The latest cattle inventory report Jan. 31 confirmed cow herd expansion has slowed, as many analysts expected, but the total herd was up 2% over 2015 levels and beef cows increased by 3%.

This was considered an important report and was the first inventory report in a year, since the mid-year report was dropped in 2016, allegedly because of budget cuts.

Leading into the report the feeder and fed-cattle markets had been correcting, or retracing, from recent highs. As of the morning after the report, nothing seems to have changed as the markets continued their corrective slide down.

Rabobank analyst Don Close said “I think it is a bigger surprise than the 18% placement number was last Friday. The increase in beef cows and calf crop shows considerably more expansion than expected. I haven't had time to work through it but, I can't help but think it shows a much bigger supply of cattle outside feedyards.

“While it will likely be nominal, the report lays the groundwork for another increase in numbers Jan. 1, 2018.”

The report showed all cattle and calves in the United States, as of Jan. 1, 2017, totaled 93.6 million. This is 2% above the 91.9 million estimate on Jan. 1, 2016.

All cows and heifers that have calved, at 40.6 million, were 3% above the 39.5 million estimate on Jan. 1, 2016.

Beef cows, at 31.2 million head, were up 3% from a year ago. Milk cows, at 9.35 million head, were up slightly from the previous year.

All heifers 500 pounds and over, as of January 1, 2017, totaled 20.1 million head. This is 1% above the 19.9 million head on January 1, 2016. Beef replacement heifers, at 6.42 million head, are up 1% from a year ago. Milk replacement heifers, at 4.75 million head, are down 1% from the previous year. Other heifers, at 8.88 million head, are 1% above a year earlier.

This matches the increased feedlot placements of heifers last year, which also said fewer heifers were being kept as prospective cows. Specifically, heifers on feed Jan. 1 were up 4.7% for the year, and 11.4% in the fourth quarter.

The 2016 calf crop in the United States was estimated at 35.1 million head, up 3% from last year's calf crop. Calves born during the first half of 2016 were estimated at 25.6 million head. This is up 4% from the first half of 2015.

Nashville-based trader Chris Swift said, “Although all of the data so far has implied an increase in inventory, traders appear to be taking this in stride. Neutral appears to be the most prominent response to the most recent data.”

Swift continued to tell his subscribers this looks like the second wave in an Elliot wave pattern, which at some point soon should turn up again.

He said consumption will be the key to whether beef markets can finish this downward correction and slowly work their way higher. He adds that the increases in supply should be bearish to feeder cattle, yet that market might also pull its way upward, following live cattle.