Assessing the first quarter – cattle inventories disappointing

News Roundup from the May 2016 issue of Canadian Cattlemen

At the end of the first quarter the domestic steer slaughter was down 2.3 per cent while the domestic heifer slaughter was down 9.1 per cent. That doesn’t tell us much until we factor in live slaughter steer and heifer exports. The sex of fed cattle slaughter exports is not known until closer to year-end, so I apply the same percentage as was experienced in 2015. On that basis the total fed steer slaughter was up nearly 2.0 per cent while the fed heifer slaughter was down 4.4 per cent. Combined the total fed beef slaughter was down 0.5 per cent.

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This, however, takes no account of carcass weights, which are up nearly 9.0 per cent on steers and 8.0 per cent on heifers. At the end of the first quarter domestic tonnage of fed beef was up 3.1 per cent, despite the decline in slaughter numbers and, when fed cattle exports are included total fed tonnage was up 9.2 per cent. Virtually all of this is due to increased carcass weights.

Because the ratio of cow to bull slaughter is rarely far from 11:1 one can estimate quite accurately that domestic and export cow, and bull slaughter was up 1.6 per cent to date. But due to a remarkable 15 per cent increase in carcass weights total non-fed tonnage was up 16 per cent.

The most remarkable trend to date is the sharp increase in carcass weights, an issue that should be of concern. If one checks the beef carcass grading data to date one will note that the percentage of Y-1 carcasses has continued its long-term decline from 41.3 per cent to 35.4 per cent while the percentage of AAA and Prime carcasses has risen from 64.2 per cent to 69.2 per cent. Given the major influence that fat thickness has on yield there can be no doubt that most of the increase in carcass weight is fat. Increasing tonnage by increasing fat in carcasses may be a short-term answer to current tight supplies but it is not the right direction for an industry that should strive to produce high-quality and high-lean meat yield in the same carcass. So the decline in the supply of beef is masked by an increase in the tonnage of fat.

This increase in carcass weight means that commentary about future supply must carefully distinguish between “numbers” and “tonnage.” From the standpoint of longer-term productivity numbers is the more important consideration and it is now difficult to foresee any significant increase in numbers before 2018.

While it is now quite clear that the bottom of the cattle cycle has been reached the marketing numbers do not offer persuasive evidence of significant growth in the breeding herd. A 4.4 per cent decline in heifer marketings doesn’t do anything to offset a 1.6 per cent increase in cow culling.

So the inescapable conclusion is that herd growth is slower than I had previously expected. One of the reasons for this is that feeder cattle exports to the U.S. have, in recent years, been heavily tilted to heifers. In 2014 and 2015 heifers made up 71 per cent and 57 per cent, respectively, of total feeder cattle exports.

The slow projected growth in the national herd is a strong indication that beef output in 2017 will not be significantly larger than it has been in 2015, or is now projected for 2016. As stated above significant increases in supply, at least in numbers, cannot now be expected before 2018.

Disposition

The projected productive capacity of the industry in 2016 is 981,000 MT expressed on a retail weight basis. Productive capacity means the ultimate market weight of all the cattle marketed in the year. That includes the final market weight of exported feeder cattle because we are interested here in the productive capacity of the national herd and it matters not where the feeder cattle were finished.

The pattern of beef disposition is little changed. Approximately 43 per cent of that productive capacity will be consumed in Canada. A larger portion, almost exactly 50 per cent will be exported to the U.S., 18 per cent as live slaughter cattle, 7.0 per cent as feeder cattle and 25 per cent as beef. The remaining approximate 7.0 per cent will be exported to international markets.

A note of explanation about retail weight basis: most beef is now fabricated down as boxed beef or “retail ready.” International trade also occurs mainly on a fabricated basis. The average retail yield of a carcass is 73 per cent. This is the ratio now used to express per capita disappearance or consumption. Thus a 750-pound carcass fabricated to a retail basis becomes 547.5 pounds and/or 248.3 kilograms.

Charlie Gracey is an independent beef industry consultant living in Ontario.

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Charlie Gracey is a beef industry analyst living in Ontario. More detail on this topic is available on his website at www.charlesgracey.net.

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