The mid-year cattle inventory report showed cattle numbers continue to decline, said Derrell Peel, Oklahoma State University livestock marketing specialist, in a letter called Cow-Calf Corner.
Despite sharply higher cattle prices, there is no data to suggest heifer retention or enough decrease in beef cow slaughter to initiate herd expansion, Peel said. The process thus far is considerably slower than the herd expansion after the drought in 2011-2013 pushed cattle inventories to a cyclical low in 2014.
There are several reasons for that, he said.
CONTINUING DROUGHT
Continuing drought still is an issue in significant regions of cattle country, Peel said. While drought is not likely causing a great deal of additional herd liquidation, it surely is preventing expansion in drought-stricken areas.
Locations recently emerged from drought need time to heal after two to three years of damage, he said. Hay supplies are depleted and must be replenished, and many regions still are vulnerable to redeveloping drought.
FINANCIAL RECOVERY
Many cattle operations suffered considerable financial stress from drought and high input costs, he said. In the short run, the need for immediate returns from higher cattle prices may be causing continued heifer and cull cow sales.
High, and, in many cases record high, input prices were a particular challenge last year, Peel said. Record hay prices and elevated supplemental feed costs had a huge effect in drought regions.
Record or near-record high fertilizer, chemical and fuel costs have been a significant challenge, he said. Though some input prices have moderated this year, uncertainty has producers reacting cautiously to higher cattle prices.
Also, sharply higher interest rates create a different economic climate that may temper the pace of herd expansion, Peel said. Higher finance costs will be a much more significant factor as breeding heifer and cow costs rise in coming months.
PRODUCER EXPECTATIONS
All of those factors contribute to the industry’s economic backdrop and become part of producer expectations that are the key to herd rebuilding, he said. Until enough cow/calf producers anticipate enough returns for a long enough period of time, herd expansion will be tempered.
In the meantime, cattle supplies will continue tight, Peel said. Calf and feeder cattle prices will continue rising as the market provides more price incentives that eventually will strengthen producer expectations and jump-start herd expansion.
That process likely will begin in earnest soon and into 2024, he said.