Speer: Prices Higher for Longer

Burnt Hollow Ranch
Burnt Hollow Ranch
(Hall & Hall)

Fall Marketing Season:  If you own cows, you’re likely busy (or soon will be) gathering cows and weaning calves.  Part of that process also includes decision-making; some cows have to go.  In aggregate, those decisions are hugely important to the industry. 

For this discussion, let’s zero in on the following: 

  1.  Review beef cow marketings through August;
  2.  Forecast the trend for the final four months of the year;
  3.  Build some expectations around starting cow inventory for 2024.

Cow Marketings:  Through the first eight months of the year, beef cow slaughter totaled 2.28 M head (see table below) and represents 7.87% of the year’s starting cow inventory.   Historically, cow marketings through the first 2/3 of the year comprise ~64.4% of the annual total.  Nevil chart

Not surprisingly, the pace of cow slaughter picks up between September and December; producers typically liquidate ~35.6% of the annual total between September and December.    If that pattern holds, and given totals thus far in 2023, an additional 1.27M cows (or ~4.4% of the starting inventory) will be liquidated in the final four months of the year.  

In summary, projected beef cow slaughter in 2023 (based on the first eight months) will likely total ~3.55M head – or roughly 12.23% of this year’s starting inventory.   (see table below)

Undoubtedly, lots of unknowns remain ahead.  Perhaps cow slaughter was somewhat front-end loaded because of ongoing drought challenges coupled with solid market prices encouraging producers to load the gooseneck and make a trip to the sale barn.  On the other hand, some of the key cow inventory states have seen worsening conditions in recent months thereby hastening the pace to come in the next few months.   Only time will tell.  

Cow Inventory:  We’ll soon begin to zero in on how this fall’s pace (on top of year-to-date liquidation) is shaking out (especially important given worsening drought conditions in Texas and several other key states).  To that end, the graph below provides some historical perspective of annual cow slaughter (as % of starting inventory) and its relationship to subsequent cow inventory in the following year.    Nevil chart

Given the projections above, let’s just assume 2023’s cow slaughter rate is roughly 12% (give or take).   Based on the data and the assumptions above, that effectively means the cowherd shrinks by 3% in 2023 from 28.92 M cows to just 28.05 M head on January 1, 2024.     

Prices Higher For Longer:  There’s a slide in my deck that I started utilizing late last year that’s entitled, “What happens next?  Likely a protracted cycle.”   A couple of key highlights that have played out in 2023:  1) cull cows get more valuable – incentivizing producers to dig deeper into the cow herd, 2) weather equals a wild card (therefore delaying rebuilding), and 3) expenses are challenging.    All of those add up to fewer cows.  

Whatever happens from here, next year’s starting number will be down sharply.   That reality possesses some key implications for the beef industry going forward.  Most notably, supply stays tighter, and prices stay higher, for longer. 

Nevil Speer is an independent consultant based in Bowling Green, KY.  The views and opinions expressed herein do not reflect, nor are associated with in any manner, any client or business relationship.  He can be reached at nevil.speer@turkeytrack.biz. 

 

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