CATTLEFAX TRENDS

BEEF COWHERD TRENDS

The two primary factors that influence cattle cycles are profitability at the cow-calf segment and drought or grazing conditions. The U.S. beef cowherd peaked in January 2019 just shy of 31.7 million cows. Black swan events and poor leverage causing margins to deteriorate were the main reasons cow numbers dropped over 500,000 head from 2019 to 2021. Now, the other important variable has intensified significantly over the last eighteen months. The following discussion will cover what that means to inventory numbers and the resulting long-term implications.

West of the Rocky Mountains and the Northern Plains have dealt with the worst drought, creating poor grazing conditions for cow-calf operations. Unfortunately, this has led to some dispersals and/or producers having to cull very deep into the cowherd.

While the current drought covers a large land mass, it is important to put into perspective roughly how many cows are impacted. According to January 1 state cattle inventory numbers and the NOAA drought monitor, 28% of the U.S. cowherd was in moderate or worse drought, on average, from January through September 2021. Since 1975 there were only 11 other years that saw a larger percent of the cowherd in moderate or worse drought during the first nine months of the year. The most recent year was 2013, during one of the worst droughts in history.

With over one-fourth of the U.S. cowherd currently impacted by moderate or worse drought, and conditions deteriorating in parts of the South Plains in recent months, another year of liquidation is certain. This is further supported by year-to-date beef cow slaughter that is up 242,000 head, or 10%, compared to last year through September. CattleFax expects the beef cowherd to be down another 400,000 head in January 2022, for a total of roughly 30.75 million.

It is common for a La Niña weather pattern to create dry conditions for much of the major grazing regions, as seen over the last year. Unfortunately, recent forecasts show there is risk La Nina conditions will remain into, and possibly through, spring 2022. Some regions, especially the North Plains and Southwest, that are already dry are predicted to receive average to below average precipitation next winter and spring. As if producers aren’t already dealing with enough challenges in the present, it is important to understand forage availability may continue to be extremely limited for the next several months. While the weather forecast can change, and everyone is hopeful for improvement, under the current assumptions that dry conditions continue, further cowherd liquidation is essentially a guarantee through 2022. It is fairly easy to make the case that the cowherd could decline an additional 200,000 to 300,000 head by January 2023, to find a bottom near 30.5 million cows. Another factor supporting continued liquidation through 2022 and reporting a smaller beef cowherd number in January 2023 is the amount of heifer calves and feeders currently being marketed across the country. Through the middle of October, heifers as a percent of all U.S. feeder and calf receipts averaged 41.3 percent. Last year, heifers

accounted for 39.9% of all sales during the same period, while the 10-year average drops to 39.3 percent. This implies producers are planning to keep back fewer replacements, which in turn impacts the direction of the cowherd longerterm.

Assuming an El Niño weather pattern is in full swing by early 2023, which is currently the outlook, grazing conditions should improve for much of cow-calf country. Couple that with the optimistic market forecast, and the cowherd would likely begin its rebuilding phase into the middle of the decade.

It is recommended for those that have available feed and grazing resources to start preparing to capitalize on the next significant move in cattle prices, since almost all factors are pointing to a higher trending market. This may come as early as 2022. Expanding the herd to maximum capacity is one strategy to set an operation up to generate the most revenue. Because of the swift liquidation, female prices have yet to experience much of an increase relative to the past couple of years. Once the drought-stricken areas get some muchneeded moisture to restock and calf prices improve, the female market could get lofty in a hurry. If an operation does have the capability to add more cows, it is important to make sure the cows will work and be productive in their new environment.

While the long-term market trend is higher for all classes of cattle, encouraging operations to expand, producers must also understand the other side of the profit equation. Hay prices have not only risen in dry regions over the past year, but across the country as well and should remain elevated for the foreseeable future. Because of the inflationary pressures, other inputs have been and are expected to continue to be more expensive. Labor challenges are impacting all industries with no quick fix on the horizon. All these factors need to be considered when deciding whether to increase the cowherd.

Because Mother Nature dealt a bad hand to many producers that could drag on longer, several data sets are supporting that the liquidation phase of the current cattle cycle will continue through 2022. However, this will allow cattle supplies to become more balanced with current slaughter capacity levels, causing cattle prices to trend higher as more consumer dollars flow back to the cow-calf segment. While the cost to run cows will increase, the stronger prices, longer-term, should more than offset the higher expenses. Still, producers need to thoroughly evaluate their operation and develop a plan that will position them for success both in the short and long term.