OSU livestock economist says beef herd expansion not over yet

Tuesday, March 15, 2016

Are cattle market price adjustments in late 2015 a signal that beef herd expansion is mostly finished? An Oklahoma State University agricultural economist doesn’t think so.

Beginning with a January 2014 low of 29.1 million head, revised National Agriculture Statistics Service data indicated the U.S. beef cow herd expanded 217,000 head in 2014 and another 1.03 million head in 2015. The January 2016 total of 30.3 million beef cows represented a 3.5 percent year-over-year increase, an undeniably aggressive rate of herd expansion. But was it a case of too much, too soon?

Derrell Peel, OSU Cooperative Extension livestock marketing specialist, said it looks now that the spike in feeder cattle prices from 2013 through 2014 was a market signal to ensure that herd expansion got an aggressive jump-start.

“Having succeeded in that, market prices have adjusted back to levels that allow the industry to follow through with what has been started,” he said. “Therein lies the question of how much more expansion will occur.”

In the last complete herd expansion in the beef industry 1990 to 1996, America’s beef cow herd increased about 2.9 million head, from 32.5 million in 1990 to 35.3 million in 1996. This included a one year of expansion of 3.7 percent; three years of growth in the range of 1 percent to 2 percent annually, spread out on either side of the big expansion year; and two years of very slow growth at the beginning and end of the expansion.

“The patterns we have seen so far in this herd expansion are similar and consistent with the 1990s,” peel said. “Should we expect something like 2.9 million head of herd increase this time? Probably not; after all, it’s really pounds that matters and we will not need all that much of an increase in the number of beef cows to increase beef production.”

Carcass weights are more than 100 pounds heavier today compared to 20 years ago. Plus there is the fact that the recent herd did not start when it the industry intended it to begin.

Peel is quick to point out that beef herd expansion was attempted in 2004 with a herd size of 32.5 million head, the same level at which the 1990 expansion started. After two years, with minimal herd growth of fewer than 200,000 head, cattle producers continued liquidating animals in 2006 thanks in part to unprecedented cost shocks amid the worldwide recession.

In 2011, the U.S. beef industry showed signs of herd expansion with an inventory of 30.9 million cows, but historic levels of drought in parts of “cattle country” forced additional liquidation, eventually leading to there being only 29.1 million head in 2014. The current number of 30.3 million head is still smaller than pre-drought levels.

“The real question may be where does recovery stop and where does expansion really begin?” Peel said. “A moderate pace of herd growth in 2016, perhaps a 1.5 percent to 2.5 percent year-over-year increase, might leave the beef herd inventory close to pre-drought levels going into 2017.”

Ultimately, it is demand that will determine the size of the industry. Domestic and international markets will be certainly play important roles in the size of the U.S. beef cow herd. Beef carcass weights also will be important in determining how many animals are needed to meet that total market demand.

“It seems clear to me that expansion will continue in 2016 , albeit at a more moderate pace than 2015, and into 2017 as well.” Peel said. “At this point, the herd probably will peak cyclically at an inventory somewhere between 31 million and 33 million head.”

The ultimate total is, simply put, a moving target that will need to be monitored along the way.

Unfortunately, Peel believes this will be more difficult given USDA’s recent announcement to suspend its July Cattle report, meaning there will be no indication of the size of the 2016 calf crop, the status of heifer retention or the estimated feeder supply until 2017.