Despite historically low herd numbers, there are silver linings in the states cattle sector

In January, 2023, the USDA report of the lowest cattle inventory in decades came as no surprise to most cattle producers with this steady decline occurring over the last four years.

University of Kentucky (UK) College of Agriculture, Food and Environment Extension Professor Kenny Burdine said many factors have caused the decline in the number of cattle here and throughout the country.

“The combination of widespread drought, which impacted much of the U.S. during 2022, high production costs, and high cull cow prices resulted in large decreases in beef cow numbers at the national level,” he said. “As of January 1, 2023, beef cow numbers were down four percent from 2022.”

Burdine added that the size of the beef cow herd has been decreasing since 2019 and is down nine percent (2.8 million cows) from that time and the U.S. beef cow herd has not been this small since 1962.

“The drought also impacted hay production and hay supplies this winter,” he said. “Hay yields were lower, and producers had to start feeding hay earlier than usual and the result of this was tighter supplies and higher winter-feeding costs for cow-calf operations.”

The silver linings

Burdine also sees many positives for cattle producers despite the low numbers including:

• From a supply perspective, the cattle market fundamentals have not looked this good in a very long time. The decreasing cattle numbers over the last few years will result in significantly lower beef production and tighter feeder cattle supplies for 2023 – both of which should support cattle price levels.
• There are opportunities for cow-calf and backgrounding/stocker operations to profit by selling larger cattle. Feed prices remain extremely high, so feedlots prefer to place heavier feeder cattle. This increases the value of pounds that are added to cattle in Kentucky.
• In early-mid March, cattle markets took off at levels we have not seen since 2015. Calf markets usually hit their seasonal peak in the spring with the onset of grass growth. There is also a great deal of carry in feeder cattle futures markets, which suggests that heavy feeder cattle prices should continue to increase throughout the year.
• Kentucky can utilize multiple feedstuffs, which creates opportunities for feed-based programs. And, the state typically has a strong forage base, which gives producers the ability to utilize grazing to add pounds at an even lower cost.
• While feed prices have been high, the value of gain dynamics still made for relatively attractive winter backgrounding opportunities on cattle placed last fall and sold this spring.
• And, although calf prices will be very high this year, the expected value of gain still points to opportunities for summer stocker operators.

Support of cow-calf operators key to continued success

Shane Wiseman, a cattle producer from Clark County said the lower numbers begin with cow-calf operations but ripple throughout the sector.

“The numbers are lower than they've ever been in my lifetime and in most people's lifetime,” he said. “Cow-calf producers have not been making any money, so they've gotten out of the business with some people having sold their entire cow herd.”

Wiseman, who also serves as a Kentucky Farm Bureau (KFB) state director, the KFB Beef Cattle Advisory Committee chair, and the organization’s representative at the U.S. Meat Export Federation, emphasized that the whole industry depends on the cow-calf operators to feed the rest of the cattle system, therefore, contributing to lower numbers across the entire sector.

“If you don't have the cow-calf operations, it doesn't matter about your feeders because you don't have anything to feed,” he said. “The cow-calf producers are the main cog that gets the calves started. You’ve got to have them.”

Mitchel Logsdon is a cow-calf producer in Hart County. He said his cattle numbers have maintained over the past few years but growing his herd is an issue all its own.

“I would've liked to have been running more cows, but with the lack of available pasture for rent or the cost of buying pasture, we haven't been able to increase that at all,” he said. “And the cost of inputs is another issue that's been hard on the cow-calf operator.”

Logsdon, who is also a KFB state director, recognizes that higher market prices have played a role in lower cattle numbers, as well.

"Over the last few months, feeder calf prices have seen some strong gains, which is a good thing, but we’ve seen high slaughter cow prices that we're experiencing right now and have been in general for the last three years,” he said.

Wiseman said cattle production is cyclical and he feels the low situation will pass but it could take a while.

“I just think it takes time to see numbers rebound. A cow will have one calf a year and it takes time to get weaned calves ready to sell, so turning this ship around will take some time,” he said.

On the flip side, cattle prices are high, and money can be made, according to Wiseman.

“If you’ve got the farms, the facilities, and the infrastructure to be in the cattle business in general, whether it be backgrounders or cow-calf, I think it's a good time to be in the business,” he said. “And while the money side of things has gotten better, it's still not where it needs to be. At some point, there has to be more money made especially for the cow-calf operator.”

Logsdon agrees. He said the supply of cattle starts with the cow-calf operations and if their numbers are dropping or not increasing, the whole industry including export markets are affected.

“We realize that prices are good, but you’ve got to have the product,” he said.

Protecting your investment

According to information from UK’s annual ag economic outlook, the state’s cattle industry represents 13 percent of an estimated $8 billion in ag cash receipts for 2022. Kentucky is also the largest cattle-producing state east of the Mississippi.

Because of the value of this sector, even with low inventory numbers and high input costs, the state’s cattle industry is a major contributor to the state’s overall economy.

With that said, similarly protecting one's livestock as grain crop producers do, may become the norm through the use of the Livestock Risk Protection (LRP) program. 

Green County UK Agriculture and Natural Resources extension agent Ricky Arnett said the LRP has some updates that should be beneficial to cattle producers, which is authorized by the farm bill.

“Beginning in 2021 the changes in this program included an increase in subsidies, and payments don’t have to be made until the livestock are sold,” he said. “This is a game changer for anyone in the cattle business but especially for our young producers, and beginning farmers, who really need the security this program will supply.”

The program is designed to create a floor price for feeder cattle in the event of a sharp decline in prices.  For cattle producers, coverage includes calves, steers, heifers, predominantly Brahman cattle, predominantly dairy cattle, and unborn calves.

Several changes have been made to LRP, which also includes swine, over the last few years. Some of those changes were:

• Increasing livestock head limits for feeder and fed cattle to 12,000 head per endorsement/25,000 head annually, and swine to 70,0000 head per endorsement/750,000 head annually
• Modifying the requirement to own insured livestock until the last 60 days of the endorsement
• Increasing the endorsement lengths for swine up to 52 weeks
• Creating new feeder cattle and swine types to allow for unborn livestock to be insured

Arnett said before the changes came about, the program didn't fit the need of cattle producers as much as it does now.

“But now that the premium subsidies are up, and with that premium not being due until after the sale of the livestock, I truly believe this is going to change momentum for cattle producers once they get started,” he said. “It's so new that most people haven’t got involved yet, however, it's starting to pick up the pace. And in my opinion, I believe this is going to help us stabilize our market.”

KFB President Mark Haney said the state’s cattle industry is solid even during a time when numbers are so low.

“We have a strong cattle sector, and we know it runs in cycles, so the situations we are seeing now will change,” he said. “But, when it does, having tools such as the LRP will help to sustain our operations and more importantly will help to entice new producers to get into the business which means our cattle industry will only get stronger.”