Recent record-high cattle prices and lower feed costs could offer producers the profit incentives they need to start expanding their herds after U.S. beef cattle numbers at the start of this year reached their lowest point since 1951, Purdue Extension agricultural economist Chris Hurt says.
The nation's beef cattle herd has been declining for many years, with the most recent phase beginning in 2007 when high feed prices led to large financial losses for producers. Since that time, major beef-production areas also have been dealing with drought. But if lower feed costs and high cattle prices hold steady, producers could start to slowly grow their operations.
"While the incentives have turned positive, they have not been in place long enough for the industry to begin registering signs of expansion according to U.S. Department of Agriculture numbers," Hurt said. "The rebuilding of the beef herd is expected to take multiple years."
Hurt said two main factors are driving increased beef profit potential. The first is that small herd numbers have kept beef supplies low. The second is that U.S. corn, soybean and forage crops returned to more normal yield levels, bringing with them more abundant feed and lower feed prices. The combination has resulted in record-high prices for fed cattle and calves this winter.
While the USDA's most recent cattle inventory report showed that the number of replacement heifers held back for breeding is up about 2 percent, that increase isn't likely enough to grow beef cow numbers this year.
Whether the national beef herd grows or declines in the coming months and years will depend, in large part, on cow slaughter numbers, Hurt said.
"Some cow/calf operations will see 2014 as the golden opportunity to get out with record-high cow prices," he said. "But the greater tendency will be for producers to hold on to the cows for the profitable opportunities that are expected over the next three or more years."
Hurt also said the following would be hindrances to expansion:
* Retaining heifers to replace breeding cows is expensive for producers.
* Beef producers have struggled through a long period of narrow margins, so it will take a longer time of profitability to restore their confidence.
* Drought still has its grasp on large areas of beef-production regions.
But even with the challenges, Hurt said there seems to be plenty of expansion incentives over the next few years.
"The price outlook is extremely favorable for 2014 to 2016 for the beef industry," he said. "Beef supplies this year are expected to be down 5 percent, while domestic demand is expected to remain positive."
High beef prices are expected to reduce export demand, and beef will have some strong consumer competition from higher pork, turkey and chicken supplies.
"However, low beef supplies will dominate these drivers and likely push cattle prices to another record year," Hurt said. "Finished cattle prices are expected to average about $135 per live hundredweight in 2014, exceeding the previous record high near $126 in 2013."
Source: Purdue University Extension