U.S. cattle herd continues to contract

There are three main points to consider from the U.S. Semi-Annual Cattle Inventory Report. First, the 2023 calf crop was estimated at 33.8 million head, down 664,000 head from 2022. Secondly, the number of beef cows as of July 1, 2023, was 38.8 million, down two per cent or 800,000 head from July 1 of 2022. Finally, the number of heifers for beef cow replacement on July 1, 2023, was 5.050 million head, down 100,000 head from 12 months earlier.

History tells us that the U.S. cow-calf producer needs one year of historical high prices before expansionary behaviour begins. We can also draw the conclusion that the previous highs in 2015 are no longer sufficient. The fed and feeder market needs to move to new highs. Fresh record-high fed and feeder cattle prices are expected during the spring of 2024.

Notice that U.S. first- and second-quarter beef production for 2024 is down over 600 million pounds each quarter compared to the same quarter of 2023. We expect fed cattle prices to trend higher in the first half of 2024 and this is driving the feeder market during the fall of 2023.

Beef demand is a concern. A one per cent increase in consumer spending equates to a one per cent increase in beef demand and vice versa. Consumer spending is two-thirds of GDP. The economy is expected to hold up in the latter half of 2024. However, we’re expecting U.S. and Canadian GDP to hover around one per cent growth in the first half of 2024. The economy will start to feel the effects of higher interest rates. The theme from the Federal Reserve over the past six months has been “higher for longer.”

Fed cattle prices will likely consolidate during the latter half of 2024 while feeder cattle prices have potential to percolate higher. Fed cattle prices will likely remain firm during the first half of 2024 due to lower beef production. However, beef demand is expected to decrease in the first half of 2024, which will limit the upside for fed and feeder cattle prices.