The latest Cattle on Feed report, released Sept. 19, immediately shifted some analysts’ thinking. For starters, the report was right on point with expectations at first. Cattle and calves on feed for slaughter totaled 1% below last year’s volume. No surprises there. Then, things shifted. Placements in feedlots fell sharply by 10%. Keep in mind, March showed 18% less placements with somewhat skewed data. Also, the last three months have been 6% down, 8% down and 8% down, respectively. Immediately, analysts touted the “heifer retention has started” chant. I do feel that everything needs to stay in check.
For starters, with the New World screwworm inching its way closer to the U.S. every single day, the southern border trade has nearly halted. As of this writing, the latest confirmed case was within 70 miles of the border. According to data quoted in an interview on Fox News with Agriculture Secretary Brooke Rollins, from January through July, the U.S. has imported 63% less head from Mexico. The latest Cattle on Feed report showed this data quite expressively with Texas being one of the most impacted states across all three measured categories: on feed, placements and marketings. This is just one factor.
On the herd expansion front, there are two major factors that we don’t truly have a grasp on that only time will tell. First, over the past several years—especially when the market was tougher and much of the nation was in severe drought from 2016-22, which caused the overwhelming herd reduction that led us to current national cow herd levels—we don’t truly know how many operations exited. Furthermore, now that the market has truly turned, total herd dispersals have continued. Ranchers looking at this market as an opportunity to disperse while the market is high has been an enticing factor for a lot of people.
As a nation, we simply don’t know how many operations have fully exited the marketplace. The secondary effect this has is what is happening to these operations’ resources? Clearly this is a case-by-case basis, but the question must be asked. Are the ranches being sold to other ranchers? Are they being sold to developers? Are the owners just selling cows and leasing the ranch out? I think we all know places that fall into each individual category. So begs the question: who will be operating on these acres? The two obvious answers are current larger operations or young producers trying to get in the business.
Currently, I think the answer is that big operations are going to get bigger. They have the established cash flow, have had multiple years of better markets and have established relationships with lending institutions. The younger producer has a set of limitations that could make it extremely difficult for someone to enter and grow in this marketplace. Agricultural lending institutions are dealing with depressed farming income, so lending to a young producer in the highest market ever with relatively high interest rates carries a substantial amount of risk.
Second, urban sprawl has continued regardless of higher interest rates, mortgage concerns and a slower economy in the same time span. Acreage for both farming and livestock production have continued to be chewed up outside city limits and eliminating productive agricultural ground. With interest rates expected to come down substantially over the next few years, this will continue to impact producing acres as real estate buying has tempered but could surge in more favorable lending conditions.
In Paul Dykstra’s latest CAB Insider newsletter, he quotes the carcass weights trend in our industry. According to his data, our industry has put on 46 pounds per carcass in the last two years. Additionally, the data shows at least a 68-lb. weight increase per carcass since 2019. This summer’s row crops and feedstuffs are going to help keep rations quite affordable, and cattle are going to continue to get bigger this year. This trend isn’t slowing down. With the southern border closed and the Trump administration trying to limit beef imports, the product will need to come from somewhere, and it most likely will be made up in this area.
While I do think that some producers are looking to retain heifers or build their cow herds back, I don’t think it’s a sweeping feeling. It’s too early to tell what producers are doing this year with their replaceable females. We don’t know the void the previous concerns have left. Lance Zimmerman of Rabobank’s Research arm (RaboResearch) in an article shared with industry partners said he expects herd expansion of 200,000 head in 2026 and an additional increase of 500,000 head the following year.
However, these numbers still do not reach the peak from 2019. I concur with this thought that market levels will eventually come down some but will do so with a smaller overall cow herd size. Factoring in heavier carcass weights, we should still see a favorable market condition for an extended period of time with an obvious correction coming at some point, but for now, growth needs to be steady with high quality females. This market is too good to breed a low-quality heifer. — LOGAN IPSEN
