The CME Daily Livestock Report (DLR) stated that USDA’s Cattle report indicates the January 1 cattle numbers were significantly higher than had been expected.If those trade estimates actually represent the sentiment of “the market”, we see this report being bearish for cattle values in 2016 and 2017.

 
Authors of the DLR continued, “the bottom line is that the beef industry has responded to the resounding market  signals of 2014 and better pasture conditions with robust growth. The growth, however, will not bee seen in larger beef supplies for some time to come, partly because heifer retention is not likely over. That process, of course, has been a big factor in tighter supplies thus far and, to the extent it continues, will continue to be so. Meanwhile, most of those heifers’ calves will not arrive until spring and those calves will not reach market weights until late next year or early in 2017. The last time the beef sector saw anything like this expansion was 1994.

 
Where are future supplies headed? Assuming the cows and retained heifers in this report calve at the same rate as the past two years, the 2015 calf crop will be about 34.575 million head, or nearly 2% larger than in 2014. That is a larger year‐on‐year growth number than we have seen kicked around but the inventory data in this report support it assuming calving rates hold. Those calves would push 2016 and 2017 slaughter upward. Weather remains critical to this situation, however. The cow‐calf business is more directly dependent on weather than any other livestock sector not the least because it is largely located on land that is too dry to be used for other things. The question of rainfall is always important and is doubly so given the larger numbers shown in this report.”

Daily Livestock Report Vol. 13, No. 25, February 2, 2015. To subscribe or support  visit www.dailylivestockreport.com