black cown in pasture
SLOW DOWN: The USDA Cattle Report shows an increase in cow numbers from last year. However, University of Missouri beef economist Scott Brown says now is the time producers should be slowing down their cow herd expansion. He says that the meat market is not calling for more protein to line counters.

USDA Cattle Report shows more cows, calves

Report shows the increase in beef cow numbers creates a surplus at meat markets.

Momentum is a difficult thing to slow down, and beef cow herd expansion in the U.S. has momentum right now. With the recent USDA Cattle report showing 1 million more beef cows at the start of 2017 than the year before, the beef cow herd has now grown for three consecutive years, with the last two years adding a combined 1.9 million head, or 6.5%, to inventory.

The expansion has hit high gear as industry returns have been sharply compromised. The steep declines in fed and feeder cattle and boxed beef prices during 2016 amounted to the largest percentage declines in more than a generation. Pork and chicken output continues to grow, placing significant amounts of protein into the domestic marketplace. It is not the time for more beef as well.

When will expansion stop?
We will not get another good look at cattle inventory counts until January 2018, but there are some historical examples to heed. We have seen annual beef cow growth topping 1 million head 18 times since 1940. Only once did the following year show fewer cows than the year before. This was in 1976, and fed and feeder steer prices averaged below 40 cents per pound. It also required a 1975 beef cow slaughter number of nearly 5.8 million head, a jump of 2 million head from the prior year. Beef cow slaughter was less than half this amount in 2016.

Though it places the industry in a situation with a difficult financial outlook, it is not too surprising that beef cow numbers have grown as they have. Total returns to cow-calf production from 2013 to 2015 were roughly equal to all of the gains generated in the previous two positive returns cycles of 1986-1994 and 1999-2007 combined. All of that equity rightly led to expansion plans, and it was clear that the marketplace was demanding more beef during the tight supply years of 2014-15. Also, pasture and range conditions have remained positive for more cows in much of the country.

But the marketplace is no longer calling for more beef, and it appears likely that the meat sector will be in a position of oversupply for the next few years. In the past, livestock and dairy producers responded to a poor economic situation with a cutback in supply, and economic theory still suggests this will happen again. However, it appears as though supplies may be becoming less responsive to poor financial situations. The growth of the hog breeding herd and rising dairy cow inventories despite output price declines are recent examples of this.

How to handle oversupply
What should you do? Realize that cattle prices are likely to stay under pressure for the foreseeable future. Holding out for the lucrative returns of the recent past will likely only produce frustration. Beef demand has been strong, but gambling that continued growth in demand will lead the industry back into profitability is a risky proposition — particularly with a strong U.S. dollar and uncertainty plaguing the export outlook.

Consider slowing or ceasing any ongoing expansion plans, or use this time as an opportunity to increase the efficiency of your herd by culling poorly performing animals.

Down cycles in cow-calf production are nothing new, and unfortunately, it appears as though we are primed to endure another down cycle in the next few years.

Brown is a livestock economist with the University of Missouri. He grew up on a diversified farm in northwest Missouri.

 

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