Patience is key in cattle cycle

A recent report from Rabobank says the cycle will return to recent high herd levels over time.

Kristy Foster Seachrist, Digital editor

February 13, 2023

6 Min Read
2-06-23 cattle GettyImages-182835937_0.jpg

Cow-calf producers are tasked with a hard job in the next 10 years. The job is to make the next cattle herd economically viable and be able to withstand the outside difficulties that are only going to intensify. This will include increased protein production, higher interest rates and increased feed costs.

That’s what a recent report from Rabobank is telling producers.

Much like the start of previous cattle cycles, competition for U.S. beef among restaurants, retailers and exports will increase and battle for market share.

Delays ahead in the next cycle: Volatilty and Uncertainty

Beef production will decline due to more than four years of U.S.A. herd liquidation and a cow-calf segment that will eventually retain heifers to support the next expansion. That much is predictable, but the U.S.A. beef supply chain should also see the cattle producing and processing segments proceed with more over the next 10 years.

The Rabobank report shows the lessons learned from the instability of the recent cattle cycle are shaping the future of the beef supply chain. Industry participants continue to reference the price volatility and boom-and-bust nature of the cent cattle cycle’s herd expansion and exhaustion of processing capacity, even as the next rebuilding efforts remain years away.

Related:Feeder cattle basis

A better understanding of some of the market forces that are likely to shape the next cattle cycle can help the beef industry navigate what looks to be a slower, more calculated transition.


Defining the cattle cycle

The cattle cycle can reference beef cow numbers, cattle prices and beef production. Each of these variables in operations exhibits defined long-run peaks and valleys with approximately 10 years between each historical high or low. The cycle is also a unique dynamic compared toother agricultural markets.

The environment is the driving force at play in each period. Severe winter weather requires many operations to have ample feedstocks to usher breeding herds into the spring grazing season. Prolonged drought can limit feed supplies and a place a hardship on the carrying capacity of many cow-calf operations going into winter. That is why beef cow slaughter has peaked in the fourth quarter all but six times in the last 50 years.

In the report from Rabobank, it says the U.S.A. cow-calf producer holds the keys to the factory-setting the direction for the entire beef supply chain, driving the trend in beef production and altering the base price for the entire beef sector in an environment of relatively stable consumer demand. Therefore, the relative lows in U.S. beef cow numbers are considered the end of each cattle cycle for the purposes of this research.

Related:What’s the Cattle Inventory Report mean for markets in coming years?

Ready to go—but have patience

The beef supply chain is already working to ramp up for the next herd expansion.

The 2022 annual culling rate reached a record high near 13.4%. Expect the 2023 culling rate to be lower to 12%. According to Rabobank, data suggests a culling rate near 10% is needed to stabilize the U.S.A beef cow herd. That means that the best-case scenario is some level of stabilization arriving in 2024 and the timeline from previous herd expansions suggests it will take until 2025 or late to see meaningful rebuilding.

Beyond that producers need to look at the beef heifer replacement population. Potential replacement numbers are near a two-decade low and it will take time for cow-calf producers to retain and develop breeding heifers for the next cycle.  

Heifers accounted for more than 39% of fed cattle slaughter in 2022.—the highest percentage since 2003. The trend appears to be turning on heifer sales, but the cow-calf segment is not prepared to add breeding inventory just yet.

While the industry has realized four consecutive record highs in production from 2019-2022, the beef cow herd has been in decline since 2019, and more heifers are leaving farms and ranches. Supply disruptions started with the pandemic and continued with recent extreme drought conditions—making the downstream supply influence of the current herd liquidation. That will change abruptly in 2023 and the beef supply declines will continue for years.


Corn could be an issue

U.S. cattle producers and beef processors will also face more competition for protein consumers and feed resources over the next several years. This could flatten the curve on any upward moves in beef and cattle prices, stifling industry optimism and slowing the start of the next herd expansion.

All else being equal, tighter beef supplies lead to higher consumer prices, but that market fundamental will be challenged by a larger available supply of competing animal proteins as the next cattle cycle begins. Without a significant pullback in total protein supplies, expect cattle and beef price rallies to consume under more pressure in the next cattle cycle.

Increased competition for feed grains and oilseeds is changing the cost structure for livestock and poultry operators as the beef industry transitions into the next cattle cycle. Feed grain and forage prices have adjusted to all-time highs over the last two years with drought, global conflict, logistic disruptions, energy price increases, renewable energy market growth, higher farm input costs and a lack of feed alternatives all playing a role. These factors will remain market considerations for the next several years, but none may have a more long-lasting effect than the development of renewable diesel.


Planning for tomorrow

The book has not closed on the recent cattle cycle just yet. The US cow-calf producers is still locked into a herd liquidation mindset today. Even if cow slaughter slows and heifer retention improves, it could be two more years until the breeding herd stabilizes and producers start thinking of expansion. Until that changes, the entire United States beef sector needs to prepare for a relatively fluid supply situation that will take years to work through the system.

Procurement strategies and market expectations will need fine-tuning throughout the sector as one phase of the cattle cycle transitions to the next. Beef supplies are going to fall by more than 10% over the next four years. The competition for those remaining pounds will increase among restaurants and retailers and export volumes will tighten as domestic consumers fight to keep beef supplies closer to home. Yet the market remains uncertain how willing consumers will be to pay more for beef if cheaper pork and poultry items exist and increasing beef imports will certainly paly a role in alleviating supply shortfalls.

Cattle feeders need to continue to operate with intense discipline on production and risk management, but cash positions will be stressed where cattle supplies tighten, and corn prices remain historically high. It will take until the second half of this decade for cattle supplies to rise significantly higher and that means the utilization of exiting bunk capacity will for the next several years.

Despite everything, Rabobank is confident cattle numbers can recover in the next cattle cycle and even challenge the recent beef cow inventory highs near 32 million head, but the supply chain should proceed with caution as it looks to the future. It is going to take time and cooperation to turn recent trends and improve the outlook.

About the Author(s)

Subscribe to Our Newsletters
BEEF Magazine is the source for beef production, management and market news.

You May Also Like