Cattle

Industry drivers 

Retail beef prices on the rise

Volatile U.S. meat prices are impacting consumer spending decisions. Inflation has increased consumers' grocery bills with food prices expected to rise 5.8% in 2023. Beef prices have been especially impacted, up 28.6% year over year in September. Inflation and a tightening supply are driving the steep increases in beef prices. The national cattle herd is already at its lowest point since 2015. A smaller herd will translate to less beef in 2024 as producers focus on herd retention. Beef slaughter has already fallen 4% in the first six months of 2023, with further declines expected in the second half of the year. Lower beef production will spur higher wholesale beef prices, and beef prices will likely break new records in 2024. As beef prices rise through 2024, consumers may opt for lower-cost meats. There is some evidence this is already happening, but higher prices for all meats have limited the impact. 

All cattle costs increase

The shrinking cow herd and declining feeder cattle supplies are driving up calf and steer prices. The U.S. beef cow herd is at its lowest level in 50 years. The number of calves also declined by 1.9% year over year. The price of 500-pound steers is higher than its peak in 2014 due to fewer calves available. Producers may start to retain more heifers in the last quarter of 2023; however, feeder supplies will tighten before the national herd can expand. The low national heifer inventory will make herd rebuilding a slow process and demand has driven up the cost of buying bred cows. Replacement heifer prices have increased by 40% to 60% in 2023. As cattle producers enter the rebuilding phase, prices for beef replacements will keep rising.  

Western cattle producers were the first to experience extended, severe drought, dating back to 2021. The drought forced producers to partially or fully liquidate their herds first. As the drought moved to the Plains, western ranchers were also the first to rebuild their herds. The early start to rebuilding herds has put producers in the West in a better position than other major cattle-producing regions to benefit from strong calf and steer prices. 

Profitability

AgWest producers will benefit from favorable prices and strong returns over the next two to three years. Ongoing drought in the Central and Southern Plains has reduced the national cattle herd as shown in the July 1 cattle inventory report. Cow-calf returns will increase over the next two years exceeding peak 2014 margins. Today’s cattle returns are already near the 2014 peak and the cattle cycle has not started its rebuilding phase. Expansion won’t start until 2024 at the earliest, and cow-calf returns will benefit until 2025 or beyond. Cow-calf margins for 2024 are estimated to average over $500 per head. Western cow-calf producers will enjoy strong margins through 2025.

Estimated average cow calf returns

Source: LMIC.

Cow-calf returns will also benefit from forecasted reductions in expenses. Cow-calf producers’ costs peaked in 2023 at an average of $1,088 per cow. These expenses are expected to fall in 2024 and 2025. Additionally, shifting weather patterns should benefit cattle producers as the onset of El Nino typically improves pasture conditions for western producers.

Estimated average cow calf costs (cash costs and pasture rent)

Source: LMIC.

Cattle feeder margins have remained strong and will benefit from lower feed costs. Cattle feeders’ margins are projected to finish the year with an annual average return of over $150 per head, up 4% year over year. Packer’s margins were somewhat pressured by strong cattle prices leading packers to reduce slaughter rates. Since these rates slowed in July and August, packers’ margins improved, but many will continue to limit slaughter rates to protect their profits. This might be good for the beef industry as some feedlots are struggling to obtain feeder cattle.  In the face of high retail prices, strong demand has been a key driver of cattle industry optimism; however, if beef demand declines it would also curb cattle feeders’ and packers’ margins. Even with looming concerns of a global slowdown in late 2023, analysts predict cattle industry profits will remain strong.