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What will drive the next cow herd expansion?

Author: Kristy

Dr. Kenny Burdine and Dr. Greg Halich, University of Kentucky  |  Updated: 06/18/2014

With cattle inventory at levels not seen since the early 1960’s and a massive corn crop in the bin from 2013, it seems appropriate to evaluate the future of US cattle numbers. Numerous factors have affected cattle numbers over the last several years and undoubtedly those, and many more, will determine when we start to see expansion of the US cow-herd. The chart to the left depicts USDA-NASS January 1 beef cow numbers from 1920 to 2014. While there has been obvious variation in inventory from year-to-year, a clear upward trend can be seen from the 1930’s to the mid-1970’s, followed by a sharp and then more gradual reversal that has continued until today.

When thinking about cow herd expansion, it important to note that no single factor drives an individual producer’s decision to expand or reduce the size of their cow herd. Producers respond to a wide array of market signals and operate within a wide range of constraints. The purpose of this article is to discuss some key factors that will likely impact producer decisions to expand their herds over the next few years.

Expansion Occurs at the Cow-Calf Level: This should be obvious, but it is sometimes easy to forget that the beef cattle sector remains one of the most segmented in all of agriculture. While there are examples of vertical integration in the beef sector, it is still primarily comprised of a large number of independent operations and this is especially true at the cow-calf level. While feedlot profitability and retail beef prices are certainly important to the overall beef system, expansion can only occur at the cow-calf level. These factors only impact cow numbers when signals are sent back through the segmented beef system and cow-calf operators choose to hold heifers. Collectively, it is the cow-calf industry that determines the number of cows in production and the number of calves that hit the market each year.

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Producers Respond to Profits, Not Prices: Often it is assumed that producers expand when prices reach a certain level, but this is an oversimplification. Prices don’t tell us any more about profitability than one’s income does about their financial status. Costs matter just as much. While it is true that calf and feeder cattle prices are at historically high levels, it is also true that production costs have also risen dramatically. In order for the market to send an expansionary signal to producers, it is not enough that prices rise. Prices must rise by enough to translate to increased profits at the cow-calf production level.

 

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