If you are in the business of growing grass and selling it through cattle, you should be interested in knowing what is happening to cattle numbers in the United States (U.S.). Each year in January and July the U.S. Department of Agriculture (USDA) publishes an estimate of what they believe to be the cattle inventory as of the first of that month.
The inventory estimate was particularly important in January, 1997 because it was to confirm or disprove the popular opinion that cattle numbers were declining in the U.S. The accompanying Table lists the cattle inventory numbers for January 1, 1997. These numbers were released on January 31, so it could be that many of you have already seen them. If so, I commend you for being alert and diligent in keeping abreast of what is happening in the cattle industry.
Why is it important to be knowledgeable of the U.S. cattle inventory? For the most part, cattle prices are driven by supply and demand. We have just experienced a period of what I consider to be very low cattle prices. Why were prices so low? The simple answer is that cattle numbers were high, and prices usually react inversely to numbers. When numbers are low, prices tend to be higher and when numbers are high, then prices tend to be lower.
Other factors such as disposable incomes, demand for beef, and prices of competitive meats also impact cattle prices. But, we can do a lot to help the long term profitability of our operations if we can just stay current with where we are in the cattle cycle. As cattle producers, we tend to over-produce then under-produce, causing a cyclical pattern of prices and numbers.
Cattle outlook analysts often divide the cattle cycle into two phases - the liquidation phase and the building phase. The January 1, 1997 inventory report confirms the cattle industry is in the liquidation phase. Historically, each phase usually lasts from four to six years, but this can vary, thus the need to stay knowledgeable of current cattle numbers. Usually, the cattle price cycle will precede the numbers cycle.
Therefore, prices will begin to rebound before numbers will begin to increase. The message of this article is to have your cow-calf enterprise in a strong position now so that when cattle prices move aggressively higher and the cattle industry starts the building phase of the next cycle, you can profit. Historically, cow-calf profits are best during the building phase.
The accompanying figure shows a graphical depiction of cattle numbers for the most recent 12 years. There is no doubt that the cattle industry is reducing numbers. The big question is when will the industry bottom out and start to build numbers again. Stay informed of the USDA reports and what analysts are saying. It can increase profits and minimize losses.