USDA’s Semi-Annual Cattle Inventory report confirmed a 61-year low in the beef cow herd, and barring some major change in the weather, the cattle inventory may not be done shrinking yet. Industry experts predict that could push cattle prices for all classes to record levels yet this year and beyond.
The historic drought has been devasting for U.S. cattle producers who have lost years of equity in their operations and genetics in their herds. The liquidation was deepest in the Southern Plains. Tucker Brown, cattle producer of Throckmorton, Texas says, “This year there’s been massive liquidation all over Texas. A lot of the times the folks that farmers and ranchers that have to get rid of everything are the ones that maybe waited too long to lower their numbers ran out of grass ran out of water.” He says his operation has fared somewhat better, but there is still a scar from the drought. “We’re probably down to about half the number of cows from where we were a couple of years ago, which is hard on the wallet, but for sustainability. We have to do that.”
USDA’s semiannual cattle inventory report confirmed the supply shock. All cattle and calves were at 89.3 million head, the lowest in eight years. But the beef cow herd was at only 28.9 million near record low. Kevin Good, vice president of industry relations and analysis with CattleFax says that herd will continue to contract this year. “We’re forecasting about a 5% drop in production this year compared to last year, that would equate to about 800,000 that dropped that slaughter and about 800,000 had dropped and non-fed slaughter as well.”
As a result, CattleFax released some optimistic price projection for all classes of the cattle business in 2023, and even some record prices by year end based on an increase in retail prices that will trickle down to producers. Good says, “A 10% increase in fed prices via $158 average. On yearlings eight weights in particular, as we go through the year we see that moving higher as we get into the second half of year in particular into new crop corn that should be substantially cheaper than it has been this last two years. If that’s the case, $195 annual average for nine weight translates amounted to $225 annual average for five and half weight steer calf.”
Good says this cycle will have a long tail, with strong prices all the way out to 2026. That’s because there is no sign herd contraction has slowed as there is still no heifer retention. “Heifers, on a feed basis they’re close to 40%, which is highest percentage. It’s been since 2000 or 2001. So no, the die is cast on the heifer side that we are liquidating at least through the first half of this year.”
To stop that trend cow, calf producers need some help from Mother Nature, namely grass and Brown says water is the other key. “Water is a big, big issue in Texas, especially the further west you go.” The other key to encourage rebuilding will be getting profits down to the cow calf sector. Something outgoing NCBA President Don Schiefelbein knows firsthand, but he’s encouraged. “It looks like we’re going to hold our break evens together this year which is a positive thing given what we’ve been through. So, I’m very confident over the next couple of years it’ll kind of rebound, we’ll be back in the black where we need to be, and we’ll have that leverage we so desperately needed the last couple of years.”
There is already a shift in profits away from the record margins packers were seeing the last couple of years, but it will take a while for that to trickle through the entire supply chain.
Dean Black, cattle producer of Somers, Iowa says, “The packer margins came down quite a bit and so hopefully we’re evening out across the board. So that everybody can get a little bit of profit because that’s what we need.” With additional processing capacity being built it may exceed supply, just as the cattle herd reaches its lowest point, which is a double edge sword. Schiefelbein says, “It’s real but long term usually once these plants get build leverage goes to cow calf producers and to me given what we’ve gone through the last 10 years as cow calf producers it’s finally time they get their share.”
Another key for the industry is retaining beef demand in the face of possible higher prices. Todd Wilkinson, President, NCBA says it’s a concern for him. “When you drive down the cow herd too far, suddenly the cost of that American consumer can be astronomical. We don’t want that to happen.”
The hope is beef can continue to gain momentum on the market share it’s gained in the protein sector the last 20 years. Good says, “The dollar growth for beef was more than the dollar growth for both pork and chicken combined in that 20-year period. So, demand has been stout.”
And not just domestically….beef exports were also a record in 2022 totaling 3.54 billion lbs., up 3% from the previous year, with a value of $11.7 billion, up $1.2 billion.
Dan Halstrom, president and CEO of the U.S. Meat Export Federation says, “It’s going to be a record on volume and value, we’re going to be up 3 to 4% on volume and value’s going to come in just under $12 billion in sales which is easily a record over last year’s $10.5 billion.”
Exports making up 23% of the value of the beef carcass. And if this continues it just adds to the optimism of better days ahead for the cattle industry.
