Just over forty years ago, the amount of beef cattle in the U.S. was at an all-time high with nearly 45 million head of cattle across the country. Since 1976, domestic beef cattle numbers have decreased, hitting 29 million head of cattle in 2014. Glynn Tonsor, Kansas State professor of agricultural economics, said the domestic beef cattle herd is now around 31 million.
The beef industry consists of many segments: the cow/calf operator, who breeds cows and produces calves to enter the production cycle; the stocker or backgrounder, who sources weaned cattle not yet ready for the feedlot; the cattle feeder, who feeds cattle to the point where they are sent to the beef packer; and finally, to the beef retailer who then gets the product into the grocery store case, meat case or restaurant kitchen.
Causes
The year 2014 was one of the best profitability years for every segment of the beef industry for many reasons, according to Tonsor. One of the main reasons was because the U.S. had a small cow herd and sound beef demand. The smaller herds can be caused by droughts, which creates a smaller supply, and therefore combined with stronger beef demand, higher prices for all in the production chain.
“Four to five years before that, we had a lot of weather challenges throughout the country,” Tonsor said. “The southern plains were in a drought. In cattle production, if it doesn’t rain, you don’t have forage. If you don’t have forage, you can’t run as many cows and calves as you would otherwise. That was limiting the ability to grow the herd.”
Even before the drought, industry efficiencies were pushing the numbers to a smaller domestic herd.
“Animals coming out of the feedyard today will average 1,400 pounds,” Tonsor said. “It wasn’t too long ago that they would have been 1,200-1,250. Now, we get a lot more product, specifically beef, off every animal and off our system than we used to. So to hit a given total production target, we don’t need as many animals.”
Regardless of the weather, Tonsor said the industry has been working to be more efficient with feed technologies at feedlots, improving genetic selection and perfecting general management practices, all areas that eventually lead to a need for fewer cattle.
When cattle prices reached such a high in 2014, Tonsor said the economic force that drives long-term returns to zero came into play. In the cattle market when things are too good, people get interested and enter the market, squeezing profits out, Tonsor said. When things get really bad, people exit and it brings the profits back up, “but they’re always converging towards zero,” Tonsor said.
“During that high in 2014 that showed when we started holding back heifers, young females, and we have expanded the herd by I think two million cows in that period,” Tonsor said.
Tyler Ottensmeier of Ottensmeier Angus in McLouth, Kansas, said that it is important to remember the time it takes for beef cattle herds to expand. Unlike other animal proteins such as pork or chicken, it takes nine months for a cow to reproduce and another two to three months for her to be bred again.
“There is always the dilemma of retaining a percentage of heifers or selling them at the livestock auction to pay the bills,” Ottensmeier said.
Effects
Before 2014, when markets reacted to shrinking numbers, they sent the prices soaring, which was great for producers according to Ottensmeier, but bad for the food service industry and the retail sectors.
“As the prices rose those two sectors had to incrementally increase their prices without shocking the consumer too much. Thus, beef gave up substantial room in the meat case to cheaper proteins,” Ottensmeier said.
Currently, those who are out to purchase steaks in preparation for summer grilling season might not see much of a drop at the meat counter according to Ottensmeier, because the grocery retailers are still trying to regain some of their losses from when cattle prices went up.
“Prices at the retail level should continue to drop, but it is my opinion that won’t be due to more increase in the cowherd size,” Ottensmeier said.
Samantha Banahan, a senior in agribusiness, said that with declining beef prices, her family’s cattle operation will look for more ways to cheapen up inputs in order to widen profit margins. Her family already does this by growing and storing feed for their cattle, even purchasing large equipment to make the process easier.
“We will probably continue to look for ways to cheapen up our inputs if cattle prices continue to drop in the future,” Banahan said. “But hopefully there will be more of a demand for beef in the grocery stores as prices should be coming down.”
