The total cattle and calf inventory increased about 2 percent from 2016. Increases were seen in 27 states.

States with the largest increases in all cattle and calves include Texas (+500,000 head), Missouri (+250,000 head), Oklahoma (+200,000 head), Kansas and Colorado (+150,000 head each).

The expansion was likely buoyed by a combination of strong cow-calf operator returns in 2014 and 2015 as well as improved pasture and range conditions in much of the Plains region.

Beef cow numbers were 3 percent higher than the same period last year, but milk cow numbers were virtually unchanged.

Total beef cows increased 3 percent, but a number of indicators suggest that although the expansion continues, the rate of expansion is slowing. Heifers for beef and milk cow replacement are often used as barometers of herd expansion or contraction rates.

Heifers for beef cow replacement were 1 percent higher than last year but down from the 4 percent and 3 percent increases achieved in 2015 and 2016, the first two years of this expansion. Heifers for milk cow replacement show similar patterns, registering at 1 percent below 2016 levels, but were positive for the first two years of the expansion.

Producers also indicated they expect only 2 percent more beef heifers to calve during 2017, down from increases of 7 percent and 6 percent in 2015 and 2016.

Despite relatively cheap feed, returns to feeder cattle operations were negative with losses widening during 2016. Despite expected improvements in cattle feeding returns, feeder cattle supplies outside feedlots are above last year, and prices will remain under pressure through much of 2017.

Feeder cattle prices for 2017 are forecast to average $131 to $139 per hundredweight, down about $7 from 2016.

The number of cattle on feed in U.S. feedlots with a capacity of 1,000-plus head on Jan. 1, 2017, was fractionally higher (Cattle on Feed, Jan. 27, 2017). Cattle placed on feed in December 2016 were up 18 percent compared with December 2015. This was the second consecutive month there was a year-over-year double-digit increase in cattle placements.

It is likely that lower numbers of cattle grazing on small-grains pastures was a contributing factor to the relatively large increase in placements. Winter wheat planted area was lower than 2016 in most of the country, and the estimate of cattle grazing small-grain pasture in Texas, Oklahoma, and Kansas on Jan. 1, 2017, was 5 percent below 2016.

Fed cattle marketings in December 2016 were 7 percent above that of 2015, but the increased numbers of cattle on feed on Jan. 1, 2017, and the timing of their placement suggest that fed cattle marketings in the first half of 2017 will be larger than 2016.

With 2 percent more cattle outside feedlots on Jan. 1, placements in 2017 are expected to be above 2016. The timing of placements during the year will depend on a number of factors, including breeding herd decisions, producer decisions about winter wheat grazeout and the availability of forage during the year.

Commercial beef production in 2016 came in at 6 percent above that of 2015. This is due to a combination of increased slaughter and slightly higher dressed weights. Weights were higher in the first half but fell below year-earlier as producers became more current with their marketings.

Slaughter in 2017 is forecast higher as cattle placed in the latter part of 2016 and first half of 2017 are marketed. Producers are expected to remain relatively current in their marketings during the year, which will limit increases in carcass weights. Beef production for 2017 is forecast at 3 percent above previous-year levels.

Fed cattle prices are expected to remain under pressure in 2017. Packers’ margins are seasonally weak, which will likely impact their willingness to bid up cattle prices over the next weeks.

As increased supplies of fed cattle are marketed in the spring quarter, fed steer prices are likely to remain under pressure, averaging $106 to $110 per hundredweight during the quarter. Large supplies of fed cattle will likely continue to pressure prices during the second half of the year. Fed steer prices are forecast to average $109 to $116 per hundredweight for the year, down from $120.86 in 2016.

U.S. beef exports to remain strong in 2017

December trade data, along with annual totals, were released earlier this month. Total beef exports for December reached 254 million pounds, 30 percent higher year-over-year. Following weak 2015 beef exports, sales to a number of Asian trading partners (Japan, South Korea and Taiwan) helped U.S. beef exports recover to 2.55 billion pounds in 2016.

Preliminary data suggests higher near-term exports, and with expected higher U.S. beef supplies and more competitive prices, robust demand will likely support an export expansion during 2017 to 2.72 billion pounds.

U.S. beef imports for 2017 are projected to continue their decline from 2016 levels to 2.74 billion pounds in 2017, due to an expected increase in domestic supplies and expected tighter supplies from Oceania.

Live cattle imports forecast lower in 2017

Total U.S. cattle imports for 2016 were reported at 1.71 million head, down nearly 14 percent year-over-year. Since 2014 highs, cattle imports from Canada and Mexico are projected to decrease for a third straight year in 2017 to 1.68 million head.

During 2016, higher U.S. cattle supplies and a decline in feeder cattle prices contributed to the decline in imports of feeder animals from both Canada and Mexico. Mexico continues to finish more animals in feedlots and sell increasing amounts of beef to the U.S. and the rest of the world.

For cattle exports, 2016 totals were down 4 percent from 2015 to 69,411 head. However, December 2016 exports followed November’s record of the highest monthly total of live cattle exports since 2013. Exports for 2017 are expected to increase to 85,000 head.

Analysts Russell Knight and Lekhnath Chalise contributed to this report.