Tonsor Bullish On Cowherd Expansion

Kansas State University Livestock Market Economist Dr. Glynn Tonsor believes the U.S. has made progress in expanding the nation's mamma cowherd. There have been some mixed signals on whether expansion has taken place, such as the July 2014 inventory report from U.S. Department of Agriculture that recorded a loss in heifer retention. Tonsor is optimistic the next Cattle Inventory report from the USDA will show expansion is taking place. That report will be released on Friday, January 30 at 2 p.m. Central Time.

"I fully expect there to be a year-over-year increase in heifer retention number there," Tonsor said. "Time will tell if that is confirmed."

Tonsor said another source that reveals whether cowherd expansion is taking place is the quarterly information in the Cattle on Feed report. That report shows what share of the calfcrop is staying on the ranch in the form of heifers, versus the steers coming to the feedyards. He said those reports confirm expansion is underway, but the larger unknown is how fast expansion will occur. Tonsor said USDA is projecting the cowherd may increase by 15 or 16 percent. In the longterm, that would keep the U.S. below 40 million cows recorded in the 1970's and it will take several more years to get numbers to that level.

Cowcalf producers have come off a strong year for cattle prices in 2014 and 2015 looks to be equally as profitable. That lends Tonsor to be very optimistic on cowherd expansion, probably more than his colleges. His logic is that cattlemen are entrepreneurs. For each dollar they have in the pocket, they will put that money back into the business.

"I tend to think every number you have in your head, you ought to add a million cows because we are going to bid away those returns," Tonsor said. "Any kind of commodity business, which is what the typical cow-calf producer is in, tends to do that over time and therefore I actually think those estimates from USDA might well be realized."

The other major factor to watch is the volatility in the feeder cattle market. Tonsor looks for that to stay for much of 2015. With feeder cattle worth more, there is more money on the table. He said when you have limits on trading through the Chicago Mercantile Exchange (CME), the ability to find the true price with a fixed dollar per head is harder when items are worth more.