Ranchers continue to grow their cow herds at an aggressive pace. In fact, the total three-year herd expansion, 2014 through 2016, is the largest since the 1970s. 

The USDA National Agricultural Statistics Service (NASS) Cattle Inventory report counted 93.6 million cattle and calves on Jan. 1 of this year, 2% more than a year ago. Beef cow numbers totaled 31.2 million head, a 3.5% increase from 2016, and 6% more than just two years ago. The beef cow herd is now 2.1 million head larger than the low point of 29 million head in 2014, and the largest since 2010.

“Expansion is the result of profits and ample forage supplies,” says John Nalivka, president, Sterling Marketing, Inc. “While the profits of two years ago have diminished significantly, range and pasture conditions throughout cattle country have continued to support herd expansion.”

Nalivka says the beef cow slaughter rate in 2016 totaled 2.58 million, which represents 8.6% of the cow herd and is the fourth smallest percentage of beef cows slaughtered since at least 1965. He believes the percentage of cow culling might have been much lower if not for an aging cow herd that encouraged ranchers to send the older ones to market.

While cow culling this past year was slow, ranchers also added more replacement heifers to their herds. USDA counted 6.42 million beef replacement heifers on Jan. 1, a 1.2% increase from 2016, and a 5% increase from two years ago. Beef replacement heifer numbers were the largest on farms and ranches since 1997. 

Of those 6.42 million replacements, 62.3% or 4 million werereported to be bred to calve. This is the highest percentage since 2010. 

“This level of beef replacement heifers is 20.6% of the cow herd inventory,” says Derrell Peel, Oklahoma State University economist. “It is down just slightly from last year and a level suggesting significant herd expansion will continue in 2017.”

The positive side to herd expansion, says Iowa State extension economist Lee Schulz, is that “we currently have one of the youngest herds in history. The young herd should be very productive, a plus in terms of cost of production and efficiency. Plus, the industry has not just added numbers but also added genetic potential.”

More producing females this past year means the calf crop increased accordingly. USDA estimated the 2016 calf crop at 35.1 million head, up 3% from 2016, and 4.5% higher than 2015. With more calves and feeder cattle, more beef will be produced in 2017 and 2018. 

In fact, analysts believe the 2017 inventory data suggest expansion will likely continue into 2018, possibly 2019, which indicates further increases in beef production. 

“We should expect a 4.4% increase in beef production this year, and another 4% to 5% increase in 2018,” Nalivka says. “That means we will see further price pressure on calves and feeder cattle.”

Indeed, cow-calf profitability has declined substantially since the windfall profits generated by the historically low cattle numbers of 2014. On a cash basis, Nalivka estimates 2014 average profit per cow was $517, dropping to $177 per cow by 2016. He projects a further decline to a profit of just $45 per
cow in 2017.

Of the 10 states with the largest beef cow inventories, eight recorded increases this past year. Oklahoma recorded the largest increase with 172,000 cows, followed by Texas with a gain of 170,000 head and Missouri added 150,000 head. Those are the only three states with inventories of more than 2 million cows. Yet, those three states account for 27% of the nation’s cow herd and together they saw a 5.7% increase in beef cows for 2017.

Despite gains in recent years, Texas cow numbers have not fully recovered from the drought. Texas counted 5.14 million cows in 2010, declining to 3.9 million by 2014. The Texas 2017 inventory of 4.46 million beef cows means producers have regained about half of the cows lost between 2010 and 2014.

Along with an expanding cow herd, the estimated supplies of feeder cattle have also grown. For 2017, the estimated feeder supply is 26.5 million head, a 2.1% increase from the past year and a 7.4% increase from the 2015 total. Those growing supplies of feeder cattle and calves are the basis for much of the gloomy price outlook from economists.

However, while further erosion in prices might loom ahead, CattleFax CEO Randy Blach says stability is returning to global commodity markets, at least temporarily. 

“After the ag market shocks of the past year and an approximate correction of 50% in all commodity markets, prices are beginning to stabilize,” Blach told attendees at the 2017 Cattle Industry Convention and NCBA Trade show in February. “That doesn’t mean that we’re past this, or that prices have bottomed, but on a global basis, we’re not likely to see as much volatility during the year ahead.”

He noted cattle feeders have returned to profitability, which is a first step in helping to stabilize prices for cow-calf and stocker operations. Blach expects during 2017 and beyond, margins are likely to tighten for cow-calf producers with more stability but also an expectation for lower highs and lower lows. 

CattleFax analysts noted the cow-calf sector will shift focus to finding efficiencies, reducing cow costs and improving productivity to remain profitable. Analysts estimated 2017 price expectations for 550-lb. steers at $150 per cwt with a range of $130 to $170 per cwt, while 750-lb. steers will average $130 per cwt with a range from $120 to $140 per cwt during the year ahead.

Blach reported that the historical cattle cycle remains intact, although the price break experienced in 2016 was the fastest and deepest of any in recent history.

“Even with the rapid growth in the U.S. cow herd, numbers are expected to continue higher for the next two-to-three years,” added Kevin Good, CattleFax senior analyst. “Absolute price lows likely will not be realized until that period of increasing cow herd numbers is behind us.”


Note: This article originally appeared in the March 2017 issue of Drovers.