56 • URNER BARRY'S REPORTER / VOL. 18, NO. 4 / FALL 2023
The cattle cycle is a series
of peaks and troughs that
average between eight to 12
years in length. These cycles
are a function of a range of
factors such as the economy,
cattle prices, input costs and
weather cycles. All these
factors play a role in the
industry's decision making
from cow-calf producers to
feeders, all the way up to
the retail store. Each one of
these factors also plays a role
in margins at every level of
production. While the cattle
cycle is not a crystal ball
of the future, we can gain
valuable insights from where
the cycle is and where it may
be heading.
Cattle prices are one of the
largest drivers for decisionmaking at the cow-calf,
feeder, and meatpacker level
of the supply chain. When
cattle prices are depressed
and cow-calf producers are inking red, this usually sends a signal
to the market that the herd is approaching a peak. This will prompt
cow-calf producers to start reducing their herd size and retain less
heifers, in turn, lowering the available supply of market ready cattle
in the future. The opposite can also be said. When cattle prices are
high, this may incentivize producers to expand their herd.
Weather also has one of the larger impacts on decision-making as
cycles progress. More recently we have begun to come out of an
La Niña phase, which has created a significant drought situation in
cattle raising regions. Pasture is one of the most important aspects
of raising beef cattle, as this is "free food." Without grazable land,
producers will be forced to place cattle in feed lots earlier. Which
then lowers profitability for the cow-calf producer and potentially
even for the feeder as the cattle may have to stay on feed longer
to gain market ready weight, further eroding margins. All of this
further drives cattle prices higher at each level.
The latest cycle ended in 2015 when drought conditions pushed
producers to cull their herds for the previous 10 years. The current
cycle appeared to have peaked at around 94.8 million head back
in 2019 and our inventory has trended lower since. The latest
Semi-Annual Cattle Inventory report released by the USDA has
all cattle and calves in the United States at 95.9 million head as
of July 1, about 3% lower than the same time last year. CattleFax
6-State Fed Steer Price surpassed 2015's peak of $169.50/cwt,
making a new record of $187.50/cwt live.
While we have begun to see improvements in pasture across
the United States, we're not sure if there is enough incentive
for expansion just yet. Market sources indicate we are working
towards the bottom of the cycle, but it could still be a couple of
years away. This will have major implications for cattle prices,
beef prices and overall demand levels moving forward. If you are
looking to see when the trend may be breaking, keep an eye on
heifer slaughter levels in the future.
Article contributed by Todd Unger
tunger@urnerbarry.com
CATTLE CYCLE:
How does it work, what should I know?
This is one long rollercoaster ride…
INCREASED PROFITABILITY on fed cattle gives incentive
for producers to increase cow population.
BEEF PRODUCTION DECLINES due to
less calves available and less
animals to go to feedlots.
As a result beef prices
increase.
LOWER CALF PRICES provide
incentive to reduce the size
of cow herds. Cow slaughter and lean
boneless beef become more plentiful.
CALF POPULATION INCREASES
along with feedlot
animals as cow/calf
operators have
financial incentive
to produce
animals.
BEEF PRODUCTION
RISES and as
a result prices
start to decline.
Calf population
increases and calf
prices decline.
COW POPULATION DECLINES
and results in a decline in calf
numbers. Calf prices start to increase.
CATTLEMEN
RETAIN
FEMALES
for breeding
purposes
after seeing
higher calf
prices. This
supports cow
market prices
and lean boneless
beef prices.
Graphic excerpt from The Beef Book: Fundamentals of the beef
trade from ranch to table, available at shop.urnerbarry.com
CATTLE
CYCLE