The U.S. cow herd is in its fourth consecutive year of smaller beef cow numbers. At the time of this writing, the Livestock Marketing Information Center (LMIC) predicted additional declines for Jan. 1, 2024, in the range of 2-3%, and 2024—at least at this point—seems unlikely to be the turning point in the cattle cycle. Heifers on feed has been one of the key indicators, with large volumes continuing to make their way into the feedlot, cannibalizing the U.S.’ ability to grow the beef cow herd quickly.
Replacement auctions indicate there is some interest in adding breeding animals. A look around the Great Plains states indicate auction prices are up between 20-50% from last year but not all of them see great volumes. For the most part, they are still below 2014 values and likely have more upward price momentum to come.
Drought recovery
The variability in drought recovery has been one of more difficult factors to discern from a national beef cow perspective because some areas of the country have rebounded very well and are expecting some modest expansion as a result. Those areas, though, are limited to the high-precipitation areas in the northern Rocky Mountain states, which usually do not translate into large national growth in numbers.
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The Drought Monitor and other key metrics indicate the southern Plains, Kansas, Missouri and eastern parts of the Dakotas and Nebraska were still under a great deal of drought stress for most of 2023. Some of those areas saw relief in the fourth quarter of 2023, while the Southeast has moved in the other direction and saw areas under D3 and D4 conditions expand. That is not to say these areas saw no improvements from 2022, but that aggregating those improvements is difficult due to the variability.
Cattle prices
The smaller cow herd means that calf and feeder cattle prices will post annualized gains for the next two years. This underlying fundamental will likely push feeder cattle to fresh record highs this year and potentially the following year. However, some intra-year variability is possible as seen in 2023. The stickiness seen in feeder cattle and calf pricing for most of the year was surprising, and it was not until fall that any significant downturn occurred. Seasonality usually plays a large role in the feeder cattle market but is expected to do so less as 2024 will be characterized by very tight cattle supplies.
LMIC has calf prices rising 10-15% in 2024, which will likely result in new record-high cow-calf returns. The following year, calf prices are expected to gain an additional 5-7%. Strong increases would put calf prices in the southern Plains over the $300/cwt range; as a result, LMIC estimates increase cow-calf returns will increase well above $600 per head in 2025. It is on the back of this type of profitability that rapid expansion could take place.
While cow-calf returns are expected to be excellent next year, the fall-dominated weaning schedule means profits may not be realized until 2025 for cow-calf producers. If rapid expansion does take place, calf prices may fall rather precipitously in 2026 and/or 2027.
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Cattle feeders do not have as straight a path moving forward. High feeder cattle prices over the summer of 2023 will result in negative returns in the first half of 2024. However, there were some price adjustments that were actively happening at the time of this writing, including a break in the fall market where 700-800-pound animals fell more than calf prices in many of the major auction markets. This decrease will allow for breakevens to adjust at least $20/cwt if those prices stick around and provide the opportunity to hedge profitable closeouts in the middle of 2024.
LMIC does expect the cattle feeding returns outlook to improve by late 2024 as the lapse in fed cattle prices is expected to be short-lived. Placements on feed in September and October of 2023 were larger than expected but not burdensome, and once the market regains focus on the tight supplies ahead, LMIC expects bullish price tendencies to resume.
Cattle feeding projections
The feed cost picture for cattle feeding has already moved lower and is baked into those closeout projections. LMIC is expecting 700-800-lb. feeder cattle to fetch 15-20% higher prices in 2024, while fed cattle are expected to gain 10-15%, and each sector gaining 5-7% in 2025.
Timing is much more important in cattle feeding and being able to arbitrage seasonality and cost of gain with fed cattle signals is not an easy task. Still, LMIC—even with some negative returns in the 2024 forecast—expects cattle feeding to have a positive year in 2024 but will not reach the excellent profits seen in 2023. For 2025, achieving annualized positive returns by cattle feeders might be more difficult and may be another year of mixed returns from one season to the next.
Beef demand
It should be noted that beef demand, even after attaining more record-setting retail beef prices, has not seen any meaningful large pullback from the consumer. This is the biggest risk to forecasts at the moment because LMIC’s sense is that the consumer is financially weakening, but so far the preference for U.S. beef has dodged significant slips in sales.
At the time of this writing, boxed beef saw its (likely) seasonal peak and was flirting with $295-300/cwt, a respectable price by historical standards but no longer fanning the flame for ever-higher fed prices as was seen earlier in 2023. Although LMIC believes the supply side will be the larger driver over the next two years, the intra-year highs and lows may ultimately be determined by the demand side either adding to upward momentum or slowing things down if consumers do pull away from beef due to higher prices.
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LMIC expects beef demand to remain relatively strong, but that demand may not be strong enough to pull prices upward as much as it did in 2023. The macroeconomic outlook is murky with unknowns related to interest rates and inflation. Another key difference is that the export market pulled back significantly in 2023 and is expected to continue to do so in 2024 due to higher prices.
This decline is not expected to collapse the market given the tight supplies but may seasonally offer smaller adjustments to prices. Imports, on the other hand, will climb to take advantage of higher U.S. prices and provide a relief valve to some extent as cow slaughter slows and the U.S. becomes short on lean beef supplies.
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Overall, 2024 is expected to be an excellent year for the cow-calf sector, a middling year for cattle feeders and another low-margin year for packers. As with most cattle cycles, these sectors function in tandem and change as to how profits are behaving in each. Those changes to profitability impact decisions and are ultimately what drives the 10-year cycle as each part of the supply chain reacts as efficiently as possible to the market signals given.
