Cattle Herd Expansion is Losing Momentum

According to the cattle and calves inventory report released by the USDA on January 29, 2016, the U.S. cattle herd increased 3% from a year ago. South Dakota cattle inventory increased by 250,000 head from the same period of 2015, ranked 3rd in the nation, behind only Kansas and Oklahoma. In terms of percentage increase of cattle inventory, South Dakota and Oklahoma cattle inventories both increased by 7%, ranking first among the top 10 cattle production states in 2016. Meanwhile, these two states also experienced the fastest percentage increase in replacement heifers during the previous period (2014-2015), as reflected in Table 1.

Change in replacement heifers and its implications
Looking into the future, however, we can see that not as many replacement heifers will be kept in 2016 compared to 2015 (Table 1). Three states have already seen a reduction in replacement heifers between 2015 and 2016. The largest percentage reduction at 10% took place in South Dakota. Even for those states still experiencing increases in heifer retention, the percentage increase was much lower than what they experienced a year ago.

Generally speaking, more replacement heifers will be kept during each cattle herd expansion phase. Regression analysis revealed that replacement heifers of the previous period are a significant determinant of the total number of cattle and calves in South Dakota over the past 15 years. Figure 1 shows the positive relationship between the percentage change in total cattle and calves and percentage change in replacement heifers of the previous period in South Dakota (2001 to 2016). On one hand, an increase in replacement heifers sometimes may not result in an increase in cattle inventory. This is because a drought situation, as the ones occurred in 2002 and 2006, could prevent these potential replacement heifers from actually entering the herd. On the other hand, a drop in replacement heifers did result in either a drop, or no change of total cattle inventory in the majority of the cases. The only exception was 2010, where a slight decrease of the replacement heifers during the previous year led to a modest increase of the cattle inventory, most likely as a result of the favorable rainfall that year.

Change in cattle inventory—a breakdown analysis
The breakdown of cattle inventory in South Dakota shows that the two categories that experienced the fastest percentage increase from the previous year are feeders not in feedlot (15%) and feedlot cattle (13%). Numbers of replacement heifers and bulls were both down which, based on the trend in Figure 1, suggests that the current robust cattle expansion in South Dakota is not likely to persist.

Compared to South Dakota, the breakdown of the U.S. cattle inventory shows a more even distribution of growth in different sectors (Table 3). From 2015 to 2016, the percentage change of replacement heifers in the United States was 3%, down from 7% during the previous period. Therefore, if weather permits, it is likely that beef expansion will still continue nationwide, but at a much slower rate.

Source: Tong Wang, South Dakota State University Extension

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