A Few Thoughts by John Nalivka: The implications of USDA’s January 1 herd tally

With the release of USDA’s January 1 Cattle Inventory report, we now have an idea of our 2023 starting point regarding cattle numbers.  That 3 percent smaller inventory is an indication of how badly drought and poor or negative returns impacted cow-calf operations. I believe I had that issue pretty much put to rest by December as my projections for this year’s inventory, based on cow and heifer slaughter last year, were generally in line with the USDA report.

While the focus is near-term cattle numbers (2023), the other issue is how quickly producers will expand herds – if at all.  This is important to the entire beef supply chain.  Beef production is centered on cattle numbers and industry production economics are a function of those cattle numbers as much as they are beef production – cow-calf, feedlot, packer.  We know there were full time and / or part-time cattlemen who liquidated herds over the past two years and at the time, indicated they had no intention of getting back in the cow business.  In addition, how many cattlemen reduced their herd and will take a very cautionary approach to building numbers back. In other words, it may take more than two years of higher calf and feeder cattle prices to motivate herd expansion. While one must be a bit careful with the data, there are a couple of points worth noting that may provide an indication of producer intentions regarding herd numbers.

First, in reducing the inventory 3 percent from a year ago and it taking it to the lowest number of cattle since 2014, the industry slaughtered 37.3 percent of the January 1, 2022 inventory during 2022 and the highest since 1978.  Honing in on the heifers, the number of heifers weighing over 500 pounds, was down 4 percent from a year earlier and the lowest since 2014 and this not hardly surprising since heifer slaughter was up 5 percent over 2022 and the highest since 2004.  Furthermore, the number of heifers on feed on January 1 was down 6 percent from 2022 and the lowest since 2011.

So, given the data, I believe herd expansion will be a rather slow-go with many cow-calf operations taking a wait and see approach about expansion. The numbers on feed at the beginning of this year coupled with the sharply lower replacement rate would support that conclusion – at least at this point.  We will see how the size of the cow herd changes once spring calving season is over with the number of heifers that were actually bred and calved. Based on conditions in 2021 and 2022, I would be surprised to see that many heifers were retained and bred in 2022.  At this point, I still think the approach is cautious optimism with any increased heifer retention from this year’s calf crop coupled with sharply lower cow slaughter not leading to increased production until 2026.