Editor’s Note: This article is part of the Drovers 2024 State of the Beef Industry report, which includes an exclusive survey of cattle producers and their thoughts on numerous topics of importance to the future of their operations. To download the full report, click here.
By Lance Zimmerman, senior vice president, senior animal protein analyst for RaboResearch Food & Agribusiness
Past cattle cycles provide an outline for the tendencies that typically shape inventory and production over years and decades. While U.S. beef cow inventories stabilize in 2024, the industry could experience a longer transition period as unprecedented risk mutes profit signals that normally kick-start herd rebuilding efforts.
USDA reported a Jan. 1 beef cow inventory of 28.2 million head, and Rabobank is forecasting a relatively stable cow herd over the next three years between 27.9 and 28.3 million. Cow-calf producers remain relatively quiet about the prospects of restocking pastures. That stands in contrast to the continuous dialogue regarding the production and price risks casting doubts on the segment.
The last herd rebuild started in 2014, but remember the short-term milestones that preceded it. The percentage of heifers in the fed cattle slaughter mix peaked in 2010, the beef cow cull rate spiked in 2011 and beef replacement heifer inventories didn’t post a year-over-year increase until Jan. 1, 2012.
More recently the heifer slaughter mix peaked in 2023, and the cull rate reached multiple-decade highs in 2022. Now, the focus is on heifer retention, and that remains a sticking point for this rebuild.
Macroeconomics outline declining supplies and steady demand, or increasing demand and steady supplies, lead to higher prices.
Supply Versus Demand
For nearly three decades, the U.S. beef industry has been in a declining supply and increasing demand market. Absolute prices and volatility have increased significantly over that time, but per-head profit margins have not followed the same uptrend.
Commodity producers largely operate on thin margins, and competition within and across the beef and cattle producing segments has kept margins low, while volatility in returns has increased. That is why U.S. producers are expressing more caution during this rebuild.
The beef consumer’s role in supporting each U.S. cowherd rebuild has been discussed many times. Tighter supplies motivate higher meat case and menu prices, allowing producers to receive a higher percentage of beef spending. The July average USDA all-fresh beef retail price pushed to new highs at $8.15 per pound. Even with relatively steady beef demand, Rabobank expects annual average retail beef prices to approach $9.50 per pound around 2027.
That means 500-lb. steer calf prices could advance to annual averages near $400 per cwt as early as 2026, and replacement female prices follow the calf market. It is possible $4,000 bred heifers are in the producer’s future. CattleFax estimates current prices around $2,800 per head. That is creating pause for a segment dominated by part-time operators facing production risks and less of an appetite to take on more.
El Niño didn’t offer the weather benefits needed to recover pastures in major cow-calf producing regions in 2023 and early 2024, and a return to La Niña in late 2024 will cast doubt on forage availability.
A decade ago, interest rates were 3% to 4%. Today, those loans have an 8% to 9% rate. Aging producers are looking to transition out of the business, but younger producers are struggling to fill the void.
These pressures will likely amplify the rate of consolidation within the cow-calf segment and silence opportunities for smaller operations to expand profitably going forward.
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