Is It Time to Buy More Cows?
The abundance of forage, mild temperatures and strong cattle prices have many cow-calf producers wondering if it is time to increase their cow herd numbers. Historically, cow-calf producers have added or liquidated cows based mostly on the price of calves. Weather conditions can sometimes disrupt normal production decisions, but cattlemen have increased and decreased cow numbers fairly consistently over time, and a distinct "cattle cycle" has developed - actually two cycles.
One cycle reflects cattle numbers and the other reflects cattle prices. Both cycles average roughly nine to 11 years in length, with the longest extending to 14 years. The longest cycle ended in 2004 after Mother Nature provided sufficient moisture across much of cattle country, where extended drought had not allowed numbers to increase during the late 1990s and early part of the 2000s.
The cattle inventory cycle usually lags the price cycle - sometimes by two to three years. This is because it takes time for cow-calf producers to start and stop the factory. When the cowman is convinced that calf prices are high enough to generate profits, he slows culling and begins holding heifer calves for replacements. The industry gets a quick boost in calf numbers, but it takes a couple of years for the heifer calves to provide marketable offspring, thus the delay in the cycle. When calf prices plummet, heavier culling of the mature cow herd begins, and fewer heifer calves are kept for replacement females.
Cow herd profitability is related to the cattle cycle and can be predicted to a certain extent. Historically, profitability has been best during the final years of the liquidation phase and the first few years of the building phase. As the chart shows, general cow herd profitability increased in the late 1990s after liquidation had been going on for a few years. The industry started building numbers in 2003 after receiving the price signal for several years, but was restrained by drought. In 2006, dry conditions caused producers in Texas, Missouri and Oklahoma to reduce cow herd numbers again. In 2007, drought is prevalent in the southeast and western United States.
Many are predicting that beef cow numbers on Jan. 1, 2008, will be below inventory of Jan. 1, 2007. While the price cycle should be encouraging the industry to build numbers, drought and high feed prices are holding it back. The July 1, 2007, cattle inventory report showed 6 percent fewer heifers over 500 pounds for beef replacement than a year ago. Cow slaughter year-to-date has been up 11 percent over the same period in 2006, and heifers are being placed into feedyards at liquidation phase levels. Strong milk prices will keep many dairy cows in production, and good pasture conditions throughout the southern plains will keep more beef cows at home. This should help minimize the impact on January 2008 cow numbers.
Is this cattle cycle over and are we starting another? Many believe that this cycle is on hold for a year or two and will resume the building phase when weather allows. So it is possible that a few more profitable years are left. There is probably enough time to get a cow paid for before prices decline. However, it would be best to expand cow numbers with a female that is in production - that either has a calf at side or is bred to calve next spring. A heifer calf kept this fall will not be in production soon enough to generate many offspring before calf prices start to dip. Also, grass that is in abundance in 2007 may not be next summer. A good philosophy is to stock for drought and, in good years, sell the extra grass through a stocker enterprise - either owned calves or custom care. It is much easier to de-stock stocker calves than cows. Buy judiciously!