Cattle herd rebuilding will be a slow process

Wednesday, July 30, 2014

Consumers looking at the price of beef in grocery store meat markets may be wishing more cattle were in the food production system to lower the hit on their wallets, but that is not likely to happen anytime soon.

“Data from the U.S. Department of Agriculture provides some indication that herd expansion may be beginning but more clearly shows herd rebuilding will be a long process and a slow one, at least initially,” said Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist.

The July Cattle report shows estimates of herd inventories down in most all categories compared to the last report in 2012. Since no 2013 report is available for comparison, it is not readily evident whether inventories are higher or lower than last year for the various categories.

“It is likely most are lower,” Peel said. “However, it also appears the beef cow herd is stabilizing and is likely only slightly lower than last year.”

The July 1 estimate of beef replacement heifers was down from July 2012 despite the fact that Jan. 1 estimates of beef replacement heifers increased each of the past three years. The ratio of the July 1 beef replacement heifers to the January inventory of replacement heifers is the lowest since the July estimates began in 1973. This ratio typically rises during herd expansion and decreases during liquidations,

“This indication of additional herd liquidation is somewhat in contrast to the heifers on feed in the July report, which is down 4.6 percent from year-earlier levels,” Peel said.

The year-over-year decrease in July 1 heifers on feed is consistent with modest levels of initial herd expansion. Quarterly estimates of heifers on feed have posted year-over-year decreases for the past eight quarters, with an average decrease of 6.8 percent.

So far this year, heifer slaughter has declined 7.9 percent, a significantly larger decrease than steer slaughter, which declined 2.9 percent for the year to date. Beef cow slaughter is down 16.4 percent so far this year compared to the same period last year.

“These decreases in female slaughter strongly suggest herd expansion is beginning,” Peel said. “Aggregate herd balance numbers suggest the capacity for herd expansion is greater than what has been observed to date.”

Analysts have put forth several factors that may be limiting herd expansion in these early stages. Record-high feeder cattle prices that will eventually stimulate herd expansion may, in the short run, increase the temptation to sell heifers rather than retain them for breeding. This is particularly true for producers still recovering financially from drought and other economic difficulties.

“For some older producers who are considering retirement, current market prices may provide the incentive to sell out and exit the industry,” Peel said. “While new producers will, in most cases, replace the older producers, there may be a lag in herd growth during the transition.”

Additionally, the record-high prices that cattle sellers currently enjoy also imply high prices for breeding females. This could be a deterrent to expansion, at least initially, for cash-strapped producers.

Regional factors may be moderating herd expansion as well. Much of the eastern half of the United States has lost pasture and hay acreage as crop production has expanded in recent years, leading many analysts to project less herd rebuilding in this region.

“Drought conditions persist in much of the Great Plains and West regions, where proportionately more herd expansion is likely,” Peel said. “However, herd rebuilding may be moderated for several months to several years to allow recovery of pasture and range.”

Furthermore, the biology of cattle production implies a strict limit on how fast herd expansion can take place. Herd expansion will start slowly from the current low herd base under the best of circumstances.