– James Mitchell, Livestock Marketing Specialist, University of Arkansas
In a previous article, Kenny wrote about the three Ps of herd expansion: profit, pasture, and patience. USDA will publish the Cattle Inventory report next month, offering the most comprehensive snapshot of the industry. Among its key estimates is beef cow inventories (see first graph below). By applying the three Ps, we can develop expectations for beef cow inventories in the USDA report, which will lay the groundwork for cattle markets in 2025.
The first P is profits. The Livestock Marketing Information Center (LMIC) tracks a data series on cow-calf returns over cash costs, offering a benchmark for profitability in the cow-calf sector of the beef cattle industry. According to LMIC estimates, returns are projected at $622 per cow in 2024, making it the most profitable year on a nominal basis within the timeframe shown in the second graph (below), surpassing the $534 per cow recorded in 2014. However, comparisons are more meaningful when adjusted for inflation. When 2014 returns are converted to 2024 dollars, they equal $707 per cow, exceeding 2024 returns by $86 per cow.
The second P is pasture. One way to quantify this is by examining hay production, stocks, and prices (see third graph, below). In 2024, hay production totaled 129 million tons, and May hay stocks reached 21 million tons. Combined hay supplies are at their highest levels since 2017. Notably, several years of increased hay production preceded the start of both the 2004–2014 and 2014–present cattle cycles.
The third P, patience, underscores the biological lag inherent in cattle production. Cow-calf producers cannot instantly respond to market signals due to the time required between retaining a heifer and marketing the calf from that heifer. An early indicator of this lag is beef cow and heifer slaughter, which reflect culling and heifer retention, respectively. Beef cow slaughter is down 18%, while heifer slaughter has declined just 1.5% compared to 2023. Both are expected to finish near these levels with only a few weeks remaining in 2024.
An important consideration is the slaughter rate relative to available supplies, rather than absolute cow and heifer slaughter numbers. When viewed in this context, it becomes evident that the current slaughter rate has not yet reached a level signaling an increase in beef cow inventories. For example, in 2023 we slaughtered 12% of the beef cows that were available to slaughter as of January 1 (implied cull rate). In 2024, it looks like we will slaughter 10% of available beef cows. While this is an improvement, it still is not a low enough cull rate to signal an increase in beef cow numbers.
Given cow-calf profitability, hay production and prices, and the current rates of beef cow and heifer slaughter, a 1% decline in beef cow inventories, marking the low point of the current cattle cycle, would be reasonable. However, under these conditions, the 2.5% decline in beef cow inventories estimated in the 2024 Cattle Inventory report is unexpected.