In the ever-evolving landscape of the cattle industry, the mid-year cattle inventory report sheds light on the current status of cattle numbers and the dynamics that influence herd rebuilding. According to the report by Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist, the trend of diminishing cattle numbers continues, and there's a distinct absence of significant indicators for herd rebuilding thus far.
Despite witnessing substantially higher cattle prices this year, there is a lack of data supporting heifer retention or a substantial reduction in beef cow slaughter – both essential components for initiating herd expansion. However, recent weekly slaughter data are showing positive signs. The pace of this process, compared to the herd expansion following the drought of 2011-2013 that led to cyclical lows in 2014, is notably slower. Let's delve into the reasons behind this deliberate pace.
Continuing Drought: Drought remains a significant issue in various cattle regions. While drought may not be directly driving extensive herd liquidation from a market-wide perspective, it is undoubtedly impeding herd expansion in drought-stricken areas.
Drought Recovery: Areas recently emerging from drought need time for pastures and ranges to recover from the damage and stress inflicted during 2-3 years of drought. Hay supplies are depleted and require replenishing. Uncertainty lingers regarding forage production, as regions are still susceptible to redeveloping drought.
Financial Recovery: Drought and elevated input costs have financially stressed many cattle operations. The immediate need to secure returns from higher cattle prices may be prompting ongoing heifer and cull cow sales.
Input Cost Uncertainty: 2022 witnessed high input prices, particularly record-high costs for hay and supplemental feed, which greatly impacted drought regions. Elevated fertilizer, chemical, and fuel costs, especially in introduced pasture regions, were also a significant challenge. While some input prices have moderated in 2023, ongoing uncertainty has led producers to cautiously respond to higher cattle prices.
Interest Rates: Sharply higher interest rates have altered the economic landscape, potentially moderating the pace of herd expansion compared to the period from 2014 to 2019. As breeding heifer and cow costs rise in the coming months, increased finance costs will significantly impact the decision-making process.
Producer Expectations: All these factors collectively shape the economic environment of the industry and contribute to producer expectations, which are pivotal for herd rebuilding. Until cow-calf producers anticipate sustained returns over a considerable period, herd expansion will be restrained. During this period, cattle supplies will continue to tighten. Market prices for calves and feeder cattle will rise, creating stronger incentives that will eventually bolster producer expectations and instigate herd expansion. This transformative process is anticipated to take flight earnestly throughout the remainder of 2023 and into 2024.
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