Over the last few years, drought and high supply costs led many farmers in the Midwest and southern Plains – where the majority of U.S. cattle are located – to market cattle, particularly female cattle that would typically be held back for replacement (breeding) purposes. That has affected the beef industry across the United States.
According to the cattle report published in late January by the U.S. Department of Agriculture’s National Agricultural Statistics, there were 87.2 million head of cattle and calves (total inventory of beef cows, milk cows, bulls, replacement heifers, other steers and heifers, and the calf crop for the current year) on U.S. farms as of Jan. 1, 2024. That is 2% lower than this time in 2023 and is the lowest Jan. 1 inventory since USDA’s 82.08 million estimate in 1951.
The calf crop is estimated at 33.6 million head, down 2% from last year and the smallest calf crop since 33.1 million in 1948.
“As drought continues, you just don't have the feed to keep the cows around, so you start culling,” explains Jeremy Reineke, vice president of Capital Markets Lending for GreenStone Farm Credit Services.
Travis Averill, livestock branch chief at USDA NASS, reported that 34 States showed year-over-year inventory declines, including Michigan -2.7% and Wisconsin, -4.5%.
Heifers kept as beef cow replacements were estimated at 4.86 million head nationwide, down 1% from 2023.
“The beef industry is a pretty cyclical business moving through from cow-calf operations to backgrounders, to feed lots and then the packers – profit margins are rarely distributed equally,” Reineke says.
Margins at the packer level have been pretty good in recent years, but Reineke thinks the pendulum is swinging. “I think we’ll start to see those (packer margins) decline,” he says. “As we look forward in the next few months, maybe even a couple years, we're probably going to see profitability in the industry swing more towards the cow-calf producer,” he says, noting it is directly linked to the current cow inventory. “Packers are at the end of the line. With a smaller number of cows and supply of feeder cattle coming into the market, it’s probably going to mean the industry is going to have some empty bunk space in the feed yards and packing capacity is probably going to be in excess. And, when you can't fill all the shackle space at a harvest facility, there's margin that's lost.”
The excess slaughter capacity will be compounded by two additional slaughter/processing plants – Nebraska and Missouri – coming online in late 2024 and 2025. “Although, they may be able to time their startups when we start to see more feeder cattle come into the market,” he says.
Relief and recovery
El Nino has provided desperately needed moisture and improved drought conditions across the country, but recovery will take time.
“We haven't seen a nationwide recovery of heifer retention start yet, and we probably won't see the full effect of that until 2026,” Reineke predicts. “It will probably be 18 to 24 months before we start to see the calf inventory increase as pastures recover, and hay and corn prices come down some.”
He expects heifer retention to build throughout 2024, “but again, if we have a continued drought, those numbers might stay the same for another year, which could push recovery of feeder cattle numbers back into 2027.”
Despite the tightening of calves and heifers, Bernt Nelson, American Farm Bureau Federation economist, recently noted a strange situation underway with cattle on feed. Despite the historically low cattle and beef cattle inventory, the supply of cattle on feed for market is curiously high. All cattle and calves on feed for all U.S. feedlots is estimated to be 14.4 million, up 2% from 2023. “This means there are still plenty of cattle available to meet packer needs for now, which will keep beef prices from skyrocketing in the short term,” he wrote in a column. In addition, record-high dressed weights put about 3 million pounds of additional beef entering the supply chain per week in both November and December.
The higher level of production has helped keep beef prices down for consumers currently.
“However, as the cattle on feed supply begins to shrink based on lower numbers further up the supply chain, packers will have to compete to secure cattle, which should lead to higher prices for cattle feeders, especially in the second half of 2024,” Nelson reports. “When the current supply of cattle on feed dries up, there won’t be as many cattle available to refill the supply chain. This could send beef prices to record levels in 2024 and 2025, as we hit the supply bottom of the current cattle cycle.”
Imports from Mexico, Canada and Australia may come in to replace the expected lost production in the future.
“But when you're down 3.4 million cows in the last five years, you're down a lot,” Reineke says. “We haven’t hit bottom yet, in regard to the number of head being harvested.”
For consumers, Jeremy expects to see elevated retail prices, citing beef as being at the top of a protein pyramid.
Despite higher prices, domestic consumer demand for beef remains strong, but is expected to fall in 2024. According to Kansas State University’s Meat Demand Monitor, consumer willingness to pay increased for all retail products other than plant-based patties. However, price has more recently become a top concern for consumers, with 31% more survey respondents considering price a top four criteria than those who consider it a bottom four criteria.
Beef/dairy crosses
A wildcard in the beef industry is the impact of beef/dairy crosses. “Genetic advancements that have come along in the last couple of years are capitalizing on the quality of the crosses,” Reineke says. “And, dairy calves are born every day, not just in the spring and fall when most beef cattle are calving.”
In 2023, the U.S. produced 2.9 million head of beef/dairy cross. According to CattleFax, 9% to 10% of fed slaughter is currently beef/dairy cross and that is expected to jump to 15% by 2026.
