There is no shortage of discussion on whether and when ranchers and other pasture owners will begin rebuilding the U.S. cattle herd. As we all know, the U.S. herd tally is the foundation of market performance. Expansion and/or liquidation are driven by the current situation and the outlook for profit and available forage. However, today, I think there are other factors at play in this decision, particularly for ranchers who have been in the business for decades.
In my view, the decision to keep heifers and build herds goes beyond record prices and profitability for cow-calf operations. In fact, it is record-high prices that could well be the factor that is having the greatest impact and that decision may be contrary to the impact it has had on past cattle cycles.
Cattlemen now can retire long-term debt and, likely, have money left in the bank for operating expenses next year. But that scenario may require the sale of all this year’s calves and keeping only a percentage of heifers to replace this year’s cull cows.
There is another consideration in the decision — market uncertainty. This goes beyond forgoing today’s income from selling that heifer to her cost if she is bred but furthermore, the uncertainty of her calf’s value in the spring of 2028. The latter poses risk to the financial statement for the ranch or farm if the discussion concerns a crop farm with pasture. Costs of production with high diesel prices are already a critical concern this year.
Any reference to market risk to cattle markets must also consider beef prices. While beef demand is the strongest on record, there are no assurances that it will remain so. As I have often said, record-high beef prices are dependent on consumer buying. Consequently, there is risk on demand side of the equation. Consider today’s pork market if you need evidence.
The dynamics of the beef market have changed. The quality of cattle and beef has improved markedly, and this has been the result of ranchers making decisions on genetics and management. This is certainly positive for the industry as noted by beef demand. However, at the same time, risk is still the critical factor to any decisions made by ranchers.
Today’s decision process is not the same as it was in earlier cattle cycles. It isn’t just prices and forage. It is long-term risk assessment, and this is where the conversation on heifer retention begins.
