Slow Go Building back from massive beef cow liquidation will take time and patience.

By Wes Ishmael

Even when mother nature allows, expanding the U.S. beef cow herd will likely be a tedious process.

For one thing, drought forced more heifers into feedlots than during the last widespread, lingering drought about a decade ago. So, folks are basically starting from scratch.

“One key difference is that in 1989 the largest drop occurred in animals under 500 pounds—down 1.5 million head of the drop in total cattle inventory,” LMIC analysts explain in the early-February Livestock Monitor. “This year, over 1 million cows were lost, predominantly in the beef breeding herd.”

When this year began, the nation’s beef cow inventory of 28.92 million head was 1.06 million fewer (-3.6%) year over year. It was the smallest since 1962, according to the Agricultural Marketing Service (AMS).

Beef replacement heifers of 5.16 million head were 317,800 head fewer, down 5.8%.

“Low retention and a much smaller ‘other’ heifer number represent the significant undercutting that has happened to the beef cattle herd,” LMIC analysts explain.

Plus, high input costs mean margins are thinner than they were during the run of historically high cattle values fondly recalled from 2014-15.

Among challenges to herd expansion from the production side, Lance Zimmerman, senior analyst of animal protein at Rabobank’s RaboResearch cites increasing competition for protein consumers and feed resources, record-high feed and forage prices and rising interest rates.

On the other side of the equation, packers and processors face cost pressure as cattle supplies decline.

“Processors will face a situation that has been relatively foreign to them over the last seven years,” Zimmerman explains, in a new report, examining ultimate beef cow herd expansion. “All classes of cattle supplies will shrink, and the financial viability of packing plants, value-added processors and distributors will be stressed as each participant fights to maintain capacity utilization. Declining cattle and beef production should not lead to additional facility closures. However, battles for market share will intensify and the recent additions in the sector will face additional margin compression, while construction and fundraising for new facilities will face more scrutiny and skepticism.

Zimmerman notes the annual cow culling rate last year was a record-high 13.4%.

“Recent herd contraction and eventual transition to heifer retention mean it is plausible that U.S. cattle slaugh- ter will decline between 1.0 and 1.5 million head per year for the next four to five years before increasing again,” Zimmerman says.

Never mind that the current drought has yet to end.

“Last year, 25% of the cow herd, on average, was in exceptional or extreme drought conditions; 50% were in drought conditions and 65% were in dry or drought conditions,” explained Kevin Good, CattleFax vice president of industry relations, during the recent CattleFax Outlook Seminar in New Orleans.

The first week of February, 42.6% of the nation was experiencing drought, compared to 55.2% a year earlier. Throw in abnormally dry condition and 61.6% of the nation was affected, versus 72.2% a year earlier.

At the time, approximately 55% of the U.S. cattle inventory was in drought areas.

The Hay Challenge

Hay piles have mostly been whittled down to memories in many parts of the country.

Using a shorter rope, low hay stocks could prompt more beef cow liquidation this winter, says Derrell Peel, Extension livestock marketing special- ist at Oklahoma State University, in late-January market comments.

He points out December 1 hay stocks for the nation were 16.4% less than the previous 10-year average at 71.9 million tons. It was the least on record going back to 1973.

“Each of the top 10 states for hay stocks was down compared to the 10-year average and collectively were down 20.8% from the 2012-2021 average December 1 stocks level,” Peel says. “The largest hay stocks on December 1 were in Texas—25.8% below the 10-year average for the state. Other top 10 states were down from the 10-year average ranging from Tennessee (down 10.9%) to Oklahoma (down 32.7%).”

During the same seminar, Mike Murphy, CattleFax vice president of research and risk management services, explained U.S. hay production last year was the least since 1959. However, he also pointed out there are 5 million fewer beef cows today than in 2000, so depleted stocks will be able to recover sooner.

“Hay prices will likely continue to be high in the first part of 2023, but we expect weather patterns to improve pasture conditions as early as this spring which should help stabilize and soften hay prices throughout 2023,” Murphy said.

Weather models do paint a more positive outlook for hard-hit parts of cow country later this year.

Matt Makens, meteorologist for CattleFax said the latest forecast for La Niña had only a 14% probability this spring and less of a chance by the summer. He explained a neutral phase will take control of the pattern as La Niña weakens and may last several months before giving El Niño a chance to grow this summer and into the fall.

Prices Trek Higher

In the meantime, prices and profitability will favor cattle producers this year, according to CattleFax analysts.

Good forecasts the average 2023 fed steer price at $158/cwt., up $13 from 2022, with a range of $150 to $172/cwt. CattleFax projects feeder