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The U.S. Department of Agriculture's (USDA) July "Cattle" report has revealed a concerning trend for the beef cattle industry. The report indicates that the U.S. beef cow herd has continued to shrink during the first half of the year. As of July 1, the beef cow inventory stood at 29.4 million head, reflecting a significant 2.6% decrease compared to the previous year. This marks the fifth consecutive year of declining beef cow inventories since the cyclical peak in 2018, resulting in a five-year decline of 9.3% or 3.0 million head.

The reduction in the beef cow herd is part of a broader decline in cattle numbers across the United States. The report indicates that the total inventory of all cattle and calves was 95.9 million head, down 2.7% year over year. The inventory of heifers saw a particularly notable decrease, down 3.8% from the previous year. This decline included decreases of 2.4% and 2.7% for beef and dairy replacement heifers, respectively, as well as a significant 5.2% drop in the inventory of other heifers. The inventory of steers over 500 pounds also saw a decline of 3.5% year over year, and calves under 500 pounds experienced a 2.6% decrease compared to the previous year. Additionally, the bull inventory witnessed a notable 5.0% year-over-year decrease.

Further findings from the report reveal that the total cattle in feedlots on July 1 were 13.1 million head, down 2.2% year over year. The calculated supply of feeder cattle, based on this report, which considers other heifers, steers, calves, and cattle on feed, showed a 3.6% decrease compared to last year, with a current inventory of 34.4 million head. The report also projected the 2023 calf crop to be 33.8 million head, indicating a 1.9% decline year over year.

The one category that showed no decrease in inventory was the dairy cow inventory, which remained unchanged at 9.4 million head compared to the previous year.

One significant concern highlighted by the report is the current inventory of beef replacement heifers, which stands at 4.05 million head. This number is lower than the previous cyclical low of 4.2 million head observed in 2011 and 2012, making it the lowest in 50 years of available July 1 inventory data. This data indicates that there is currently no indication of heifer retention for herd expansion.

Moreover, the report indicated that relatively large numbers of heifers continue to be sent to feedlots for slaughter instead of being retained for breeding. In the "Cattle on Feed" report, the inventory of heifers in feedlots remained unchanged from the previous year, making up 39.9% of total feedlot inventories, the highest proportion since 2001.

While the sharp increase in feeder cattle prices this year might incentivize the beef cattle industry to transition from liquidation to herd expansion, it does not appear that the industry has responded as yet. It is anticipated that feeder cattle prices will continue to rise, which could potentially jump-start heifer retention, leading to even higher prices as the supply of feeder cattle becomes further constrained with fewer heifers in the market. The cattle industry will be closely watching market dynamics to gauge when and if herd expansion will occur in the future.