Shifting Market Leverage
Nebraska’s beef cow herd numbered 1.8 million head on January 1, down 3 percent from 2021 (Figure 2). Several factors point to the decline continuing in 2022. First, the average weekly beef cow slaughter for region 7 (Nebraska; Iowa; Missouri; Kansas) through mid-September was 35 percent higher compared to the same period last year. Second, weekly heifer slaughter numbers through mid-September are running 5 percent ahead of last year. And the Livestock Market Information Center (LMIC) reports heifers are entering feedlots at a higher rate this year.
LMIC projects the USDA beef cow inventory on January 1 will show the U.S. beef cow herd down 2.5 percent. A decline of this amount would drop Nebraska’s herd below 1.8 million head, a level not seen since 2015. Fewer cows mean fewer calves. Fewer calves means fewer cattle available for feeding and ultimately for processing into meat. Thus, many industry experts forecast beef production in the U.S. will start to decline beginning next year.
In recent years, the beef industry has been operating with constrained processing capacity, giving more leverage to processors when buying cattle. With shrinking cattle numbers, leverage should shift towards cattle producers. The expansion of processing capacity underway will further support the shift. Much of the new capacity is likely to come on board when cattle numbers are hitting new lows. But consumers play a role too. Demand for beef has been remarkedly resilient considering the higher beef prices and economic uncertainty. If strong consumer demand continues, processors will be seeking cattle to meet the demand.
It will be interesting to watch how these market factors play out over the next 2-3 years. The shrinking herd should continue to support higher cattle prices. The last time cattle numbers were this low cow/calf producers experienced record positive returns. Will it happen again? And once the drought passes, when will the market incent producers to build their herds? Stay tuned.
Figure 2. Beef Cow Inventory in Nebraska, 1995-2023
Source: NEFB graphic based on USDA NASS data