USDA experts estimate that the value of the U.S. cattle and calf production increased $10 billion between 2002 and 2010 to $37 billion. But over the past few years, as beef prices have been on the rise, the U.S. cattle herd has been on the decline.
Even in the face of increased export numbers several factors have pressured numbers lower including reduced consumption and a long-term southwestern drought. The result has been the smallest U.S. cattle herd in 6 decades.
USDA’s recent report unveiled culling by cattle producers over the past year has shrunk the herd to nearly 91 million head -- the lowest inventory since 1952. This marks the fifth straight year of declining cattle numbers putting the “bottom in” on a downturn that started in the mid-90s.
Shane Ellis, Iowa State University Extension Livestock Economist: “1 in 6 cows at least last year, were in the state of Texas, a lot, a 13% reduction in numbers is a lot to pick up.”
Ellis, a livestock economist for Iowa State University Extension, says several factors are in play for cattle producers. The one item topping the list was the recent crippling drought in the nation’s two top beef producing states - Texas and Oklahoma. Weather pressure forced Longhorn and Sooner ranchers into their herds. And a sell off for some, creates an opening for others.
Shane Ellis, Extension Livestock Economist, The Iowa State University: “Definitely going to be an opportunity as the herd starts to increase. Really there’s going to be shortage of heifers as those southern states look to rebuild. Those that are producing replacement heifers will see a premium price being offered. We’re already seeing some fantastic prices for breeding animals, nearly double what they were a year ago, just because there haven’t been a lot of heifers retained, or in anticipation of using them as breeding animals. Along with that, the price of feeder cattle has also been up. That comes the trade of do we keep these heifers for breeding or sell them in a fantastic, feeder cattle market.”
And those increases are already taking place in Iowa, Nebraska and other states, where market factors have short-term impact.
Shane Ellis, ISU Extension: “We are facing increased pressure of cost of production, availability of land, interest of producers, youth and enthusiasm and capitol to build that herd, opportunity looking out to the future, do with someone coming into the industry for the long-haul.”
The calf inventory for 2011 also was the smallest since 1950 at an estimated 35.3 million head.
Shane Ellis: “The cow/calf sector is the engine behind the industry. We have to be able to do that to supply the quantity to keep that industry good and strong, in order to do that, of course, we need profitability in that cow/calf sector."
According to Ellis, the export market is providing new opportunities for producers, helping keep upward pressure on consumer prices. USDA’s most recent Food Price Index report showed meat prices grew 8.8 percent in 2011.
Shane Ellis, ISU Extension: “Is there too much price out there for the demand out there, So far, consumer demand has been fairly, I’d call it strong, in relation to the price they’re having to deal with. There is less beef being consumed, per capital, in the United States. We’re exporting more than we ever have in the past."
While some producers may be preparing to take advantage of openings in the market, Ellis says others are reluctant to extend themselves. His research indicates several cattle producers are waiting for more profitability before building up their herds.
Overall, Ellis believes the economy is the fly in the ointment in this discussion. He says while much of the world watches Europe, any ripple in the economy or double dip recession at home could see the floor fall out of the cattle market.
Shane Ellis, ISU Extension: “We should see consumers turn away once again from going out to eat, eating higher end meets, we could see prices for high quality finished animals drop in step with that drop in demand.”