The report estimated that the U.S. cattle herd grew to 103.2 million head by July 1, almost 1 percent higher than last year, and that the number of beef cows also grew by 1 percent to 32.5 million head.

Based on the number of beef cows on July 1, the USDA Economic Research Service (ERS) estimates that 12.3 percent fewer heifers entered the herd in first-half 2018 than over the same period last year.

The ERS webpage Livestock & Meat Domestic Data has a table titled “Heifers Entering the Herd,” which estimates heifers for beef cow replacement that entered the herd this year (January-June) was 2.6 million head.

According to the Cattle report, producers intend to keep about 4.6 million beef heifers as beef cow replacements; 2 percent fewer than producers intended to keep at this time last year. This further suggests that producers’ intentions are signaling that herd expansion since 2014 is nearing a peak.

Consequently, those heifers not retained for beef cow replacements are being placed into feedlots. According to the July NASS Cattle on Feed report, the number of cattle on feed in feedlots with capacity of 1,000 head or more totaled 11.3 million head on July 1, 2018, up 4.3 percent from 2017 levels.

This is the largest number of cattle on feed for the month since the series began in 1996. The NASS report also estimated the classes of cattle on feed as 7.1 million head of steers and 4.2 million head of heifers. Compared to 2017, the number of heifers on feed increased by 8 percent, while steers increased by only 2 percent.

Heifers represented 36.8 percent of the number of cattle on feed on July 1, compared to 35.6 percent last year.

Additionally, the ERS webpage Livestock & Meat Domestic Data has a table titled “Feeder Cattle Supplies Outside Feedlots,” which estimates the number of cattle that are available to place into feedlots at 37.1 million head, 0.5 percent larger than this time last year.

This suggests that even though the cattle expansion is slowing down, the combination of more cattle available outside feedlots and a larger 2018 calf crop will provide ample supply for placement into 2019.

Slaughter mix adjustment trims 2018 beef forecast

The beef production forecast for 2018 was lowered fractionally on a slower-than-expected pace of steer and heifer slaughter midway through the third quarter, partially offset by higher anticipated cow slaughter in second-half 2018. In addition to retaining fewer heifers, producers are also culling more of their cows than last year as cow slaughter is up about 8 percent year over year through first-half 2018.

However, the greater number of cows in the slaughter mix is expected to lower average cattle dressed weights in second-half 2018. As a result, the 2018 beef production forecast was lowered 55 million pounds to 27.1 billion pounds.

Lower projected feed costs will likely support greater cattle weight gains in feedlots in 2019. Currently, Cattle on Feed data indicate that the percent of cattle that have been on feed over 120 days is nearly 6 percentage points higher than this time last year, but still following historical patterns (see Figure 1).

The percent of cattle on feed is expected to remain near more historic norms through the end of the year, as feedlots appear to be responding to potentially better margins in fourth-quarter 2018 and first-quarter 2019. The forecast for 2019 was raised by 30 million pounds to 27.7 billion pounds on higher expected fed cattle weights.

Feeder cattle prices to find support from lower feed inputs

Feeder calf prices are exhibiting a historic seasonal pattern of higher prices in the summer months (see Figure 2).

The strength in prices may be supported by moderate feed costs and the prospect of higher fed cattle prices in 2019. The feeder steer price forecasts for third-quarter and fourth-quarter 2018 were revised higher from last month to $147 to $151 per hundredweight (cwt) and $143 to $151 per cwt, respectively. The 2019 full-year price forecast was raised to $138 to $150 per cwt.

Fed cattle marketings appear to be a reflection of meatpackers managing slaughter cattle volumes and feedlots responding to potentially better margins in the near future. This will likely keep pressure on fed steer prices in third-quarter 2018. The 2018 and 2019 price forecast for fed steers is unchanged from last month at $115 to $117 per cwt and $113 to $122 per cwt, respectively.

Double-digit export growth in first-half 2018

Beef exports in June totaled 272.6 million pounds, up 16 percent from year-earlier levels. Growth in each month through June resulted in a 15 percent year-over-year increase in first-half 2018 to 1.529 billion pounds. Year-to-date exports were higher for all major destinations, as well as to a number of markets outside of major destinations (see Figure 3).

Notably higher year-over-year increases were to South Korea (+42 percent) and Taiwan (+33 percent). However, exports to Hong Kong have been declining since April. Strong demand in a number of Asian markets, coupled with greater supply availability, supported robust exports.

USDA Foreign Agricultural Service weekly export sales reports also indicate increased July shipments to Asian markets, suggesting a continuation of strong demand from those destinations. Based on vigorous overseas demand and domestic supply available, third- and fourth-quarter 2018 U.S. beef exports were revised upward by 10 million pounds in each quarter, respectively, to 795 million pounds and 800 million pounds.

This raises the 2018 export forecast to 3.124 billion pounds. Prolonged drought in Australia is likely to enhance cattle slaughter in second-half 2018, limiting the cattle available for slaughter in 2019. Anticipating the continued overseas demand and tighter exportable supplies from Oceania, U.S. beef exports for 2019 were revised upward by 40 million pounds to 3.205 billion pounds.

U.S. beef imports in June 2018 were 291.2 million pounds, more than a 1 percent decline from year-earlier levels. While less-than-expected import volume in June lowered the 2018 imports forecast to 3.037 billion pounds, forecasts for second-half 2018 were unchanged. However, first-half 2018 imports were about 1 percent higher than year-earlier levels at 1.527 billion pounds.

Among major suppliers, year-over-year volumes from Canada, New Zealand, Nicaragua and Australia increased the first half of 2018, while declines occurred for Mexico, Brazil and Uruguay. Import forecasts for 2019 were unchanged from the previous month’s forecast of 3.140 billion pounds.

Cattle imports and exports up in June

June cattle imports were up by 27,365 head from 2017 to 154,685 head; imports from Mexico more than offset the decline from Canada. This was the third consecutive month of year-over-year increases of cattle imports, which resulted in slightly higher imports in first-half 2018 compared to year-earlier levels.

The cattle import forecasts for 2018 and 2019 were unchanged from the previous month’s forecast: 1.885 million and 1.960 million head, respectively.

Cattle exports in June increased about 6,000 head from year-earlier levels to 17,768 head. First-half 2018 exports are 35 percent higher than last year. U.S. cattle exports to Canada have more than offset the declines to Mexico and other destinations, mainly to Vietnam and Turkey during this period.

The cattle export forecasts for 2018 and 2019 were unchanged from the previous month’s forecast, respectively at 170,000 head and 160,000 head.  

Analyst Lekhnath Chalise assisted with this report.

Russell Knight is a market analyst with the USDA – ERS. Email Russell Knight.