January-thru-April: USDA’s April slaughter data is now official (the data print lags by two weeks). Much of the industry’s focus during the past several months has been on carcass weights; they’re historically heavy and trending in a contra-seasonal manner. As a result, during the past six weeks or so, beef production has surprised to the upside. But for the purpose of this column, let’s stay focused on beef cow slaughter.
Review: I previously reviewed the topic last November (Beef Producers Have The Whip Hand). The column detailed beef cow slaughter rate as a predictor of next year’s starting inventory. And at minimum, it’s a reliable indicator as to which way the scale might tip in terms of producer decision making. As noted in the column, a slaughter rate of 9.5% (of Jan 1 starting inventory) is the rough breakpoint; anything less and we’re likely to see rebuilding – while a higher rate indicates herd reduction.
May-thru-December: Clearly, we have a long way to go yet in 2024. However, the early data is more telling than you might think. Through April, beef producers have marketed just slightly more than one million cows for slaughter, representing ~3.55% of the Jan 1 starting inventory (28.223 M head).
Now, let’s turn our attention to the remainder of the year. The first graph details the historical perspective: year-end rate versus the first four months. As alluded above, the data is surprisingly consistent (the correlation is .95). In other words, generally (emphasis) there’s not much deviation later in the year (versus the first part). Given the regression, it appears the beef industry is on pace to market around 11% of the current cow inventory in 2024.
Inventory Change: That leads us back to last November’s column mentioned previously. The second graph outlines change in cow inventory versus slaughter rate. IF the sector continues on current pace (11% liquidation annually), that’ll mean drawdown of another 2% of the cowherd – or let’s just conservatively call it ~500,000 cows.
As noted earlier, we’re early in the race. What’s most important is not the actual numbers but rather the overarching direction. At this juncture, it seems clear that 2024 is NOT going to be the year beef producers begin rebuilding the cowherd – else we’d likely have seen it in reduced slaughter rate and increased heifer retention. Neither of those are occurring (for more on the heifer front, see Derrel Peel’s recent column).
Starting Gun: Undoubtedly, some will read this as a sign there must be something wrong with the industry (packer concentration, the market is broken, too many imports, etc…). But decision making among producersin the beef business isn’t that straightforward (see Chessboard of Producers).
One reader recently shared his observations regarding the topic of expansion:
It seems to me that that there are a lot of non-monetary drivers this time around that may change the nature of ‘higher prices will encourage expansion’. Clearly, we need more rain and forage production also. Things like age of producer, cost of production, land values, no next generation coming up, etc that are likely independent of price driving expansion may impact how the cow herd expands or doesn’t in the future.
How all this shakes out in the coming months remains to be seen. But thus far, it appears the race towards expansion isn’t likely to start in 2024. That possesses some important implications as the industry shuffles around for supply in the years to come. To that end, those producers who are running cows indeed have the whip hand – and likely will for some time.
