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CME: Dairy Cowherd Continues to Contract Through H1/2019

01 July 2019

US - At the beginning of the year, the cowherd was still showing signs of expansion with an ever so slight increase of half a percent. The dairy cowherd was contracting due to continued depressed profitability while the beef cowherd was up a full 1 percent, reports Steiner Consulting Group, DLR Division, Inc.

1 July cattle inventory will be released by USDA-NASS on 19 July 2019, and although it might be early for pre-report estimates, today’s newsletter will give a preview based on the information at hand.

The dairy cowherd has continued to contract through the first half of the year but that has shown signs of slowing. First quarter slaughter was the largest of any quarter since 1986. The latest USDA-NASS Milk Production report came in with inventory at 9.333 million head.

Milk cow inventory is reported every month, and we would expect the 1 July inventory number to be reflective of those monthly numbers reported in June and July Milk Production Report. Still, last year milk cows totaled 9.4 million on 1 July.

With monthly dairy cow slaughter up 5.6 percent year to date (Jan-May), dairy cow inventory is likely to be below a year ago. Margins in the dairy sector have improved somewhat but for many regions of the US margins remain tight. Further, it seems unlikely the number of dairy cow replacements will rise above a year ago.

Beef cow and heifer slaughter have continued to post year-over-year increases. Monthly livestock slaughter data shows beef cow slaughter is up 2.7 percent in 2019 data through May. Cow-calf returns are projected to be negative in 2019 for the second year, which makes it unlikely that many are thinking of expanding. Still, returns are not expected to be exceptionally low.

Ultimately, this would indicate the beef cow herd will show a change of less than plus or minus 1 percent as of 1 July relative to a year ago. Heifers continue to enter feedlots and the slaughter mix indicates that heifer retention for breeding purposes at a high rate is unlikely.

Monthly heifer slaughter was up 8.5 percent for January through May data and recent weekly data indicates that trend has continued in June. Expect to see beef heifer replacements below a year ago, and other heifers (those entering feedlots & slaughter channels) to be above a year ago.

The calf crop should reflect the year-over-year increase in the 1 January cowherd. Total cows that had calved were up 0.5 percent in January, but severe winter weather and ill-timed storms relative to calving should adjust the calf crop to a smaller number than would normally be reflected by such an increase in breeding stock.

Steer slaughter continues to send puzzling numbers based on the larger calf crops in the last two years with steer slaughter running below a year ago. The July number of steers 500 pounds and over is reflective of a calf crop showing a year-to-year increase over the prior year as should heifers, steers, and bulls under 500 pounds. In both cases though, the shift should be small.

The summation of all these factors leads us to believe that all cattle and calves number on 1 July will be very close to a year ago, but could be up or down slightly. The key lies in the beef cow and replacement numbers and how well monthly slaughter is reflecting the current transition in the cattle cycle.

There are still several more weeks of slaughter data that will be released between now and the cattle inventory report, but essentially, this report is not expected to show large changes in either direction, with exception of heifer replacement figures for beef and dairy sector.

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

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