Timing is everything in the cattle business, especially when it comes to when to buy or sell. Timing this year became more complicated because of drought. Cow-calf producers in various parts of the country, notably out West, struggled for most of the summer to keep their beef cow herds intact. But not a drop of rain forced many to cull at least some cows.
Had they been able to hang on until a couple of weeks ago, their decision might have changed. Much of the West Coast, from Washington to San Francisco and further south, was deluged with rain. My hometown of Petaluma, just north of San Francisco, got 7-plus inches in 24 hours the weekend before last. The hills turned from grey-brown to green almost the next day.
One late fall rain doesn’t of course mean there will be more grass next spring. But it is a reminder of how fickle the weather can be and how big a part it plays in the U.S. cattle cycle, which of course affects market and cattle prices. This is why analysts are looking closely at shrinking cattle numbers and are forecasting that prices for all classes of cattle will increase in the next two years.
Modest cyclical cattle herd liquidation in 2019 and 2020 brought cattle inventories down to 93.6 million head in January 2021, versus 93.8 million the previous year. Herd liquidation this year has been exaggerated by drought. It is not clear exactly how much and how fast the industry will liquidate going forward, but cattle cycles continue to be an important fundamental feature affecting cattle markets in the U.S.
The cattle cycle is perhaps the most iconic characteristic of the U.S. cattle industry, says Derrell Peel of Oklahoma State University. Cycles emerged as the ranching industry developed in the late 1800s. Cattle inventory data shows the number of cattle in the U.S. was 28.6 million head in 1867, just after the Civil War. Cattle numbers expanded continuously to 60 million head by 1890, the first cyclical peak, he says.
Cattle numbers then liquidated to 49.2 million head by 1896 before expanding again, says Peel. This was the first of the cattle cycles that have continued since then. Cattle cycles can be measured from peak to peak, or trough to trough. There have been a total of 12 cyclical peaks and 11 cyclical troughs since the first peak in 1890. Often described as a 10-year cycle, the time between peaks and between troughs has averaged 12.8 years.
Cycles have been a feature of the cattle industry regardless of whether the industry is trending larger or smaller, he says. Cattle inventories trended higher from 28.6 million head in 1867 to 132 million head in 1975, an increase of 361 percent over 108 years. Cattle inventories have trended generally lower since 1975. The 2021 inventory of 93.6 million head is down 29.1 percent from the peak in 1975 but is 226.8 percent higher than the 1867 level, he says.
Cattle cycles reflect a variety of drivers that affect the cow-calf sector, says Peel. Most important among these drivers are changes in calf prices that determine cow-calf sector revenues. But input price changes that also impact returns can also drive cattle cycles. Periodic droughts can provoke or prolong liquidation and have multiyear impacts on the cattle industry’s trajectory.
Cattle cycles continue to be a regular feature of the industry for several reasons, says Peel. It takes exaggerated price signals to encourage the cow-calf sector to change course, while the lengthy biology of cattle production makes changing course a slow process. Perhaps most important is the interaction between production and reproduction in the industry, he says. Since cattle have offspring one at a time, the process of expanding production when inventories are too low means that tight supplies are made even tighter to retain heifers for increased production. Too much supply is made even larger in the short-term as more cows are culled and fewer heifers are retained.
The latest expansion from 2014 to 2019 was the first significant cyclical expansion since 1990-1996, notes Peel. Inventories declined 15 of 18 years from 1996 to 2014. The most recent cycle began with an inventory low of 88.24 million head in 2014, with numbers increasing to 94.8 million head in 2019. But numbers declined by one million head the following year and might fall by the same amount this year.
Weekly cow slaughter so far this year is running just over 7,000 head larger than last year, and the increase is made up only by beef cows. So it is a given that the beef cow herd on January 1 next year will be smaller than in 2021. That means higher calf and yearling prices in 2022. — Steve Kay
(Steve Kay is editor/publisher ofCattle Buyers Weekly,an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively inWLJ.)
