John Maday  |   February 15, 2012

Even in the most favorable times, expansion in beef production is a slow process, and the shift toward herd growth analysts expect in coming years could be even more so, a USDA report suggests. This month’s Livestock, Dairy and Poultry Outlook report includes a suggestion titled “Mixed Signals Cloud Beef’s Future,” outlining some of the challenges and barriers the industry faces in expanding from today’s historically low beef-cow numbers.

The report’s authors note that although the January 1 Cattle Inventory report showed a 1 percent increase in replacement heifers over a year ago, only about 37,300 more heifers are expected to calve in 2012 compared with 2011. That increase looks even smaller considering the number of heifers expected to calve dropped by about 245,000 between 2010 and 2011. During the same period, beef cow numbers declined by a half-million head, followed by a decline of 966,700 head during 2011.

The report also documents the lack of profitability in the feedyard and packer sectors, drought and potential consumer resistance to high retail beef prices – currently averaging about $5 per pound – as potential threats, as lack of profitability those sectors could pressure prices at earlier production stages.  At the same time, the authors note that supplies of feeder cattle outside feedlots, including imported feeder cattle from Mexico and Canada, declined by 3.9 percent from January 1, 2011 to January 1, 2012. Part of the reason for the shortage of feeder cattle is that drought pushed large numbers of calves into feedyards early during 2011. As a result, the authors note, demand for feeder cattle has exceeded supplies, driving prices to record levels.

One drought-related trend the report does not mention is the regional disparity in heifer retention shown in the January inventory report. As of January 1, Oklahoma replacement heifers were down by 15 percent from a year earlier while the Texas figure was down by 10 percent.  In contrast, beef replacement heifers were up by 29 percent in Colorado, 17 percent in Iowa, 18 percent in Nebraska, 14 percent in South Dakota and 18 percent in Wyoming. The large decline in heifer retention in drought-stricken Southern states offset the significant increases in the North, resulting in the meager 1 percent national increase in replacement heifers. Clearly though, producers who have the resources to do so are responding to market signals and moving toward expansion.

Cow slaughter numbers over the past two years have been exceptional, driven by drought and high slaughter-cow prices, but that trend is likely to reverse this year. At the Cattle-Fax annual outlook seminar during the Cattle Industry Convention earlier this month, analysts projected a 600,000-head decline in U.S. cow slaughter this year, followed by another 800,000-head decline next year.

Rains across much of the Southern Plains region in recent weeks have raised hopes for better forage supplies this spring and summer. It is unlikely most ranchers in the area will be able to expand their cow herds this year, but improved conditions should at least stabilize the region’s cow numbers.

The Livestock, Dairy and Poultry Outlook report also notes that U.S. beef exports in 2011 posted a 21-percent year-over-year increase, with a total of 2.79 billion pounds. USDA projects 2012 beef exports at 2.76 billion pounds, fractionally below 2011 levels. Cattle-Fax analysts were even more optimistic in the presentation earlier this month, predicting an 11 percent increase in beef exports this year. U.S. beef imports during 2011 were 10 percent lower than year-earlier levels and the United States remained a net exporter, according to USDA. Beef imports for 2012 are forecast at 2.09 billion pounds, 2 percent higher than 2011.

The take-home message from all these figures is that although producers in some areas of the country are likely to begin expanding their herds over the next few years, growth still is likely to fall short of demand. A producer who adds heifers this year or next year does not need to worry that an oversupply of cattle will reduce the value of calves those heifers wean three, four or five years from now.

Read the February Livestock, Dairy and Poultry Outlook report from USDA online.