The beef industry reached a milestone in 2013 as record prices were posted across the supply chain. So, as we look ahead into 2014, is the adage, “there’s no looking back” appropriate? Certainly, prices across the industry have increased significantly from their 2008-2012 averages, and I believe there is plenty of room for firm price increases during 2014. But, at the same time, I don’t think it is time to throw caution to the wind, particularly with regard to demand.
I think producers will begin building herds during 2014, but the process will be relatively slow even in the face of record calf and feeder cattle prices. Perhaps, if it were not for the severe droughts during 2011 and 2012, we would have seen the end of liquidation already. The implied heifer retention based on changes in the size of the beef cow herd would support this contention. The data suggest that producers actively increased heifer retention during 2009. During 2011, 71 percent of the Jan. 1 replacement heifer inventory calved and entered the herd. Those were heifers retained as replacements in 2009 that were bred in 2010, and this heifer replacement rate is the largest percentage since 1993. However, at the same time, drought-forced cow herd reduction or liquidation pushed beef cow slaughter to the highest level since 1986, and the size of the beef herd did not increase. Consequently, the cattle inventory likely fell another 1 million head during 2013 and will be down 1 percent from a year earlier on Jan. 1, 2014.
As the cattle inventory continues to fall, the available supply of fed cattle has been declining since 2010 with nearly a 3 percent drop during 2013, followed by a 5 percent expected decline during 2014. Furthermore, cow slaughter will be down 7 percent from a year earlier during 2014, bringing total cattle slaughter down 6 percent for all of 2014. It is important to note that in contrast to the cattle inventory falling to a 60-year low, beef production during 2013 will be three times that of 60 years ago. The reasons for this difference include only 2 percent of our total slaughter today is calves compared to 50 percent 60 years ago, and 90 percent of our steer and heifer slaughter are fed cattle. But, at the same time, carcass weights in the last 20 years have increased significantly and it’s not all due to Zilmax. Cattle fed Zilmax were substantially heavier anyway, and the carcass yield of those cattle has been increasing. This production efficiency is important, not only to next year’s outlook but also the future of the industry.