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Herd Expansion Modest

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Mike

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Modest Cattle Herd Expansion Indicated


The USDA Cattle report released Friday, January 27th indicates that a solid but moderate cattle industry expansion is underway in the U.S. The total cattle inventory for the nation was up 1.7 percent from a 2005 total that was revised lower. The increase is slightly higher in percentage terms than expected but very close to the absolute number indicated without the revisions.


The report also shows a one percent increase in the beef cow herd over a 2005 value that was also revised lower by 140,000 head. Total beef cows on January 1, 2006 were 33.25 million head. Beef replacement heifers were up 3.8 percent; again over a revised lower 2005 total. The result is that total beef replacement heifers on January 1, 2006 is roughly 65,000 head less than expected. The only surprise in the report is an unexpected 3.8 percent increase in dairy replacement heifers. The total U.S. calf crop in 2005 was up 0.7 percent as expected.



The total estimated supply of feeder cattle on January 1, 2006 is 28.2 million head. This is up 1.6 percent over 2005, mostly because of the 2005 revisions downward. The result is an estimated January 1 feeder supply that is smaller than 2001, 2002 and 2003 and only slightly higher than 2004 and 2005. The number of cattle on feed in the U.S. on January 1 was 14.1 million head, up 3 percent from one year ago.



These supply factors suggest a number of general indications for cattle markets in 2006. Total feeder supplies will remain tight and feeder prices are likely to stay strong. The ratio of January 1 cattle on feed to the estimated feeder supply is very high at 0.5; higher than 2004 and well above levels that occur at the price bottom of a cycle. For example in 1996, the ratio of January 1 cattle on feed to estimated feeder supply was under 0.39. The estimated feeder supply as a percent of 2005 calf crop is 74.7 percent, only fractionally higher than the 2005 value.



The second major implication is that herd expansion, while solidly underway is occurring at a modest rate and should not lead to rapid growth going into 2007. The beef replacement heifer value is a modest percentage increase on an absolute total that is the lowest in many years. It appears that the supply fundamentals of the beef industry will remain solid well into 2007 and perhaps beyond
 

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