7 million head, 2 percent below the 89.3 million on January 1, 2013. This is the lowest January 1 inventory of all cattle and calves since the 82.1 million on hand in 1951.

All cows and heifers that have calved, at 38.3 million, were down 1 percent from the 38.5 million on January 1, 2013. This is the lowest January 1 inventory of all cows and heifers that have calved since the 36.8 million head in 1941.

  • Beef cows, at 29.0 million, were down 1 percent from January 1, 2013. 
  • Milk cows, at 9.2 million, unchanged from January 1, 2013. 
Other class estimates on January 1, 2014 and the change from January 1, 2013, are as follows:
  • All heifers 500 pounds and over, 18.8 million, down 2 percent. 
  • Beef replacement heifers, 5.5 million, up 2 percent. 
  • Milk replacement heifers, 4.5 million, unchanged. 
  • Other heifers, 8.7 million, down 5 percent. 
  • Steers weighing 500 pounds and over, 15.4 million, down 3 percent.
  • Bulls weighing 500 pounds and over, 2.0 million, down 1 percent. 
  • Calves under 500 pounds, 13.3 million, down 4 percent. 
  • Cattle and calves on feed for slaughter in all feedlots, 12.7 million, down 5 percent. 
  • The combined total of calves under 500 pounds, and other heifers and steers over 500 pounds outside of feedlots was 24.7 million, down 3 percent. 
 Calf Crop Down 1 Percent

The 2013 calf crop was estimated at 33.9 million head, down 1 percent from 2012. This is the smallest calf crop since the 33.7 million born during 1949. Calves born during the first half of 2013 are estimated at 24.7 million, down 1 percent from 2012.


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December 1

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