August 2, 2000 | By: Aimee D. Heald
LEXINGTON, KY.

Many producers are talking about the cattle cycle. How long will prices stay up? How much more could they rise? The number of cattle on the market will directly affect prices, and cattle numbers have been declining since 1996. Cattle numbers in Kentucky have decreased by 18 percent; from 2.7 million in Jan. 1996 to 2.2 million.

“Both supply and demand determine price,” Lee Meyer, agricultural economist for the University of Kentucky College of Agriculture said. “The cattle cycle helps explain the supply side of the equation. A smaller cattle herd should mean fewer cattle to feed and less beef. But, the way the herd has been cut has been by sending more cattle to slaughter. As a result, beef supplies have been quite large.”

Meyer said cattle on feed inventories are up nine percent, but there are signs of a decline, since the number of cattle going into feedlots is slightly down. As a result, the beef supply should start to decline over the next several months.

Demand is the logical reason for the current high cattle prices. Many things, including higher incomes, strong restaurant demand and new product development are all cited as explanations behind improved demand for beef. Low-priced feed adds a demand for a tight supply of feeder cattle. So what about the future? Meyer points back to the cattle cycle.

“I expect we will have feeder cattle prices averaging near or above the current level for the next three to four years,” he said. “The wild card is feed costs. If corn prices jump by 50 percent due to a major supply problem, calf prices will drop. But otherwise, the base is set for stronger prices.”

Looking at the past, the last long cattle cycle lasted 12 years, 1967 to 1979, compared to normal 9 to 10-year cycles. Prices continued to rise through the end of the cycle.

Presently, there are few indications that farmers and ranchers are expanding the cow herd. The recent USDA July Cattle Inventory Report, released on July 21, indicated that the number of beef cows was virtually unchanged from a year ago. In addition, the number of heifers which farmers intend to breed and move into the cow herd, declined by two percent. Since the first step to expansion is to reduce cow culling and to hold heifers, the USDA report suggests that expansion still has not begun.

When expansion does begin, probably during the next year, the drop in cow and heifer slaughter will decrease the beef supply and exaggerate prices. Produces who do not look ahead, respond to high short-term prices and add to expansion. When the larger female population adds to the calf crop and feedlot supplies, the large supply leads to drops in prices.

“I expect that we are just entering the “turn around” phase of the cattle cycle,” Meyer added. “If so, we will expect tight beef supplies for two to four years. This period has been profitable for cow-calf operations in three of the past four cycles. The key will be to watch demand - a weak economy or high feed costs are key factors.”

Meyer said that from a management perspective, even with strong prices it may be difficult to justify buying more cows. Cow prices are about $100 per head over last year.

“Buying bred heifers or holding your own may pencil out (with three to four years of strong prices) but is risky,” he said. “The key to managing this risk is having the ability to background or finish your calves. This diversification into two or more beef enterprises such as cow-calf, backgrounding or possibly custom finishing, has been a successful strategy in managing price variability over past cycles.”

Contact: 

Lee Meyer 859-257-7276