Drought conditions pushing liquidation of cattle herd

DUBUQUE, Iowa — Liquidation of the U.S. cattle herd has accelerated the last couple of years due to drought conditions.

“Beef production bottoms a year or two after the last inventory low, so with cattle numbers peaking in 2019, beef production should have peaked in 2020 or 2021,” said Derrell Peel, professor of agribusiness at Oklahoma State University.

“But beef production continued to go up because of the liquidation,” said Peel during a presentation at the Driftless Region Beef Conference presented by University of Illinois Extension, Iowa State University Extension and Outreach and University of Wisconsin Extension.

“In 2022, beef production was at an all-time record for the U.S. and we’re eating inventory in a non-sustainable way,” he said. “That can’t go on, so going forward beef production is going to come down.”

The boxed beef cutout value in 2021 was a very strong price.

“There was a lot of penned up demand coming out of the pandemic, people hadn’t traveled, they had money to spend and restaurants had been closed,” Peel said.

“In 2022, we still had relatively strong prices, but it was a very different pattern,” he said. “I’ve never seen us go through a whole year with boxed beef prices that stable and we’re starting this year pretty close to where we were this time last year.”

There are a lot of dry and drought conditions in the United States, although conditions have improved a little in the last few weeks, particularly on the West Coast.

“But we still have a lot of very serious drought in Nebraska, Kansas, Oklahoma and parts of Texas,” Peel said.

The drought severity and coverage index for the United States ranges from zero to 500.

“The level of 150 or above is serious drought and we have been above 150 since October 2020 until three weeks ago when we dropped below,” Peel said. “That’s 118 consecutive weeks the index was above 150 and we’re still in drought although we’ve seen a little bit of improvement.”

A reduction in hay production is one of the impacts of the drought.

“The Dec. 1 hay stocks are at the lowest level going back to 1973,” Peel said. “Hay prices are at record levels and corn prices were higher last year than the year before and starting this year higher than last year.”

The high corn prices are not really a drought issue, Peel said, because the 2022 crop was close to 14 billion bushels.

“The high prices of feed have been driven by demand,” he said. “For the last couple of years, export demand has been strong and there’s a continued strong industrial use of corn and that’s not really changing.”

With corn ending stocks below 1.5 billion bushels, Peel said feed prices are going to stay strong through the rest of this crop year.

“This year’s crop could help a little,” he said.

Since the U.S. calf crop peaked in 2018, the peak in feedlot numbers should have occurred in 2020.

“The pandemic pushed a bunch of 2020 into 2021 and then the feeder cattle supply should have gotten tighter, but the drought had other things in mind,” Peel said.

“From February to June, the feedlot inventory was a record for that month going back to 1995,” he said. “In October, we started to see year-over-year declines. We placed calves early last year and part of the reason we maintained those inventories is you can place them early, but you can’t place them twice.”

Heifers on feed as a percent of cattle on feed were down for the first time since the middle of 2021 with a decrease of half of a percent.

“But cattle on feed inventory dropped by 3%, so the percentage of feedlot inventory that’s heifers went up at the highest level since 2021,” Peel said. “There are more heifers in feedlots than we’ve had as a percent of the total feedlot inventory since 2001.”

Carcass weights for all cattle have generally trended up for about 60 years.

“Four years ago, for the first time, steer carcass weights averaged more than bulls and it has gotten wider every year since then,” Peel said. “In 2022, the average steer carcass weight was 39 pounds heavier than the average bull carcass weight.”

Beef production was at a record level last year. However, Peel expects it to drop from 4.5% to 8% or 9% in 2023.

“Pork and broiler production will be stable because all meat industries have been effected by the high feed prices,” he said. “Total meat production in 2023 will be the first decrease in eight years, largely driven by the decrease in beef production.”

U.S. beef consumption on a per-capital basis will drop in 2023, 2024 and maybe beyond that, Peel said.

“We’re going to eat less beef because we’re going to produce less beef,” he said. “Retail beef prices were stable last year and given we had record beef production and high per capita consumption, stable prices is an indication of strong demand.”

Cattle slaughter in 2022 versus 2021 was up for the entire year for all cattle.

“The steers were down 2.1%, which should be happening given cattle numbers peaked two years ago,” Peel said. “Heifer slaughter was up 4.8% on top of the 4% increase the year before that and beef cow slaughter was up almost 11% on top of the 9% increase the previous year.”

By adding the cow and heifer slaughter in 2022, that totals 51.4% of all cattle slaughtered last year were female.

“That has not happened since 1986 and it has only happened eight times prior to last year during the 10 to 12 years following the all-time peak in cattle numbers during the ‘70s and early ‘80s,” Peel said. “We have really decimated the female cattle inventories in this country.”

U.S. cow numbers reached a low in 2014 and then numbers increased to 2019.

“Cattlemen have been liquidating since then and now we’re back down to the level we were in 2014 that was smaller than we needed to be then and it’s smaller than we need to be now — which means when we get the chance to rebuild, I think the incentives are going to be pretty strong to rebuild,” Peel said.

“We’re still in a drought and we can’t start the clock on the rebuilding story until we stop getting worse,” he said. “This spring will be critical — we will either have another year of liquidation or we could start in the rebuilding scenario.”

“My best guess is the bulk of the surge probably happens in 2024,” he predicted. “It could kick in by the end of the year. It depends on what happens to conditions in the next three to five months.”