As cattle numbers continue to tighten pushing prices to record levels, there is more than enough conversation about when producers will respond and begin building herds again. If this were a “typical” cattle cycle, the elements – ample forage and soaring (record-high) cattle prices - for expansion are in place. However, I would submit that times are not typical regarding this cycle other than the liquidation side where drought forced significant liquidation of herds and took the industry to the lowest U.S. cattle herd numbers in 70 years.
Not only will the pace of expansion or the herd-building side of the current cattle cycle be much slower than past cycles, but the extent of herd building will also be less. This has been the case for previous expansions of the beef inventory since 1975’s peak of 132 million head as subsequent cycles have all peaked below the previous cyclical peak. For instance, the 1982 peak was 115 million, 1996 at 104 million, 2007 at 97million and 2019 at 95 million. So, what has changed?
Production-wise, efficiency has played a role with respect to “producing significantly more beef with fewer cattle” which in turn presents the challenge of the price impact. It takes less of a herd buildup and increased cattle numbers before the market drops. But in addition, there are other crucial factors depending upon personal circumstances that can be pointed out that affect the personal decision to have cows as well as the number of cows.
The age of farmers and ranchers is critical as decisions are made going forward. Closely tied to age is the financial stress of the market over the previous four years. This is likely to play a greater role for part-time cattlemen in particular. The drought coupled with low prices and accelerating costs of production are key to the decision. I have heard more than once the comment, “why would I or my spouse continue working in town to support cows that are draining the bank account?” For many of those part-time cattlemen the cows went to the sale yard. Will they be replaced? Only time will tell, but for many of those producers the decision was made when they drove from the sale barn. They will not get back into the business. The other consideration if the decision concerns buying brood cows is today’s prices for those cows. Buying cows today is a significant investment.
There is significant uncertainty in a market that could potentially become increasingly volatile. That poses significant risk for a large investment with high maintenance costs that 2½ years from the time the decision is made to breed a cow or heifer to produce a marketable product if that decision is to hold heifers from an existing herd. The decision to own cattle or expand an existing herd is not one to be taken lightly in today’s volatile economic environment of high interest rates and this is a key consideration in the speed with which herds will be rebuilt.
John Nalivka is president of Sterling Marketing, Inc., Vale, Oregon.
