Cow-calf Operations: Time to Plan

Some overriding forces are shaping the economic environment for U.S. cow-calf operations. From a longer-term strategic perspective, some planning may pay large dividends for cattle producers. Interest costs are rising, albeit at a measured pace. In terms of basic supply and demand market forces, there is the obvious uncertainty regarding demand for beef and hence cattle, given the international trade environment of tariffs and retaliation that has developed in recent months. Still, stepping back, the U.S. beef sector has so far faced mostly indirect impacts, and U.S. beef export tonnage was record-large for this year’s first quarter. On the domestic front, the economy has been robust so far this year.

For producers, the clearest market signal is on the supply side. The U.S beef cattle sector is well into the cyclical adjustment phase transitioning from aggressive herd expansion to very modest growth. Looking ahead, smaller herd growth rates will translate into the rather modest year-over-year increase in beef production in 2019. If recent cowherd trends persist, 2020 could mark the end of the current U.S. cattle inventory build-up.

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USDA’s National Agricultural Statistics Service (NASS) released their mid-year count of U.S. cattle numbers on July 20th. The NASS survey largely confirmed that the national herd is still growing, but importantly, at a moderating pace compared to that of recent years. In aggregate, at 103.2 million animals as of July 1, the number of all cattle and calves was 1.0% above a year ago. The beef cowherd increased by 0.9% year-over-year. NASS estimated that the number of heifers designated by beef producers as replacements declined compared to a year ago (down 2.1%). This year’s calf crop was projected at 36.5 million head up 1.9% from 2017’s.

This calendar year, calf and yearling prices are projected to be similar to 2016’s and 2017’s. In the fourth quarter of this year, calf prices may average slightly below 2017’s, but substantially above 2016’s. If the general trends of the first half of 2018 persist, as of January 1, 2019, the U.S. cowherd likely will be up well less than 1.0% year-over-year. That suggests cyclically stronger calf prices are ahead (e.g., calf prices in the fall of 2020). Pre-planning may position a cattle operation to take advantage of this market transition.

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