Positive Story, Tonsor Forecast Positive Future for Beef Industry
The positive story for beef demand coupled with signals for expansion of the beef herd means that the beef industry is optimistic, said Kansas State University Economist Glynn Tonsor.
“When we look at the January Cattle Inventory Report specifically, it basically confirmed what we knew and added to the most recent evidence of the tight supply situation, regardless of the inventory number we look at,” he said.
All segments of the beef industry, Tonsor commented, show signs of expansion and tight supply.
Inventory numbers
Tonsor said, “These numbers tell me that the tight supply situation we’ve been talking about is here for at least another two years.”
At the same time, he noted that the process of expansion has started.
“Beef replacements were up a little over two percent year-over-year,” Tonsor commented. “It is important to note that the increase is smaller than many were expecting, so maybe we haven’t initiated expansion as much as some were anticipating.”
Tonsor also noted that the industry tried to initiate expansion in 2013, but the females that were forced to go to market meant that the industry didn’t experience the expansion levels anticipated.
“Then we expected 2014 would be the start of herd expansion,” Tonsor said. “It is important to keep in mind that weather conditions will have a lot to say in this. Simply holding back heifers doesn’t guarantee we will have the entire breeding, birthing and increased calf crop cycle.”
With hopes that forage and moisture conditions will hold coming out of drought, Tonsor said profit incentives are present to encourage producers to retain heifers and expand.
“We will have to wait and see if weather improvements occur,” he said.
Expansion indicators
“The calf crop did decline,” he said, “but that goes hand-in-hand with feeder cattle supplies being down. If we pull down the breeding stock number, we are going to pull down supply numbers.”
At the same time, a year-over-year increase in heifer retention shows a number historically in line with holding back heifers for expansion.
He cautioned producers to not assume that year-over-year increases do mean expansion. For example, in 2012 and 2013, Tonsor said increases were seen, but comparing small retention numbers to smaller numbers does not necessarily indicate overall expansion.
“We are at a point that we are holding back a large number of heifers in a relative sense, which signals we have started the process of attempting to expand,” Tonsor said.
Cycle analysis
For those interested in the cattle cycle, Tonsor said the industry is nearing the 10th year of a cycle that is typically eight to 12 years.
“We continue to pull down the total inventory for the 10th year of the current cycle,” he commented. “For those who follow cycles, this is a signal we might turn the corner and expand.”
However, Tonsor also noted that he doesn’t hold as much faith in the cycle as other methods of prediction for expansion.
“The reason I don’t use the cycle quite as much is that over time, the difference between the peaks and troughs is narrower than it used to be,” he said. “We have less variability overall for a host of reasons.”
At the same time, the fixed cost of operation makes the decision to enter or exit the cattle business more of a one-time decision. People aren’t leaving and re-entering the cattle business, as happened more frequently in the past.
Herd shift
At the same time the beef herd may be expanding, Tonsor also noted that the herd continues to move, as well.
“The Great Plains, which includes Kansas through North Dakota, Montana and Wyoming, is increasingly home to a larger portion of the nation’s beef cowherd,” he explained. “In 1995, 26 percent of the national herd was in the Great Plains, and now that is all the way up to almost 30 percent in 2014.”
Even prior to the drought, increases were beginning to be seen in the relative herd size in the Great Plains.
“Even before the drought, in the Southeast, we were seeing the slow decline in beef cow numbers,” Tonsor continued. “The Southern Plains was relatively flat, in terms of numbers, before 2010.”
For the Southern Plains, drought from 2010 to 2014 influenced pull-down in herd numbers.
“There is a long-term pattern in the Southeast that predates the drought impact and coincided with movement of the herd north and west,” Tonsor said. “The Great Plains data and heifer retention numbers coincide with that.”
Plains retention
Heifer retention in the Great Plains also began to increase prior to 2010.
“When we look at the 10 year change between 2005 and 2014, we see Nebraska and South Dakota listed in the top five states in terms of retention numbers,” Tonsor commented. “We also see Montana and Wyoming – two other Great Plains states – leading the charge in heifer retention over the last 10 years.”
Iowa also comes in on the list, and though it is not in the Great Plains, Tonsor noted Iowa is just on the edge of the region.
“The industry is attempting to expand more and more toward the northwest and less in the Southern Plains and Southeast,” Tonsor said.
Numbers game
Tonsor also noted that looking at what portion of the herd is composed of heifers also signals expansion.
“In 1994 and 2006, we could see that roughly 18 percent of the cowherd was heifers for the country as a whole,” he said. “In 2014, that number is crowding 19 percent.”
Tonsor said that regionally, the same thing has occurred regionally where expected – in the Great Plains.
“We see the least aggressive heifers held back in the Southeast, which is the only area of the country that we haven’t had some type of adverse weather impacts on the herd over the past few years,” he commented.
“There are a lot of signs that the Great Plains and the West will be leading the national charge on expansion, with rebuilding in the Southern Plains,” Tonsor said.
Tonsor presented during the 2014 Beef Economics webinar series, sponsored by Kansas State University, Merck and Meatingplace. Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at saige@wylr.net.
