A few thoughts by John Nalivka: A look at the beef herd building | TSLN.com

A few thoughts by John Nalivka: A look at the beef herd building

As I write this article, the skies of southeastern Oregon and southwestern Idaho are filled with smoke from rangeland fires. The most recent, started by a lightning strike in southeastern Oregon early this week, now extends over 200,000 acres into southwest Idaho. Our thoughts are with the many ranchers, rural homeowners, and wildland firefighters who are directly involved.

There is a great deal of discussion about growth of the cattle herd. Are we in the beginning of significantly building cattle numbers or will herd building be less ambitious than the current data might suggest? This is an important question as we analyze future supply and the direction of markets. A 17 percent decline in beef cow slaughter so far this year coupled with 11 percent year-to-date drop in heifer slaughter certainly supports a conclusion of rapid herd building.

In simple terms, beef industry has two fundamental requirements – grass and water – where the grass is located drives where the cattle are located. This defines the structure of the industry and significantly impacts changes in the size of the U.S. cattle herd. Consequently, 59 percent of the U.S. cattle herd is located in the center third of the country. There is no question that current forage conditions are excellent in the states with the largest share of the cattle. These forage conditions coupled with record high operating profits for cow-calf producers, provide a major incentive for sharply increased beef herd numbers.

However, producer demographics together with current cattle prices could still be a factor influencing how quickly beef herds are expanded. The average size of beef cowherds in the U.S. is about 40 head. A large share of these cow herds are part of a farming operation or the owner raises cattle part-time and he, his wife, or both have a fulltime job other than farming or raising cattle. During the 2008-2009 recession, many of these operations may have liquidated herds in order to generate cash flow. While this is a likely situation, it is difficult to determine the extent of herd liquidation in this scenario. But, it would seem unlikely that many of these producers bought cows and got back in between 2009 and 2014. The difference in prices between selling cows in 2008 and buying cows over the past two years is significant – nearly triple against current values. That may require more than just sheer optimism! That’s not to mention the 2012 drought.

Certainly, there are other factors that will affect herd building this year and down the road including drought, rangeland fires in the West, environmental laws, increasing regulations, and last but not least, the impact of consumer demand and ultimately prices across the supply chain.

But, from my perspective and analysis, the current data does suggest a nearly 2.5 percent increase in total cattle numbers at the beginning of 2016. This includes my forecast of a 3.6 percent increase in the beef cow inventory this year – the largest yearly increase since 1994 and much of that growth is from retained heifers.