The U.S. cattle inventory is at a 73-year low, according to new data from the U.S. Department of Agriculture (USDA). The main reasons for this are drought and high input costs that have pressured ranchers to sell off their herds, shrinking the national headcount to the lowest it’s been since 1951.
The latest numbers show the domestic cattle inventory at 87.2 million head. This is a 2% decline from the previous year or a 1.6 million reduction in cattle and calves. It also marks the lowest headcount since USDA’s 82.8 million cattle headcount estimate in 1951, according to the American Farm Bureau Federation, which tracks the USDA cattle reports. The calf crop is estimated at 33.6 million, down two percent from 2023 and the smallest calf crop since the 33.1 million headcount in 1951.
USDA issues two cattle reports annually. The next report comes out in July of this year.
Silver Lining
Despite the historically low inventory numbers, the supply of cattle at all U.S. feedlots is up 2% from 2023, according to the new report.
This unusual situation means there’s still plenty of cattle available to keep beef prices from skyrocketing in the near term, Bernt Nelson, an economist at the U.S. Farm Bureau, said in a written analysis discussing the USDA report. But Nelson added that as feedlot inventories begin to shrink, meatpackers will have to compete for cattle, which will likely push prices upward.
“This could send beef prices to record levels in 2024 and 2025, as we hit the supply bottom of the current cattle cycle,” Nelson wrote in the Farm Bureau analysis.
Nelson’s analysis is especially pointed given the record-low calf numbers reported by USDA in its report. They are estimated to be 33.6 million head, down two percent from last year and the smallest on record since 1948, according to the data.
There are also fewer replacement beef heifers than last year. Continued marketing of heifers, or female cattle, which are usually held back for breeding, has been one of the leading causes of cattle contraction in the U.S. over the last two years.
These factors indicate that when the current supply of feedlot cattle dries up, there won’t be as many cattle available to refill the supply chain, the Farm Bureau’s Nelson wrote in the analysis.
Looking Ahead
Looking ahead, there could be more opportunities for cattle profitability as demand stays strong. On the other hand, Nelson says that a reduced inventory and declining calf production may also lead to record beef prices, affecting consumption.
“Consumers’ ability and willingness to withstand higher price levels in 2024 will be the determining factor,” he wrote.
The price of food, including beef and other types of animal meat, at the grocery store has soared over the last few years because of inflation.
The percentage pace of food inflation has slowed in recent times but prices for some types of groceries, including for beef, continue to increase. The latest Consumer Price Index report from the Bureau of Labor Statistics shows beef and veal prices are up 7.7% compared to January 2023. For example, ground beef is up 5.5%, beef roasts 6.7% and beef steaks are up 10.7%.
Consumers thus far haven’t let the increased cost of beef stop them from purchasing it, although there are signs that some cutting back might be starting to happen, according to the Food Marketing Institute (FMI), which is a trade association serving grocery retailers.
The strong supply of cattle in the pipeline combined with aggressive promotions by meat companies and retailers has helped to hold the line on hyper-aggressive beef price increases. Most experts don’t expect that to hold though unless there’s marked improvement in the U.S. cattle inventory.
Kansas State University’s authoritative Meat Demand Monitor says demand for beef has been falling in 2024. Price is becoming a top concern for U.S. consumers, with 31% more Meat Demand Monitor survey respondents considering price a top four criteria than those who consider it a bottom four criteria.
Additionally, USDA’s new WASDE Report estimates per-capita beef consumption in the U.S. will fall 1.9 pounds, from 57.9 pounds per capita in 2023 to 56 pounds per capita in 2024.
Export conditions aren’t currently creating an incentive for U.S. ranchers to increase the cattle inventory either because difficult economic conditions paired with increased Australian beef production have put downward pressure on global demand for U.S. beef. USDA’s Foreign Agricultural Service forecasts U.S. beef exports from all countries will increase by about 1% to 12.1 million tons in 2024.
Economic Implications for Ranchers
The U.S. cattle inventory is historically low, yet the supply of cattle on feed is quite large, according to the USDA report.
The calf crop and beef heifers held for replacement are also historically low, which will hinder cattle inventory growth in 2024 and possibly 2025.
According to the U.S. Farm Bureau analysis, this should provide opportunities for profitability in the cattle business in 2024.
On the other hand though, with a smaller calf crop and fewer replacement heifers, declining production may also lead to record beef prices for consumers. Domestic consumer demand for beef has remained relatively strong but with record prices on the horizon, consumers’ ability and willingness to withstand higher price levels in 2024 will be the determining factor.
The assumption that declining production is going to lead to higher beef prices is based on solid supply and demand economics. But in this case two key intervening variables have been the unusual supply of cattle on feedlots and the willingness of meat companies and grocery retailers to heavily promote meat, reducing prices in their stores in order to draw customers and maintain sales.
The former – cattle on feedlots – is running its course and the latter – meat company and retail grocer willingness to continue heavily promoting beef – is unknown. As the Farm Bureau and other experts predict, there’s a high probability that we’ll see rapidly-rising beef prices, resulting in significantly reduced consumer demand, later this year.
Thus far cattle ranchers have been getting top dollar – nearly a 30% increase from 2019 – for their cattle because of the decreased inventory. However, because input costs – feed, water, fuel, energy, labor and the like – have also risen significantly, their profit margin has been somewhat less than they would like it to be.
It’s not a bad time to be a cattle rancher. Prices are good. But whether or not the favorable prices ranchers are getting for their cattle continues is dependent on whether or not consumers continue to hold the line and pay higher prices for their favorite cuts of beef at the grocery store.
My Job Depends on Ag Magazine columnist and contributing editor Victor Martino is an agrifood industry consultant, entrepreneur and writer. One of his passions and current projects is working with farmers who want to develop their own branded food products. You can contact him at: victormartino415@gmail.com.
