A Look At Herd Rebuilds Of The Past

The US beef cow herd inventory was pressured the last few years because historically low prices and drought conditions incentivized producers to sell, said Rob Ziegler, Extension specialist at the University of Wyoming, in a Livestock Marketing Information Center letter called In The Cattle Markets.

Droughts in 2011-2014 and in 2021-2023, coincided with the contraction phase of the cattle cycle, Ziegler said.  A look at cow slaughter during these contraction phases and drought periods could shed light on producers’ current intentions to rebuild and the potential trajectory of market prices.

 

2011 BEEF COW KILL PEAK

 

Beef cow slaughter peaked in 2011 at 3.9 million head, roughly midway through the last contraction phase, which ended in 2014 when expansion began, he said.  Slaughter bottomed out in 2015 at 2.2 million head and started increasing again in 2016.

Another cow slaughter peak came in 2022 at nearly 4 million head, Ziegler said.  In 2023, annual cow slaughter declined by 12%.  From January through August 2023, 2.2 million head of beef cows were slaughtered, compared with 1.9 million during the 2024 period.

It appears total 2024 cow slaughter will be lower than that of 2023, he said.  Historically 35% of cow slaughter occurs between September and December, which could bring total 2024 slaughter to around 2.9 million.

If the decline continues, 2024 could mark the second consecutive year of lower beef cow slaughter, Ziegler said.

 

INSIGHT FROM THE FEEDER CATTLE INDEX

 

Examining the CME Feeder Cattle Index over that period provides insight into the price effects resulting from supply and demand dynamics, he said.  The index peaked in 2014 and 2015 at just over $200 per cwt, when cow herd inventory and slaughter volumes reached their lowest points at the end of the contraction.

From 2016 to 2020, the index trended mostly sideways, with a slight downward drift around the $150 per cwt mark, as cow herd numbers increased and peaked in 2019, Ziegler said.  When feeder cattle supplies peaked in 2020, prices hit their low, but in 2021, the Feeder Cattle Index rose again as cow numbers declined and slaughter volumes increased.

Given the projected increase in slaughter volumes for 2024, it appears the cow herd is contracting at a faster pace, he said.  If this trend continues, feeder supplies likely will tighten during this contraction period, supporting prices.

If history repeats itself, the industry may have another one to two years of contraction before moving into the expansion phase, Ziegler said.  However, despite strong feeder prices, the elevated interest rates and input costs of recent years have affected per-cow income negatively.

The question remains whether margins will be sufficient to encourage expansion.

 

CATTLE, BEEF RECAP

 

The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $185.00 per cwt to $188.29, compared with last week’s range of $182.95 to $185.78 per cwt.  FOB dressed steers, and heifers went for $288.63 per cwt to $297.87, compared with $285.83 to $292.69.

The USDA choice cutout Wednesday was down $0.36 per cwt at $299.81 while select was down $1.37 at $283.93.  The choice/select spread widened to $15.88 from $14.87 with 159 loads of fabricated product and 24 loads of trimmings and grinds sold into the spot market.

The USDA-listed weighted average wholesale price for fresh 90% lean beef was $350.09 per cwt, and 50% beef was $70.63.

The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.28 to $1.40 a bushel over the Dec corn contract, which settled at $4.32 1/2 a bushel, up $0.03 1/2.

The CME Feeder Cattle Index for the seven days ended Monday was $247.24 per cwt, down $0.14.  This compares with Wednesday’s Oct contract settlement of $249.72, up $3.57.