A Few Thoughts by John Nalivka: The Game has Changed

With record high beef prices, the major topic continues to be when cattlemen will begin to hold heifers for replacements and build herds. Most industry analysts do believe that cattle numbers will continue to shrink and consequently, so will beef production. That is a foregone conclusion. Numbers could only increase over the next two years if heifers were retained from last year’s calf crop, bred this year to calve in 2026. That scenario did not happen.

This situation is only further amplified by the screwworm situation in Mexico and closure of the border to any livestock entering the U.S. Regarding that situation, I am more concerned with the potential longer term and more serious impact if the screwworm were to get into U.S. cattle herds than the immediate impact of not having 1 million Mexican feeder cattle available to U.S. feedlots. Any disease threat poses a major risk to all parts of the U.S. beef industry – ranchers, feedlots, packers – as well as all industries marketing beef.

So back to the outlook for the U.S. cattle herd. The decision to retain heifers for herd expansion is one that concerns both opportunity cost and risk. Opportunity cost is foregone income resulting from a decision. In 2025, the decision to retain a heifer this year to expand the herd presents an opportunity cost of $2,000 to $2,500 – the sale value of that heifer. Furthermore, that decision involves risk regarding the income that she may generate as opposed to her current sale value. She would be bred the following year and calved the year after that. That extends our time to realize any income from that decision to two years, but first, she must have a healthy, marketable calf. Second, what will it cost to run her for those two years until her calf is marketed and third, what will the market be for that calf? These are all important considerations to the initial decision to retain her as a replacement heifer, and they pose risk. Of course, those two years could be shortened by one year if she is sold as a bred heifer which in turn reduces the risk and potentially offsets the opportunity cost when the decision to retain her was made a year earlier. Her market value as a bred heifer could easily increase by $1,000 – $1,500. This is a gross value that does not take into consideration the cost of running that heifer for a year.

The game has changed and a cattlemen’s decision to retain a heifer goes far beyond the motivation driven by current cattle prices. It is a weighty decision involving not only the current market, but also the opportunity cost it presents as well as prices two years down the road. It is more than just the number of calves loaded on the truck today; it is increasingly about creating and capturing greater value with every calf loaded on that truck.

And finally, there is one additional factor to consider that never changes – there is no average rancher. Ranchers and farmers all have unique circumstances that play a role in their business decisions.