When the U.S. Department of Agriculture releases its Annual Cattle Inventory report next month (Jan. 25), the data will likely show that the liquidation phase of the cattle cycle is over, and may show the first signs of cow herd expansion.

Analysts expect the total cattle inventory to fall in the 97.8 million head range, down about 150,000 head from last year. The cow herd should be about 43.1 million head, with beef cows accounting for about 34.0 million head of the total. The projected beef cow number would be steady with last year, and the 34 million head is at cycle lows. Projections also call for 150,000 more replacement heifers in USDA’s Jan. 1, 2001, inventory report than the previous year, totaling 5.7 million head of replacement females.

Average profits for cow-calf producers were more than $50 per cow in 1999, and more than $100 per cow in 2000. Such profitability triggers the expansion phase as producers start retaining heifers for breeding. However, heifer retention has been slowed by the extreme drought found throughout much of cattle country last summer, and by the fact many producers needed the income from their heifers as feeder cattle and were unable to begin herd expansion. Those two factors pushed more heifers into feedyards. In fact, a record-high 33.3 percent of all calves placed on feed last year were heifers.

If beef cow numbers come in steady with last year, it will signal that a modest expansion mindset is underway. And as 2001 unfolds, feedyard placements and slaughter data will show that producers are holding more heifers for breeding. That will further tighten the supply of cattle available for feeding, and reduce slaughter and meat production, which will support cattle and beef prices. Higher prices, of course, will mean even greater profits for cow-calf operations and provide further incentive for expansion.

Profitability for cow-calf producers means the average value of production females will continue to climb. Bred cows and cow-calf pairs are expected to fetch $800 to $900 or more at auction this year. The peak in bred cow prices, however, is not expected until 2003. If you’re ready to expand your herd, buying bred females already in production will allow you to take advantage of calf profitability sooner than breeding your own heifers. Developing heifers will delay your return on investment for at least two years, and profitability will probably start its cyclical decline by 2003.

Developing and selling bred heifers, however, may be a strategy that can add to your profits, especially if your herd has the quality genetics that will be in demand in the coming years. Bred cow and heifer prices are expected to increase $50 to $100 per head in each of the next three years, so developing and selling bred heifers may generate greater profits.

Cull cow prices are also expected to increase significantly during the next few years. High calf prices greatly reduced cow slaughter last year, as older cows were held by ranchers to produce one more calf. However, higher fed cattle values and tighter beef supplies will strengthen demand for slaughter cows, and bring more of them to town. Analysts expect prices on cull cows to increase an average of $4 to $5 per hundredweight in each of the next two years. Prices should average in the low $50s by 2003. And the seasonal opportunity of buying market cows in the fall and selling them in the spring should be solidly profitable in the next few years.