The U.S. cattle herd is the smallest in 60 years, thanks to declining hay production, higher grain prices and the devastating 2012 drought that continues to grip much of the Great Plains region.
According to USDA, all cattle and calves in the United States as of January 1, 2013 totaled 89.3 million head, 2% below the 90.8 million on January 1, 2012 and the lowest inventory of all cattle and calves since 1952. All cows and heifers that have calved, at 38.5 million, were down 2% from 39.4 million on January 1, 2012, the lowest inventory of all cows and heifers that have calved since 1941.
Record high grain prices, fueled in part by ethanol demand, had already caused cattle numbers to dwindle. Then in 2012 drought came along and scorched key cattle-growing regions of the U.S., forcing herd liquidation. In Texas, the drought began in 2011 and shrunk cattle numbers by 600,000 that year alone. It lost another 12% of its herd in 2012.
"The drought devastated the U.S. beef cow herd in 2010, 2011 and 2012," says Steve Kay, editor of Cattle Buyers Weekly, a U.S.-based business newsletter for the North American meat and livestock industry. "We lost a lot of beef cows in all five of the major cow/calf states – Missouri, Texas, Nebraska, Kansas and Oklahoma - particularly last year."
Continued drought in 2013 is a huge worry, but ranchers remain hopeful. The 2013 beef replacement heifer inventory is 18.3% of the beef cow herd inventory, the highest replacement percentage since 1995. But how many of those heifers actually enter the herd depends entirely on whether drought conditions retreat in 2013. So far, the drought in the plains… remains.
There are a number of factors that need to happen in order to stabilize the herd and start a slow regrowth, says Kay.
"The end of the drought and much better pasture conditions is the number one factor. We need a lot of rain over the next 20 months to stabilize the herd and start growing it again," he says.
Yet, there are other factors at play. "Cow/calf producers face continually escalating operating costs," he says." Plus, the age of the rancher is a factor – the older he is, the less likely he is to want to invest in that next cycle and expand his business. And, there's the cost of finance for carrying a bred heifer, which is how we rebuild the herd."
Future beef demand in the U.S. depends on macro-economic outlook: Is the economy improving? Are there enough consumers willing to pay more for beef?
Beef may be tasty, but it has a lot going against it in recession – or in this case, during one of the weakest economic recoveries in history, points out Alan Newport, editor at Beef Producer, a U.S.-based cattle magazine and sister publication to Farm Futures.
"It is one of the more expensive protein products and therefore especially prone to consumer protein substitution and loss of demand," he says. "Remember, too, that elsewhere in the world, in poorer places, protein itself is considered a luxury."
Exports are vital but they still provide a small demand factor in the U.S. beef industry, says Newport. Domestic consumer wealth and confidence is key to any bounce back in beef production. "The more our wealth disappears in this nation and the more we lose our middle class, the more the beef industry will suffer," he adds.
USDA statistics reveal that the ratio of ground beef to whole muscle cuts of beef purchased in the U.S. has been in inverse proportion for years; consumption of lower-cost ground beef is increasing while higher priced whole-muscle cuts are declining.
Meanwhile, a new consumer study released last month reveals the number of meals American grocery shoppers prepare that feature a portion of protein declined from 4.1 to 3.6 meals per week.
"All these factors filter right through the beef chain, right back to the ranch," says Kay.
Declining per capita consumption is a function of available supply, not consumer preference, he notes. "If we want consumers to pay higher and higher prices, we have to improve quality. To do that the industry has to work closer and closer together, which it is. Some of the best branding programs, like Certified Angus Beef, are predicated on the industry working together. "
Even if drought ends, many economists do not see signs the U.S. herd will expand. For one thing, input costs have been rocketing upward.
“Cow-calf input costs have almost doubled in 15 years,” says Stan Bevers, agriculture economist with the Texas A&M University Extension Service. In 1995, costs were $323 per female beef cow in the southwestern United States; in 2010 it was $587. From 2006-10, the average gross revenue per cow in Bevers' Southwest database was $540; the average total cost was $588.
Furthermore, each weaned calf cost $716 in expenses, after the costs for nonproductive cows was calculated in. “That means the cost of producing breeding stock has gone up, too,” Bevers adds.
A big part of this question about when the U.S. cow herd might expand is tied to the attitudes of cow operators toward profit margins relative to investment dollars at risk - return on investment. Some may be looking at financial risk. For example, what would another BSE scare do to the value of their herd – drop it by one-fourth or one-third overnight?
Considering those challenges the question may not be when the U.S. herd expands, but rather if it ever expands again.