With high cattle markets, determining whether to raise or purchase replacements is an important decision for many operations. Derrell S. Peel, Ph.D., professor of agribusiness and Extension livestock marketing specialist at Oklahoma State University, offers insights into current market dynamics and strategies for producers to consider.
“We’re smaller than we need to be, from a market and economic standpoint and we’re certainly smaller than we intended to be because the drought has forced us into liquidation,” said Peel.
Cattle inventories for 2024 are at their lowest in decades. According to Peel, the total number of cattle and calves in the U.S. is 87.16 million, with a beef cow inventory of 28.22 million and replacement heifers at 4.68 million. The estimated 2024 calf crop of 33.1 million is the smallest since 1941.
“The overall economics would support more beef production,” he explained. “Domestic beef demand remains strong and international markets are performing well. Prices are near record levels, signaling the need for increased production.”
Despite high prices, Peel warned of ongoing market volatility, with domestic and international markets subject to economic and political factors. Producers are encouraged to utilize risk management tools such as futures options or Livestock Risk Protection to safeguard against short-term setbacks.
How we got here
Cattle markets are inherently cyclical but the current cycle has been prolonged by drought conditions. Many producers were forced to reduce herd sizes to balance feed resources, limiting heifer retention.
“In most cases, producers are not in a position to retain extra heifers to regrow their herd,” Peel said.
High prices encourage heifer retention and increased production but they carry the risk of lower prices in the long term. In the short term, however, Peel emphasizes that the market is signaling a need for greater supply.
Calf prices, feeder cattle and fed cattle prices are interconnected but the greatest increases have been at the cow-calf level. Peel explained, “The market is focused on the cow-calf level because it is the primary source of supply for the industry.”
Although supply tightness has buoyed prices, Peel emphasized the importance of protecting marketing windows. He points to the old marketing adage—high prices cure high prices. While there seems to be increasing prices as far as the eye can see, lower prices may be on the horizon.
“The cattle markets are sensitive to stock market changes. Also, because of our role in international trade, our markets are pretty sensitive to global economics and exchange rates, in addition to a whole host of factors that can add volatility,” he said.
Implementing risk management strategies is essential for navigating market volatility, as corrections can happen rapidly. Last fall, feeder cattle prices dropped sharply for two months before rebounding. Peel cautions that without protecting the marketing window, producers risk unfavorable outcomes when forced to make decisions during such downturns.
Acknowledging those windows differ for everyone, Peel explained, “Cow-calf producers may sell weaning calves in the fall. Backgrounders, at a different time and weight. Regardless, producers need to look at those marketing windows.”
The producer’s perspective
John Price, a commercial producer and the 2024 Commercial Producer of the Year for the Red Angus Association of America, operates a ranch in eastern Colorado with 700 Red Angus commercial pairs. Price raises 130 to 175 heifers annually to develop his own replacements, ensuring control over herd genetics.
“We never buy replacements,” Price said. “We always felt that if we wanted to have top-level genetics, we needed to be in control of them from the beginning.” He also expressed concerns about the lack of genetic information available when purchasing replacements.
Availability is also a concern. Finding and purchasing 150 replacements annually that fit a specific program can be challenging but by raising replacements, Price believes producers can ensure their genetics meet their goals.
He also acknowledged the cost associated with raising replacements, which can strain cashflow in the short term. However, he views it as an investment.
When selecting replacements, Price looks at the entire picture, while also realizing the need to have cows that will raise calves to perform well in a feedlot with good carcass traits, as well as keeping an eye on the maternal side.
“For about 15 years we’ve been DNA testing all of our heifer calves. Most of our selection process is based on the DNA scores in addition to evaluating their phenotype. The genomic results allow us to see the genetic potential in each of the calves,” he said.
Instead of cashing in on the entire calf crop, raising replacements is a sacrifice of cashflow for some producers. “Like justifying an AI program or buying better bulls, it’s an investment in those future calves,” he said. “Hopefully investing in genetics, will lead to a better reputation with buyers and increase cashflow later on.”
So, what’s the bottom line?
Producers must weigh several factors when deciding whether to raise or purchase replacements. Considerations include logistical capacity to raise calves, feed availability and labor resources. Access to high-quality heifers that will adapt to specific environmental conditions is also critical.
For Price, genetics are paramount and he believes in careful evaluation. “Spend some time carefully selecting good bulls. Even with a mediocre cow from the sale barn, in a couple generations, there could be a pretty good cow,” he said.
Cashflow is another key consideration. Raising replacements requires upfront investment with delayed returns, as it may take several years before seeing positive cashflow.
Peel emphasized the importance of analyzing long-term costs and benefits, explaining producers need to think through time delays and when their investment might pay off. “I’m pretty sure this industry is going to regrow, so somebody, somewhere is going to lead that effort.”
Market outlook for 2025
Knowing what’s ahead for 2025 will help producers make better decisions. According to Peel, low inventories and tight supplies will continue to dominate cattle and beef markets in the coming year. Total cattle inventories are expected to be smaller going into 2025.
Despite reduced beef cow slaughter in 2024, limited inventories of beef replacement heifers are expected to result in a smaller beef cow herd in 2025. The potential for any herd rebuilding in 2025 is limited, as the supply of replacement heifers going into the year remains tight. Beef production is expected to decrease roughly 4% year over year, with feedlot inventories falling to reflect tighter supplies of feeder cattle.
According to Peel, drought is still a threat and could extend into 2025. This and other reasons are holding producers back from any noticeable attempts to begin herd rebuilding.
He noted that cattle prices are expected to increase to new record levels but producers have not yet responded with increased heifer retention. If producers begin retaining heifers for breeding in 2025, cattle prices will advance faster and further. — Melissa Hart for the Red Angus Magazine
