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Monday, February 15, 2016

US herd rebuild on a bullish trend

By Angus Brown  |  Source: USDA

Key points

  • The US Cattle Herd has grown for the second year in a row as the rebuild in cow numbers continues.
  • Increasing cattle supplies have been factored in to US cattle futures, which are back at 2013 levels.
  • Further US market downside should be limited, which is positive for Australian cattle prices.

2016-02-16 CATTLE REBUILD FIG 1

2016-02-16 CATTLE REBUILD FIG 2

2016-02-16 CATTLE REBUILD FIG 3

The United States Department of Agriculture (USDA) produces some excellent data in terms of cattle supply, and last week their twice yearly national cattle survey was released. While the report largely confirmed the bearish theories about increasing cattle and beef supply, it’s worth having a look at the numbers.

The US herd rebuild is hitting full swing, with the January 1 cattle herd estimated at 91.988 million head, up 3.2% on the start of 2015 (figure 1).  To put that into perspective the increase was the largest in percentage terms since 1974, and at 2.85 million head would account for 11% of the Australian cattle herd.

However, the seven years of herd decline prior to 2014 means that the US herd is still the fifth lowest level since 1958.

The US herd numbers are broken down in figure 2.  The Beef Cow herd was up 3.5%, as producers seek to take advantage of higher prices while the Dairy Cow herd was basically steady, as the Dairy industry is treading water.

A key stat is the 3.3% increase in replacement beef cows, which stands at 6.285 million head.  This is the highest number of replacement beef cows since 1995, and it suggests the cow herd is going to continue to increase rapidly.  This also means more calves will be born in 2016, and more cows will be available for slaughter. 

The last point is pertinent for Australian markets, as increase Cow slaughter will translate into stronger supply of trim beef, which is our main export to the US.

The increase in the calf crop, suggests the supply of cattle to go into US feedlots is larger than last year, with Steiner Consulting putting the figure at 25.913 million head.  It’s interesting to note that the US feed cattle supply for 2016 is roughly equivalent to our national herd, which is why the US market drives international cattle prices, and we just follow along.

Stronger feeder cattle numbers, and therefore finished cattle supplies, have largely been factored into US Cattle futures (figure 3), which are now back at levels seen in 2013 when the herd was still being liquidated.  

What does this mean?

The US market is already factoring in larger US cattle supplies, as shown by futures prices.  This is good news for the Australian market, as it means downside in US markets should be relatively limited, with most of the falls expected to be seen due to a larger herd already being seen.

The difference here is the lower Australian dollar, which makes our exports more competitive in international markets, and is propping up local prices in the face of weakening international markets. 

Over the medium term the lower prices should start to stifle further expansion of the US cattle herd, and help support both international, and Australian cattle prices.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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