Cattle Prices Soar: Is The Cattle Industry's Optimism Justified?

Could the optimism in the cattle industry be fueled by profitability?

With the U.S. cattle inventory at a 62-year low, cattle prices have reached record highs. Yet, it’s important to consider whether these high prices are equating to profitability.

For producers in the cow-calf business, Clinton Griffiths, host of AgDay, says these high prices have likely enabled some black ink to appear on the balance sheet. 

Eric Jennings with the South Dakota Cattlemen’s Association adds: “It’s fun to go to the sales ring with some calves or sell them direct and get that kind of money. It’s been a long time coming, but they’re certainly enjoying it.”

The Livestock Marketing Information Center forecasts cow-calf producers will be profitable (on average) in 2023 with returns projected in excess of $300 per head, says Nevil Speer, an independent industry consultant, in the Drovers State of the Beef Industry Report. Additionally, since 2010, returns have been negative four out of 14 years with an average annual return of approximately $87 per head.

However, some of the benefit of the high prices was cushioned by inflation, Jennings notes. With everything more expensive, building back the equity lost in the last few years will not be realized as fast as hoped.

With winter approaching, dry conditions can still be seen across many growing areas and livestock production states — likely affecting corn and hay crop production totals.

“Certainly, when you look at Missouri in particular, we’re down in hay production in 2023,” says Scott Brown, markets and policy professor and interim director of the Rural and Farm Finance Policy Analysis Center at the University of Missouri. “Other states have recovered — some of the states that had more of a drought issue in 2022 than this year — but we’ve kind of been front and center of the dry weather that’s hurt pastures and hay and ponds.”

High input costs, such as feed and fuel, and higher interest rates will likely incentivize continued selling of cows and/or the reluctance to retain heifers, Speer notes.

For backgrounders and feedlot operators, profits also remain, but the margins are narrower with higher replacement costs.

“I will tell you, I’ve been trying to put a breakeven together and in terms of buying a fair number of calves for fall delivery, it’s pretty difficult right now, given the level of the input costs,” notes Todd Wilkinson, South Dakota cattle producer and president of the National Cattlemen’s Beef Association.

Though, lower corn prices are a big plus for feedlot closeouts, Wilkinson adds.

According to a recent Sterling Beef Profit Tracker, cattle feeding margins gained about $10 per head for the week ending Sept. 16, closing at an estimated $343 per head. Additionally, cattle prices averaged $184.41 per cwt., up about $1.20 from the previous week. That price is 22% higher than last year’s $143.64 per cwt. cash price.

READ MORE ON THE DROVERS STATE OF THE BEEF INDUSTRY

 

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