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Cattle herd expansion is on

Jeff Caldwell 01/31/2012 @ 10:53am Multimedia Editor for Agriculture.com and Successful Farming magazine.

The slimming down of the U.S. cattle herd on account of high feed costs seems to have dried up, and now herd expansion appears to be in the cards through this year, one economist says.

Late last week, USDA's Cattle Inventory report showed all cattle inventory down 2%, with a slightly smaller calf crop in 2011 and about 2% fewer cows and heifers than January 1, 2011. It's a clear sign to Purdue University Extension livestock economist Chris Hurt that herd contraction continued through the year, but at a slower pace than the previous year. And, some more specific numbers from USDA's report show "very early stages" of herd expansion.

"This is the first increase in heifer retention since feed prices began increasing. The drought continues to retard expansion in Texas where heifer retention is down ten percent and in Oklahoma where retention is down 16%," Hurt says. "However, the expansion of the breeding herd appears to be underway in Nebraska, South Dakota, Colorado, Wyoming, and Iowa where retained heifers are up by double-digit percentages."

That geographic change is no anomaly; the southern Plains drought last year had a lot of producers moving their cattle north.

"I'm hearing of some expansion in northern areas, specifically in Illinois," says Kevin Penner, market analyst and trader with AgTraderTalk.com. "With the drought decimating herds in the south, it seems that producers are starting to consider re-establishing some cattle in corn country, closer to the feed supply."

Last year also saw a lot of adjustment to beef supplies, Hurt says. And, feed prices will likely moderate this year after spending much of the last year in the stratosphere. These are a couple more reasons herd growth is in the cards, but it won't necessarily mean a boost in beef supplies for a while. And, more importantly for cattle producers, it won't mean a downward move in cattle prices for at least another 2 years.

"While some may see the early signs of heifer retention as bearish for 2012 prices the opposite is most likely true. This is because the retention of heifers reduces slaughter supplies and beef supplies. Because of the reduction in the cow numbers, the calf crop will be down over 2% in 2012," Hurt says. "If heifer retention continues to grow in 2012 and 2013, beef supplies will not increase until 2015. So, the modest heifer retention now is actually a price enhancing factor in the short-run with the bearish implications not occurring until 2015 and beyond."

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