Cattlemen need incentives to rebuild cowherd

SPRINGFIELD, Ill. — Beef production hit an all-time record in 2022.

“The increase in beef production in 2021 and 2022 was at the expense of our herd that is our future production and you can’t keep doing that indefinitely,” said Derrell Peel, Charles Breedlove Professorship of Agribusiness and Extension livestock marketing specialist at Oklahoma State University.

“It is beginning to change, and so far this year, beef production is down about 5.2% year over year and it will probably end up 5.5% to 5.7% down. It will go down at least two to three more years,” said Peel during a presentation at the Illinois KQB Cow-Calf Forum, presented by Kent and the Illinois Beef Association.

“In 2014, we were at the bottom in terms of cattle numbers,” he said “We had a drought from 2011 to 2013 and that forced liquidation that pushed the cowherd lower than it needed to be from a market perspective.”

The situation is much the same in 2023.

“We’ve been in liquidation since 2019 because of drought, but it’s been a different kind of drought,” Peel said. “It has been more widespread and moved around the country.”

Although the drought hasn’t been as severe, the university professor said, it has impacted a lot more people throughout the United States this time.

The U.S. calf crop peaked in 2018.

“We’ve been getting smaller calf crops for five years and the estimated 2023 calf crop is 2.5 million head smaller than it was in 2018,” Peel said. “There are not more feeder cattle and there hasn’t been for a long time because drought has forced us to pull cattle ahead.”

In 2014, when herd rebuilding started, the feedlot inventory low was at 10.4 million head.

“Now the cowherd is a few thousand head smaller compared to 2014 and the calf crop is about the same, so the 2014 low is probably a pretty good target for where the feedlot inventories are going to go sometime in the next six to 15 months,” Peel said.

The feedlot inventory stayed low for about three years after 2015 before it went up much.

“The reason is obvious — heifer retention,” Peel said. “The biggest reason we’ve been able to hold feedlot inventories as high as we have is because we continue to feed heifers.”

Heifers on feed as a percent of total feedlot inventory have been high since 2019 and are still moving higher.

“It was at 40% in October and the last time it was that high was in October 2001,” Peel said.

“We’ve continued to place heifers even though beef production is coming down,” he said. “It will come down more because at some point in time we’re going to have to stop eating heifers if we want the cowherd to get bigger.”

In 2015 and 2016, the heifer on feed percentage decreased to 32%.

“We’ve got to drop a long ways to get back into something that will indicate herd expansion,” the university professor said.

Peel has been nervous about beef demand.

“It keeps surprising me how strong and robust it has been and continues to be,” he said. “Boxed beef prices are running 18% above a year ago and retail beef prices have continued to increase and hit an all-time record high in September.”

There was a record amount of U.S. beef exports in 2022.

“We knew that wasn’t going to continue with supplies,” Peel said. “We began to see it come down by the end of 2022 and now we are off 13% to 14% on total exports.”

The largest markets for U.S. beef exports are Japan, South Korea and China/Hong Kong.

“They are all off significantly year to date,” Peel said. “With less beef in the U.S., higher beef prices and a stronger dollar, these things add up to head winds for beef exports.”

Beef demand is a complicated subject because beef is not one thing — there are thousands of different products.

“The beef industry is unique compared to a lot of industries because we produce one animal and take it apart,” Peel said. “Every beef product is a separate market and demand.”

The beef cowherd coming into 2023 was a few thousand head smaller than in 2014.

“That makes it the smallest U.S. beef cowherd since 1962 and we’ve gotten smaller this year,” Peel said. “The Jan. 1, 2024, beef cowherd is going to be smaller.”

From 2015 to 2017, heifer retention shot up to record levels.

“In 2015 and 2016 beef cow culling as a percent of the cowherd dropped to record lows and that’s the dynamics of herd rebuilding,” Peel said. “We’re going to pull a bunch of heifers out of the feeder supply, retain them for breeding and cut cow culling to the bone, but we haven’t started that process.”

Peel expects beef production to drop for the next two years.

“Two things have to be in place — the physical conditions for herd expansion with incentives to do it and producers must respond to those incentives,” he said. “Right now I’m not sure if we have any of those conditions in place and I don’t think producers see enough incentive in the current market to make that investment.”

Five years prior to 2014, which was the beginning of the herd rebuilding, heifer slaughter decreased over 1.5 million head and beef cow slaughter decreased over 1 million head.

“The five years ending in 2022, heifer slaughter went up over 1 million head and beef cow slaughter went up nearly 1 million head, so we can’t rebuild right now if we wanted to because we don’t have the females to work with,” Peel said.

“We’ve got nearly high record cattle prices and they are going to go higher for at least two years,” he predicted. “There will be a peak in there somewhere, but we’ll stay in an elevated price environment for two to four years.”