Supply Of Feeder Cattle Influencing Price
DR. ANDREW P. GRIFFITH
KNOXVILLE, TENNESSEE
The price of all goods is determined by supply and demand and that is no different for cattle. The reason cattle producers care about supply and demand is because they want to have an idea of what their cattle will be worth at some future date. This article will focus on supply of feeder cattle.
Supply of feeder cattle is determined by the domestic beef cow herd size and the resulting calf crop, any dairy or dairy influenced calves that enter the feedlot system, imports of feeder cattle, and exports of feeder cattle. Assuming demand is constant, increasing supply of feeder cattle will decrease the price while decreasing the supply of feeder cattle will result in an increase in price. There is more to it than that, but that is the general idea. So, it would be pertinent to see how things have been shaping up the past few months and what the price expectations may be for calves and feeder cattle moving into the second half of the year and maybe into 2023.
The first thing to note is that the number of beef cows at the beginning of 2022 (30.125 million head) was at its lowest level since 2015 (29.631 million head). On top of that, beef cow slaughter the first 21 weeks of 2022 was nearly 15 percent higher (201,800 head) than the same 21 weeks in 2021 while heifer slaughter was 2.1 percent or 85,000 head higher than the previous year. The increase of cow and heifer slaughter have a tremendous influence on the total calf crop and thus feeder cattle supply. The 2021 calf crop was 410,100 head smaller than 2020 and by the time this reaches readers, USDA will have published or will soon publish calf crop expectations for 2022, which are sure to be smaller than the 2021 calf crop. It is likely the 2022 calf crop will be smaller than 2021 by 430,000 head. All of these indicators point toward a reduced supply of cattle and thus support for cattle prices.
As it relates to feeder cattle imports, most feeder cattle imports originate from Canada or Mexico. Through the first five months of 2022, imports of feeder cattle from Mexico declined 166,000 head compared to the same time period in 2021 while imports of feeder cattle from Canada increased 78,000 head over the same time period.
This results in a net decline of 88,000 head compared to the previous year. Exports of feeder cattle do occur as a few sometimes go to Canada, but the number is small and thus negligible.
All of the previous information is necessary to determine total supply. However, it is sometimes necessary to look at some indirect indicators of supply to determine what direction prices may move from a shorter term perspective. One thing to consider is feeder and stocker cattle receipts. In 2021, total feeder and stocker cattle receipts were 479,100 head greater than 2020. The real story though is in the second half of 2021 when total feeder and stocker cattle receipts were only 163,900 head less than the previous year. This is a rather small decline in receipts considering the calf crop in 2021 was 410,100 head smaller than 2020. This demonstrates that several stocker and feeder cattle were traded earlier than is typical. This statement is supported by strong placements of cattle on feed the last half of 2021 and starting into early 2022.
Avoiding getting too deep into the weeds, it is easy to see the stocker and feeder cattle supply is dwindling. This should point towards price support moving throughout the year and into 2023. Such price support was not evident the first six months of the year, but it would appear psychology was working on feedlots as feeding pens were full and feed prices escalated much of the first half of the year.
However, pens will begin to empty, which means feedlots will need cattle. With fewer cattle available, competition to secure inventory will escalate and should provide price support for stocker and feeder cattle. The exact timing is not known, but it will be sooner rather than later. It would not be a shocking to see the CME feeder cattle index bumping $180 next spring. ∆
DR. ANDREW P. GRIFFITH: Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee