Strong cattle prices signaling need for herd expansion

DUBUQUE, Iowa — Cattle numbers are down in the United States and the cattle market is focused on providing incentives to cattlemen for herd rebuilding.

“A year ago, the cattle inventory was the lowest since 1951, the beef cow inventory was the lowest since 1961 and the U.S. calf crop for 2024 I think will be a little over 33 million head, which is the lowest total calf crop since 1941,” said Derrell Peel, Breedlove professor of agribusiness and Extension livestock marketing specialist at Oklahoma State University.

“The calf crop peaked in 2018 and the cow inventory peaked in January 2019,” said Peel during a presentation at the Driftless Region Beef Conference, hosted by the University of Illinois Extension, Iowa State University Extension and Outreach and University of Wisconsin-Madison Extension.

The calf crop has been declining for the last six years.

“Calf prices ended last year very strong, and feeder cattle is the same story, prices moved higher the last two years and we’re starting off remarkably strong so far this year,” the university professor said.

“Fed cattle passed the $2 per pound mark for the first time and all of these classes of cattle have set new record prices already in January,” Peel said.

“We had drought and the cattle numbers got pushed down lower than we intended to be,” he said.

For some parts of the country, mostly in the inter-mountain west, the drought started in 2020.

“In 2021, the Northern Plains were badly impacted, including the Dakotas, Montana and Wyoming,” Peel said. “In 2022, it moved further south to the Central and Southern Plains and that continued in 2023.”

Now, there are not huge areas of extreme drought, but there are some dry areas in the Northern Plains and Southwest.

“Part of the problem is there are still a lot of concerns and threats going forward for this year because we’re in La Niña-like conditions, which tend to set up challenges in the major cattle production areas,” Peel said. “We’ve been in drought and we’re not sure if we’re recovered enough to move beyond it.”

During the worst of the drought, cattlemen experienced high hay prices.

“The average hay prices were at record level in 2022 and now we’ve come down from that,” the livestock specialist said. “With the record corn crop of 2023 and another big crop last year, we’re operating in this $4.50 range for corn, which is providing a little relief.”

Feedlots have been able to maintain profitability over the last year and part of the reason is the market trend stayed ahead of the rising costs, Peel said.

“But there’s going to be lots of challenges going forward because there’s less cattle in the country,” he said. “Finding cattle to put into feedlots is going to get harder and harder and they’re going to be ridiculously expensive when you do find them.”

Feedlots have managed to hold monthly inventories unchanged year over year.

“That’s pretty impressive because there’s less cattle in the country,” Peel said.

“One of the biggest reasons is we have continued to feed heifers rather than use them for breeding,” he said.

In addition, the number of days on feed has been increasing.

“The last year or so, the average days on feed has accelerated significantly,” Peel said. “The average days on feed for steers was over 190 days for the last six or seven months.”

As a result of feeding cattle longer, carcass weights started going up at the end of 2023 and that continued through 2024.

“Instead of seeing the normal seasonal decline in the first half of the year for carcass weights, they went sideways,” Peel said.

“So, at the end of the year, steer carcasses averaged about 23 pounds heavier than a year ago and heifer carcasses were up about 20 pounds.”

Peel does not expect carcass weights to continue to increase as much in 2025 as they did last year.

“I wouldn’t be surprised if they are up a little bit, but I don’t think they will be up near as dramatically this year as last year,” he said.

Increasing carcass weights are a result of both a long-term trend and short-term market conditions.

“Five years ago for the first time, the average steer carcass weight was heavier than the average bull carcass weight,” Peel said.

“Steers have averaged about 4.5 pounds a year for the last 60-plus years for increasing carcass weights and heifers are a little bit over 5 pounds average long-term increase.”

The industry is now producing about 86% Choice and better cattle.

“That is a big increase from 25 years ago,” the university professor said. “And it’s a big part of the reason why beef demand has been really strong and continues to be strong even with high prices.”

Peel has been watching for problems with beef demand for the past three years.

“Beef demand remains extremely strong and I think a lot of that is due to the fact we’re putting out an increasingly better-quality product and consumers are willing to pay for it,” he said.

During 2022 and 2023, 51% of all the cattle slaughtered in the United States were female.

“That has not happened since the mid-1980s,” Peel said. “It did start to drop in 2024 to just a tick below the 50% mark and that’s all due to the reduced cow slaughter.”

For herd rebuilding, there needs to be heifer retention and cow culling levels at very low levels.

“Cow culling levels are coming down, but I don’t think we’re actually herd rebuilding yet,” Peel said.

“We’re not going to do much in 2025 because we don’t have enough heifers to work with to put together any kind of regrowth,” he said. “The best we can hope for in 2025 is to start saving some heifer calves so that we set the stage for limited growth in 2026.”

Ten years ago, which was the last time there was a herd expansion, cattlemen had the ability to expand much faster.

“We’re in a bigger hole with female numbers, so now we have to build up a supply of heifers before we can rebuild the herd,” Peel said.

Herd expansion tends to be driven by cow-calf returns.

“We’re going to have more time to enjoy some very strong returns, but there will be a backside someday,” Peel said. “We will eventually produce our way back to lower prices because that’s the nature of how markets work.”

Somewhere there will be a peak for cattle prices.

“I think it’s going to be more of a plateau of elevated prices for the next two to four years,” the livestock specialist said.

“During the last two cattle cycles, from the low to the peak, there was about a 9% increase in the cow herd,” Peel said. “If we see that, it would be between 30.5 and 31 million head, but we don’t even have a low yet.”

“I’m probably as bullish as I’ve ever been on cattle markets in my career,” he said. “But the higher the markets are the more vulnerable you are to short-term shocks.”

Peel advises all cattlemen to prepare for price shocks.

“You need to figure out what your marketing windows are and do what you need to protect those,” he said. “At the same time, take advantage of the fact we’ve got strong markets.”