A Few Thoughts by John Nalivka: Pace of beef herd expansion – the perception and the reality
July 19, 2017
I will start this article with a "not so profound" statement – forage and prices are the primary drivers to the cattle cycle. Pretty basic but the economics surrounding that premise are not always so simple. Economics concerns behavior. In essence, how cattlemen react to markets and forage supplies leads to herd expansion or liquidation and that is the cattle cycle.
We know that the buildup of the nation's cattle herd over the last three years was pretty rapid and that made sense given that prices rose to a record level following drought-forced herd liquidation. Cow-calf profits in 2014 and 2015 were record as the result of those record prices. Couple those record profits, expectations for continued strong markets, and good forage conditions and the result was rapid herd building.
In 2017, beef cow slaughter has remained high all year and on a year-to-date basis, has been 10 percent above the prior year for most of the first half. At the same time, the other component to herd building, heifer slaughter, is also running 10 percent above a year ago. Conclusion? Herd building has slowed significantly. Before running with that conclusion and potentially wrong information, let's go one step further and look at those cow and heifer figures in relation to the cow herd and the number of heifers in the inventory.
Beef cow slaughter during the first-half represented 4.3 percent of this year's reported U.S. beef cow inventory. This compares to 4.2 percent for that same period during the three years (2014-2016) when the pace of herd building was full steam ahead. So, from that perspective, certainly a different conclusion than the 10 percent increase in beef cow slaughter would suggest. The same math for beef cow slaughter during 2007-2013 when beef cow slaughter was much higher indicates we slaughtered 5.3 percent of the beef cow inventory on average. That 1 percent difference is significant.
If we look at heifer slaughter in relation to the U.S. heifer inventory, in first-half 2017, 20.3 percent of the total heifer inventory was harvested and this compares to 20.2 percent for the 2014-2016 average during that same period. From that perspective, this year's first-half slaughter does not seem nearly as large, particularly, when a year ago the number of replacement heifers calving and entering the cow herd was the largest since 1993. For the 2007-2013 period, the industry slaughtered 25 percent of the heifer inventory on average.
When looking at year-over-year percentage changes in the data, you may draw a conclusion. However, as this discussion illustrates, going the next step can often lead to a much different conclusion. Obviously, the pace of herd expansion affects the production and price outlook.