Beef Calf Prices and Forage are Stalling the Herd Rebuild

Abbi Prins

August 1, 2024

Background

America’s beef supply relies heavily on a large network of small producers to raise calves. In fact, 25% of the beef cow inventory can be found on operations with 50 or fewer head. Since these operations generally do not rely on these animals as a sole source of income, economic decisions do vary from larger operations. When unexpected events such as widespread drought damage pasture conditions, forage production and beef cow retention rates suffer. Drought is one of the primary reasons the number of cows producing calves has declined in recent years. This is not unusual, as animal inventories continuously cycle through expansion and contraction phases.

However, the length and depth of the decline for beef cow numbers has been a bit surprising, if not concerning. The U.S. is currently in its fifth year of retracting beef cow numbers, falling 2.5% year-over-year to 28.2 million head. Historically speaking, these inventories are the lowest since 1961, based on USDA data. And some of the top analysts in the industry do not expect the beef-cow sector to return to 2023 levels for three to four more years. Some are even suggesting contraction will continue two more years beyond that.

Pasture conditions are rebounding

Weather plays a vital role in both forage quality and quantity, important to note as pasture and feed costs make up 50% of the expense portion in most livestock budgets. After persistent drought conditions took root in 2021 and 2022 in states with the highest beef cow populations, relief arrived in 2024. As spring and summer grazing began this year, all regions have shown positive changes in pasture conditions. The situation has also improved in the Texas counties with the largest inventory of beef cows in 2024, with no drought reported by the U.S. Drought Monitor.

With hay prices softening in 2024 compared to the start of the pandemic, cow-calf operators can start rebuilding their winter feed supply once they have recovered financially from expensive hay costs in recent years. To be certain, these prices are still considerably higher than during the previous herd rebuilding cycle from 2014 to 2019. However, if there is not enough hay to feed the current herd or additional replacement heifers, producers will not hold on to heifers to start rebuilding their herds.

Does keeping heifers make financial sense?

When it comes to cow-calf operations, a financial analysis helps determine if a producer will make a better margin from keeping a calf or selling it. Softening feed prices have improved incentives to retain heifers, however beef calf prices are at record high. These unique market conditions mean a no-brainer decision for some cow-calf operators to sell new crop calves for immediate cash flow.

According to the Livestock Marketing Information Center and USDA, average prices in 2024 for 550-pound Kansas heifers were $276 per cwt. and $314 per cwt. for steers. If a weaned calf is priced at $294 per cwt. at 550 pounds, it could be sold for $1,617 to be finished at a feedlot.

What’s the other side of this decision tree? The following values are a general approximation, as every operation is different. Accounting for operational costs, raising that heifer for one year could cost $1,315, or over $2,600 for the two years before she has her first calf, according to the Kansas State University Beef Cow-Calf Budget. Average purchase prices of a bred heifer in 2024 ranged from $1,500 to $2,600 per head in Kansas, Missouri, Nebraska, Oklahoma, and Texas. This data analysis suggests a $300 upside for producers to sell calves rather than raise them when only comparing the market sale and first year expenses. Right now, it’s not worth the risk to hold onto the heifers as the potential upside of selling the calf has immediate pay off.

Beef prices to drive retention narrative

Should steer and heifer calf prices remain record strong, it could be 2026 or 2027 before we see heifer retention rates and the beef cow population tick back up. The July USDA Cattle on Feed report noted that heifers encompassed 39.6% of cattle on feed, showing that cow-calf producers are continuing to sell more calves to feedyards after replacing cull cows — even after accounting for improving pasture conditions.

Even when ranchers start keeping more heifers, rebuilding the beef cow herd will be a slow roll. For example, it will be 2026 before a heifer calf born in 2024 has her first calf and joins the beef-cow population. However, it’s more likely 2025 or beyond will be the first year of retention.

Fewer cattle entering processing plants will lead to continued high beef and cattle prices for cow-calf and feedlot owners, and tighter packer margins. According to the Sterling Beef Profit Tracker, beef packers were losing close to $100 per head in July 2024. This spiral will end at some point because even if cattle prices continue to skyrocket, the number of animals available to be sold is finite.

Overall, after a couple of tough years with poor weather impacting forage production and interest rates now bumping 8%, it is critical for producers to have cash flow to pay down debt and build up feed inventories before adding to the herd. Once the herd does start rebuilding, a drastic change in beef cow numbers is unlikely as the growth could look more like a slight bump in cow inventory.