Beef Cow Herd Dynamics Returning to Normal
The beef cattle industry has experienced some extraordinary dynamics in the past decade that provoked unprecedented volatility and record price levels. An aborted expansion attempt in the mid-2000s was followed by more herd liquidation through 2010; followed by even more drought-forced liquidation in 2011-2013 that pushed cow numbers two million head lower than anyone planned or the market needed. This provoked a dramatic market response to jump-start herd expansion and pushed the parameters of herd dynamics to extreme limits. Only now are herd dynamics beginning to return to normal levels.
The beef cow herd likely increased less than one percent year over year in 2018 to a projected January 1, 2019 level of about 31.9 million head. This may be the cyclical peak in herd inventory or very close to it. From the 2014 low of 29.1 million head, this cyclical expansion has increased the beef cow herd by 2.8 million head or 9.6 percent over five years. The last full cyclical herd expansion occurred in 1990-1996 resulting in an 8.8 percent herd expansion in six years.
Part of herd expansion is heifer retention, commonly measured by the January 1 inventory of beef replacement heifers as a percent of the beef cow inventory. This percentage has averaged 17.6 percent over the last 30 years. The percentage increases above average during herd expansion and drops below average during herd liquidation. From a recent low of 16.6 percent in 2011, the replacement heifer percentage increased rapidly and averaged over 20 percent from 2015-2017. The peak of 21 percent in 2016 was the highest heifer replacement percentage since historic herd growth in the 1960s. The percentage dropped to 19.3 percent in 2018 and is projected to drop to 18.0-18.5 percent in 2019; still above average but returning closer to normal.
Increased heifer retention reduces the number of heifers in the slaughter mix. This can be measured several ways including the ratio of steer to heifer slaughter. Fewer heifers slaughtered increases the ratio of steers to heifers slaughtered. This ratio has averaged 1.71 over the last 30 years. The ratio increased to 2.143 in 2016, the highest levels since the early 1970s, and has been moving back to more typical levels since. The ratio dropped to 1.948 in 2017 and is projected to drop to about 1.83 in 2018. Heifer slaughter was up year over year by 11.9 percent in 2017 and is projected to be up by 6.0-6.5 percent again in 2018. This is the process of heifer slaughter returning to normal levels as heifer retention slows.
The other part of herd expansion is reduced cow culling. Annual beef cow slaughter as a percent of January 1 beef cow inventory has averaged 9.5 percent over the last 30 years. Beef cow slaughter dropped sharply from 2012 – 2015 resulting in a record low beef cow culling percent of 7.63 percent in 2015 and a below average culling rate from 2014-2017. Beef cow slaughter has seen annual increases averaging 11 percent year over year since 2016, including a projected 10.1 percent year over year increase in 2018. At the current rate, beef cow culling in 2018 will be 9.7 percent, very close to the long-term average culling rate. Herd expansion significantly reduces the role of females in beef production. The sum of heifer plus cow slaughter as a percent of total slaughter reached a 40-plus year low in 2016 but is slowly returning closer to normal levels in 2018.
Should the beef cow herd stabilize near current levels, as it appears now, we would expect to see the cattle slaughter mix return to long term average levels. Total 2018 cattle slaughter is projected at 33.15 million, including steer slaughter at 51.3 percent of the total compared to a 50.7 percent long-term average; heifer slaughter of 28.0 percent (29.9 percent average); and total cow slaughter of 19.0 percent (17.7 percent average). This includes beef cow slaughter projected at 9.4 percent of total cattle slaughter in 2018 compared to a 9.3 percent long term average. Bull slaughter is projected at 1.7 percent of total slaughter, close to the long term average of 1.8 percent.