Cattle Inventory Revisions

 

Several things have been written about the 2021 cattle inventory report, which continued to show reduction in the size of the US beef cattle herd. However, the revisions made to the 2019 and 2020 inventories have really gotten more attention, and raised more questions, than the estimates for 2021. There is little question that cattle inventory has decreased over the last couple of years, but how much the cow herd has shrunk is a bit less clear, and these revisions certainly point to a more rapid decrease in inventories than previously thought.

 

USDA did make changes to several of the 2019 and 2020 estimates and it is important to understand that revisions are very common. Surveys are a major source of information for these inventory reports, but these numbers are adjusted as more information becomes available. Having said that, the revisions made in the January 2021 report were large, especially the revisions to the size of the 2019 and 2020 calf crops. They pulled the 2019 calf crop down by 1.3% and the 2020 calf crop down by 1.9%. In the case of 2020, this amounted to a reduction of more than 660,000 calves. A lot of analysts felt like feedlot placements really didn’t support the higher previous calf crop estimate, so this downward revision was not a huge surprise.

 

However, a logical follow up question involves the estimated number of cows in production. Since the calf crop is not broken out by beef and dairy calves, one must look at combined beef and dairy cow inventory for comparison. But, holding everything else constant, one would expect the size of the cowherd and the size of the calf crop to move together. While the 2020 calf crop was revised downward by 1.9%, the number of cows that were estimated to have calved in 2020 was basically unchanged (it was actually increased by a very small amount).

 

The calf crop measure is an estimate of calves born within the year. A very simplistic way to look at this is to consider the ratio of cows on January 1 to the calf crop for that calendar year. Going back to 1960, this has averaged about 1.122, which means there are 1.122 cows for every calf in the calf crop. For the year 2020, the estimated ratio of cows on January 1 to the calf crop was 1.158. In fact, going back to 1960, a higher ratio occurred less than 10% of the time and we have to go back to the 1970’s to find the last one. This doesn’t mean it is unreasonable, but it does make us want to dig a bit deeper.

 

Ordinarily, something like this points to fertility challenges, meaning more open cows in 2020, and that likely was somewhat at play. But one would also expect a corresponding decrease in cow numbers the following year (2021), assuming the vast majority of those open cows were culled. But, the 0.6% decrease in beef cow numbers for January 1, 2021 doesn’t really paint this picture. High cow to calf crop ratios like 2020 are typically associated with heavier liquidation years, like 2012 and 2013. Another hypothesis would be that anticipation of CFAP 3.0 payments may have kept a few more cows around this winter than would have been sold. This may seem like a stretch for what is likely to be a relatively small payment per cow, but remember these decisions are made at the margin and a slight movement of that keep / cull needle can make a difference when extrapolated across the US.

 

Regardless, we see two primarily points from the USDA revisions and this discussion. First, cattle inventory has been adjusted downward, which is as positive development from a supply perspective and comes at a very good time for the cattle sector. And secondly, the ratio of cows to calves for 2020, and the trend on beef cow numbers for 2021, suggests that more rapid liquidation is very possible in the current year which would be a positive supply development in the future.