Navigating Today's Unique Cattle Cycle
As beef producers, we are possibly experiencing the most interesting time in history.? I’m sure that many of you are aware that currently, the United States National Beef Herd is the lowest it has been in over 70 years, and the cyclical nature of the market is taking a longer time to enter the expansion phase.? Higher volatility in the market as well as more inclement weather patterns have left many producers unsure of the future.? Despite all of this, market reports have displayed consistently strong demand for US Beef.?
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The Cyclical Nature of US Cattle
?????????????? The US cattle herd historically adjusts in a cyclical nature with periods of expansion and contraction every decade or so.? During the expansion period, prices for livestock, as well as head counts, increase across the nation.? This is driven primarily by livestock prices and by forage production’s effect on stocking rates.? As the price for young breeding females increases, more producers are incentivized to retain and develop females to increase herd numbers, and thus market more animals.? As more animals hit the market, the increased beef supply hits the market and results in decreased prices.?
?????????????? However, there comes a point, where the market cannot sustain those high prices and the cattle inventory starts to decline.? This begins the contraction phase of the cycle.? Producers can make more money by marketing more calves and, consequently, develop fewer heifers as they sell them in the open market or place them on feed for slaughter.? Over time, this results in decreased head counts, until producers are incentivized once again to build up their herd.
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The Cycle’s Relationship With Inventory
?????????????? We have seen this period of troughs and peaks since the early 1900s, with the most recent expansion period beginning in 2013-14.? Recent liquidation of cows and heifers (driven by higher prices for lean trim, a product of cull cow harvest, and low bred-heifer prices) the US is currently experiencing the?lowest national cattle herd inventory in history.?
?????????????? For example, the largest peak in history was in 1975 when there were 132 million beef cattle in the United States.? The next peak was in 1982, when there were 115 million head, and 3 cycles later, the latest peak (2019) included only 95 million nationally.? For the beginning of 2024, the USDA reported beef cow inventories at 28.2 million, the current trough in the cycle.?
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?????????????? Several things have influenced this cycle.? One thing fueling the decrease in the last 50-ish years has been increased efficiency within the industry.? We, as an industry, are able to produce more beef with fewer animals as a result of a focus on producing a more feed-efficient and moderate-framed animal that will hang a higher quality carcass.? Additionally, cattlemen everywhere have had to be more efficient with less land as a result of increased urban sprawl.? This efficiency allows us to meet demand with fewer animals and resources. However, this does not account for the total decrease in herd numbers that we have seen.?
Why This Cycle is Unique
?????????????? Something that we are noticing unique to this cycle is the extreme pause that we are experiencing the trough segment prior to expansion.? Increased market volatility leaves a lot of ranchers unsure about how to proceed.? Despite greater amounts of information and data, producers operating on thin margins are unsure about future risks of developing a heifer for 2 years before its first calf.? Especially as higher beef prices drive feeder cattle demand, and ranchers can place that same animal on feed for greater revenues in the shorter term.?
?????????????? Additionally, higher interest increases the ‘cost of money.’? During the onset of the last expansion phase, interest rates were 3%-4%.? Currently, we are seeing 8%-9%.? Ranchers are doubtful to take on more debt in order to increase herd numbers, especially considering the inclement weather patterns we have seen, and the doubts it casts on consistent available forage for the next several years.
Looking to the Future
?????????????? We can expect to see a stagnation in the cattle cycle in this trough for the next several years with national herd counts somewhere between 27.9 and 28.3 million head.? As the cattle supply continually tightens, we can reasonably forecast a ~16.5% increase in beef prices by 2027.? Eventually, we should see a large increase in the price for breeding females as Rancher’s appetite to increase herd numbers increases.? All in all, we should see expansion over the next 5-6 years, albeit less sharply than we have previously experienced.?
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~Mason J. Dahl
Extension Agriculture & Natural Resource Educator
5 个月Good job on the article. One new complication is market manipulation and price fixing by the Big 4. Probably doesn't affect the overall cycle much in the big picture but it could contribute significantly to the producer's difficulty in reading markets and definitely their profitability. Also have more active import markets than we had in the last century along with governmental interference on a global scale.
Rancher/Professional Agrologist/Grassland Conservation Advocate ….grass is the forgiveness of nature, her constant benediction…..
5 个月Balancing the biological timelines, market variation/inventory values and drought timing is an challenging game……manage your risk, know your inventory, always have grass and water to go to….I think as the weather variability and market volatility increase, the risk is harder to manage but understanding that might be a foundational part of surviving while you/I search for the opportunities that the challenges present.
Great article. The cyclical nature of the beef cycle makes it a very complex market. It seems supply and demand merely cross paths every so often and never stagnate. I've been curious to project where the next inventory peak will take place. Each cycle has peaked with less cows than the previous due to a myriad of reasons. I'd like to know where does the next one peak.