Drought tightens cattle production

Cattle market prices are as high as they’ve been in a decade. That’s good news for producers who have been able to maintain their herds in recent years, but a missed opportunity for those who weren’t.

Throughout most of the year, both futures and cash markets for steers, calves and more marked a vast improvement over 2022. By the last week of November, prices for medium and large No. 1 steer calves (weighing 500 to 600 pounds) were above $270 per hundredweight, more than $80 per hundredweight higher than the same time in 2022 and more than $100 higher than the average from 2017-2021.

It has been an exciting year in terms of markets for cattle. With cattle prices leading up to the fall were as high as we’ve seen them in 10 years. A lot of people is excited about the future. On the production side, it was exciting depending on who you asked.

A wide swath of droughty conditions has made its way down the middle of the United States over the last several years — affecting first the Northern Plains states such as Montana and Idaho in 2021-2022, then the Southern Plains of Kansas and Texas and finally the Southeast in 2023.

Three-quarters of Arkansas has been heavily affected, with southeast United States hit incredibly hard by drought. Tennessee, Mississippi, Alabama, Georgia, Kentucky, Florida are in a pretty tough spot, still very much in a drought. So, for them, there’s not much they can do with these high prices, because they don’t have any grass or forage. There was nothing they could really do this winter, in terms of retaining calves.

Most cattle-producing states are suffering through drought, forcing them to shrink or liquidate their herds because of a lack of forage. With three consecutive years of drought, you’re going to have a tightening availability, meaning you’ve got fewer calves being born each year.

In January, the U.S. Department of Agriculture reported that the total U.S. beef cattle inventory was at its lowest since 1962, declining more than 3 percent from the previous year to 28.9 million head. The inventory reported an entire cattle inventory of 89.3 million. With this the forthcoming USDA Cattle Inventory report, expected in January 2024, will reflect a fourth consecutive year of contracting cattle supply in the United States.

At a certain point, consumer resiliency will give way to more competitive pricing for poultry, pork and fish. People consume less of something when it gets more expensive — it’s just a law of economics.

Rebuilding the country’s beef cattle inventory will be a multi-year process and can’t really even begin while the drought is still happening.

Pastures are going to have to recover before we see any discussion of expanding cattle numbers. When that does occur, it’s going to take a couple of years for that expansion to be noticed. We don’t have the cows; it’s going to take a year to develop heifers, another year for them to give us calves, and so on. We’re looking at a few more years of declining cattle numbers.

An important thing that’s different from 2014-2015, is that it’s going to be more expensive to buy back in and expand herds. Interest rates are higher than they were 10 years ago. We expanded the herds very rapidly in 2014, we did that with low interest rates — so capital was inexpensive. That should lead to more careful calculation in terms of how we decide to expand herds.