Smallest cattle herd in eight years so will 2023 set record prices?

Marianne Stein

URBANA, IL. — The USDA’s January 1 cattle inventory report places the total number of cattle and calves at 89.3 million head, consistent with trade expectations for a 3% decline from a year ago, as the industry continues into a fourth consecutive year of contraction within the cattle cycle. That’s approaching inventory lows last seen in 2014 and 2015 at the start of the current cycle, when producers began rebuilding following the drought in 2012, according to Jason Franken, agricultural economist at Western Illinois University and contributor to the University of Illinois farmdoc team.“The report mostly confirms anticipated effects of current drought conditions and with limited availability of pasture and hay, further contraction seems likely. As expected, all cows and heifers that have calved total 38.3 million head. This is also nearly 3% below last year, reflecting 4% fewer beef cows at 28.9 million head and just a slight uptick in milk cows at 9.4 million head. That’s the smallest beef cow inventory since 1962,” Franken says.“As further evidence of continued contraction, beef replacement heifers are down about 6% from a year ago, compared to an average pre-report estimate of 3% lower, while dairy replacement heifers and other heifers are down 2% and 3%, respectively. Overall, the inventory of all heifers weighing 500 pounds or more is down about 4%, compared to expectations for just a 2% decline. Steers and bulls weighing 500+ pounds are down 3% and 4% respectively, while the number of calves under 500 pounds is down about 3%,” he adds.With around 3% fewer cows and heifers calved, the USDA has revised downward the July estimate of the 2022 calf crop to 34.5 million head, so that it is now 2% below the 2021 level, which should help hold down the number of animals on feed and beef production in 2023 and 2024.The USDA’s most recent Cattle on Feed report indicates over 11.7 million head on feed or just about 3% less than on January 1 of last year. Last December, feedlots also placed 1.8 million cattle on-feed or about 8% fewer than a year earlier and marketed 1.74 million or about 6% less.“The mix of steers and heifers indicates that, compared to a year ago, more heifers are being sent to the feedlots instead of staying on farm for breeding stock. Steers on feed are down about 4.5% while heifers are down only 0.5% from a year ago, such that heifers now comprise 39.8% of animals in feedlots or 1% more than a year ago, compared to only 31% to 33% during much of the last expansion. This is additional evidence that producers have no plans to expand the brood cow herd,” Franken states.He notes that in light of smaller inventory and cattle on feed numbers, beef production is anticipated to be 6.5% lower in 2023 than last year. Lower availability of beef is expected to constrain U.S. per capita beef consumption to about 56.3 pounds per person in 2023, compared to more than 59 pounds in 2022, or around 5% lower. Meanwhile, exports are projected to be 13% lower this year, which also reflects lower anticipated beef production and strong beef exports in recent years.“All things considered, prices in 2023 are likely to exceed those of the last couple of years. In fact, current conditions are even bringing about speculation on the possibility of exceeding record prices last set in the fourth quarter of 2014. That seems feasible for fat cattle, which are already trading around $156/cwt or about $9/cwt more than in the first quarter of 2014,” Franken says.Quarterly prices for slaughter steers are forecast to average about $157.39 per cwt., $160.81 per cwt., $161.81 per cwt. and $166.40 per cwt. respectively. This forecast assumes lower quarterly price growth than in 2014, because a longer transition into herd expansion is anticipated due to the lack of potential replacement heifers, uncertainty about inflation and interest rates, and competition from pork, poultry and imported beef, Franken explains.“Feeder prices also may spike above 2014 record levels once producers shift to retaining heifers for herd rebuilding, thereby limiting placements in feedlots. However, again, herd rebuilding is anticipated to be delayed compared to 2014. With the expectation that herd rebuilding is well more than a year off and given that 600 pound to 700 pound feeders are currently trading around $191 per cwt., surpassing records, which averaged about $257 per cwt. and ranged as high as the $270s in the fourth quarter of 2014, we’ll likely have to wait for another year or maybe two,” he concludes.“Here, 600 pound to 700 pound feeder steers are forecast to average about $191.78 per cwt. in the first quarter and then rise to $205.00 per cwt. and $220.85 per cwt. in the second and third quarters, to reach $222.71 per cwt. in the fourth quarter of 2023. Of course, if improved weather and forage and hay prospects lead producers to retain more heifers earlier instead of sending them to feedlots, higher prices may be realized even sooner.”