Review: Several months ago I provided some coverage on beef cow slaughter through April. Here we are in the middle of July and final numbers for June are now official. As such, this is a timely opportunity to review what that means going forward.
1st vs 2nd Half: Let’s begin by reviewing the historical information dating back to 1990. A couple of things are important here:
1. 1st half beef cow slaughter is typically very representative of the rate in the 2nd half of the year.
2. During the past 34 years (1990-thru-2023), beef cow slaughter, as a percent of the Jan 1 inventory, averaged 4.7% and 5.0% through the front- and back-half of the year, respectively.
3. However, all this does vary some depending on whether it’s a rebuilding or drawdown year. That granularity is represented in the first chart below (see Chart). That has some important implications going into 2025.
2024: Thus far, beef cow slaughter has totaled 1.466 M head (~5.2%) of the Jan 1 inventory (28.223 M head). With that, there’s two ways to attack the subsequent implications for next year:
1. The second chart represents inventory change versus cow slaughter through June. Based on this year’s slaughter rate of 5.2% (Jan-thru-June) represents a likely reduction of 1.44% of starting inventory – putting the cowherd somewhere around 27.8M cows to start 2025.
2. Now, back to Chart 1. In drawdown years, second half cow slaughter is ~8% bigger than the first half. In other words, we’d expect a slaughter rate of ~5.6% between July and December. That woud make for an annual rate of 10.8% in 2024. The third chart projects what that would look like. Either way, we get to the same number as the analysis above. (see Chart.)
2025: What’s the point of all this? One reader recently made this observation, “As a calf producer it’s nice to see the market where it is! But history says it won’t stay there. To me the volatility is maddening. The long cycle of our business makes reaction too late to get ahead.” And then he asks, “Have you written anything on ways to manage this situation?”
His observation is right on target! Reacting is the wrong strategy (because it’s not really a strategy). Rather, one needs to plan carefully – that’s especially true considering the amount of equity at risk at these market levels.
The point of this is NOT for precision prediction of next year’s cow numbers. Rather, it’s more about the general trend. At this juncture, it appears 2024 is NOT going to be a rebuilding year. That is, the business is not setting up for a sharp snapback.
John Nalivka addressed the topic this way in a previous column:
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.
Bottomline: the price cycle will likely be longer and more protracted than the previous one.
And to reiterate the prior column on the topic: “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.”
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.
