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US cattle herd to fall to 60-year low. But does it matter?

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Data on Friday are expected to show the US cattle herd at its lowest since Henry Truman was president, and Queen Elizabeth II was crowned.

The US Department of Agriculture is expected, in a twice-a-year cattle inventory report, to show the domestic herd starting 2013 1.8% smaller than it began last year.

That implies a herd of 89.1m head – the lowest since 1952, and down nearly one-third on a high reached in 1975.

'Should have been priced in'

But would a decline, for a sixth year in a row, matter?

"Its impact on markets is likely to be little to none," FCStone analyst Ryan Turner said.

"It is a report that everyone wants to see."

After all, the US cattle herd is more than a statistic. It is wrapped up with cowboys, the great way west, and US culture and history (at least, as perceived from abroad).

"But really the data in it should have been priced in. The results look pretty clear already," being largely calculable from other data.

'Important for two or three minutes'

At broker US Commodities, Jason Roose was not quite so dismissive, saying that the report "will be important, but only for two or three minutes, before we go back to trading the cash market", to which futures are currently looking for reassurance that a revival in futures has been justified.

Chicago live cattle for April have recovered nearly 3% since bottoming out on January 18 from a decline fuelled by tepid beef demand and the closure by Cargill of a Texas processing plant.

"The report will remind is that cattle numbers are tight. And it will show just how much the impact of drought hit home, and how much cattle numbers tightened in the north."

While the important cattle state of Texas has been dogged by drought for four years, in states such as Nebraska, which lifted its prominence in 2011, dryness has been a more recent problem.

'Just plain wrong'

Still, the importance, in beef terms, of a declining herd number is muted by improving productivity.

"There was one report that just as Japan was opening back up to US beef, our supplies of beef were falling," Mr Turner said.

"That is just plain wrong. Whether it is down to genetics, better feeding, improved techniques, we are getting more beef per animal."

While the cattle inventory has fallen by 32% since 1975, beef production has risen by 18%.

Wrong footed

But there are two hopes for the report to provide more than a headline involving President Truman.

One is that analysts don't always get it right.

In the last major US Department of Agriculture sector report, the cattle on feed briefing a week ago, they foresaw placements as rising by more than 4% in December, when it turned out that they in fact they fell by 0.5%.

While not a shocker, the number did fuel the revival in prices of live cattle (ie those fattened for slaughter) besides undermining Chicago corn futures, temporarily, in signalling that rationing in the face of high grain costs was occurring in the livestock sector as well as in exports and ethanol output.

'Vastly different numbers'

The second is the number on beef replacement heifers.

Analysts' expectations for Friday's main data are closely grouped – apart from on the number of young cows which could potentially form the basis of a recovery in herd numbers.

Estimates range from a year on year decline of 7.9% in beef replacement heifers, to an increase of 3.0%.

"Analysts have vastly different numbers in this regard," a report from Paragon Economics and Steiner Consulting said.

"Drought was a significant concern for cow-calf producers in 2012. Moreover, the spike in corn prices negatively impacted feeder cattle values and changed the incentives for producers to hold on to their animals.

"Most analysts, however, appear to think that the impact of the drought was not as severe."

Rebuild ahead?

Many commentators are in fact banking on a recovery in the US cattle herd ahead, with JBS - the Brazil-based meat giant with substantial North American operations – foreseeing a recovery in numbers to more than 95m head by the end of the decade.

That will take beef output to 13m tonnes, and help meet world demand for the protein being supported by growing affluence in developing countries.

Whether the herd will actually recover, of course… Well, that heifer number on Friday may provide some insight.

By Mike Verdin

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