The U.S. beef industry has experienced significant and positive change over the past five years, and while there is a great deal of discussion concerning U.S. cattle numbers and the impact on beef production, the greater issue is consumer demand.
While it might be easy to develop a comfort level regarding forecasting either the supply of or demand for beef based on key factors, I would strongly suggest it is probably now necessary to think beyond the historical data. The economic incentives are shifting, and subsequently, this creates a shift in the overall industry economics.
Typically, as economists assessing the livestock and meat industry, we think about cattle numbers in terms of the cattle cycle or the expansion or liquidation of the inventory in response to forage availability and/or returns to cow-calf production. A third factor that is often not mentioned is industry structure and the make-up of cow-calf operations regarding size, location and their motivation to own more or fewer cows. This is important, particularly in the current period of record-high prices and cash returns to cow-calf operations.
I have discussed it frequently, but the average cow-calf operation has about 40 cows. More important, for many of those operations, running cows is secondary to crop farming. These smaller operations with fewer than 100 cows account for 91% of the total cattle operations in the U.S., and it is their decisions that largely change beef cattle inventories. Ranchers with 100 to 500 cows account for about 8% of the beef cattle operations.
Heifer retention and growth in the cattle inventory is largely driven by the 91% of operations with fewer than 100 cows, and I think it should be noted that these operations do not generate enough net revenue to suffice as the sole income although 2025 could be an exception.
The point is another source of income has always been required to support the people who had 100 cows or fewer and while 2025 might have changed that situation, it also created the opportunity to reduce debt and put money in the bank rather than increasing the size of the cow herd if the forage is available, and I think that is the conclusion of many smaller operators. Financial certainty became the objective rather than betting against market risk.
There has been meaningful change across every sector of the U.S. beef industry, and while change offers opportunity, it can also increase risk. It is safe to say the changes that have occurred, some subtle and some significant, have had a permanent impact on industry dynamics regarding costs, capacity, marketing and profitability, and ultimately, those dynamics will impact long-term decisions by people in all sectors of the industry.
I doubt if there is any argument about the cattle numbers over the next two or three years. The real question is beyond the next two to three years.
