BEEF cow numbers are at the lowest they've been since 1962. While severe midwestern drought in 2012 forced many producers to sell their cattle, improved land conditions, lower feed costs and high beef cattle prices have producers beginning the process of rebuilding the U.S. herd.
According to Texas A&M AgriLife Extension Service economist Stan Bevers, however, cattle ranches must be restocked before the nation can rebuild its cattle herd, and in a period of drought, it takes careful management.
"You have and will continue to hear about the glorious market incentives that will cause you to rebuild the national cow herd, but many people don't understand that there is a difference between rebuilding and restocking a cow herd," Bevers told attendees at the recent Panhandle Ranch Management workshop in Amarillo, Texas.
"Everyone's ready to rebuild the cow herd. We'd all love to do it. Just tell me when my water is ready, and tell me when my grass is ready," he said.
Rebuilding starts with restocking on the individual ranch level, Bevers said.
"The unique thing about a cow/calf operation compared to other components of the beef industry is that it is a totally different business model," he said. "We are talking about an asset management business where we have to pay attention to the fixed assets and fixed costs within that operation."
Bevers explained that the only way to decrease a fixed cost, from a micro-economic theory standpoint, is to increase the number of cows.
"So, anytime we get into a drought situation, the example I use is property taxes: Somebody that has owned land out there may be paying $10,000 in property taxes. The tax appraisal district doesn't care if you have five or 500 cows on that land; the fact is you still have to pay $10,000 in taxes."
He defines restocking as the process of placing beef cows back onto your property in order to efficiently utilize the property as an income-generating investment.
Rebuilding, on the other hand, is increasing the national beef cow herd over and beyond inventory numbers once restocking after drought has already taken place. This is a macro-level issue commonly referred to as expansion.
To rebuild, someone has to move out of their comfort zone, Bevers said, "and when I'm talking about a comfort zone, I'm talking about where our production on a ranch is maximized, where our expenses are minimized and where our resources are protected.
"At the cusp of those three things — that is where I get my maximum efficiency, and that is my comfort zone and where I want to be," Bevers explained.
A drought forces a reduction in numbers, however, and the first thing that happens is productivity declines, expenses rise and natural resources are endangered, he said.
"Because of the fixed-cost nature of cow/calf operations, anytime we destock like that, if we don't kill some of our fixed expenses, then our fixed costs go up," Bevers said. "So, it is a cusp there and a balancing act to get back to a restocking where I'm most comfortable and most efficient as an operation."
When this happens, then the industry can look at rebuilding from the current 29 million cows in the U.S. back to the 31.0-31.5 million that existed before the drought, Bevers said.
"We have to restock before we rebuild, and the first thing is making sure the rancher gets the numbers he needs," he said.
When considering whether to begin that restocking process, a producer's biggest question may be whether it's the right time to buy.
According to Dr. Stephen Hammack, Texas AgriLife Extension service beef cattle specialist in Stephenville, Texas, the answer is that it really depends on many factors. He recently walked producers through the different metrics of buying replacement cattle at the Blackland Income Growth Conference in Waco, Texas.
Hammack said if producers are considering restocking, there are different alternatives and factors involved. For example, cattle availability, initial investment, development phase, rebreeding potential, potential longevity and calving difficulty/death loss are just a few things that need to be assessed.
First, Hammack recommended that producers visit http://beef.tamu.edu/rebuilding for background information and resources to help with decision-making. Next, he discussed the different options producers have when considering restocking their herds, such as retaining heifers or purchasing heifers, cow/calf pairs or three-in-ones (a single cow that is bred and has a calf by its side).
For retained heifers, Hammack said the obvious challenge is not having a calf for two years and the animal's nutritional needs. The plusses are availability, marketing flexibility, genetic potential and longevity.
For purchased heifers weighing less than 700 lb., the plusses are availability, marketing flexibility and initial investment. The drawbacks include the development phase, rebreeding potential, dystocia/death loss, above-average nutritional needs and a high cull rate.
For purchased heifers weighing more than 700 lb., bred heifers and first-calf pairs, Hammack said the plusses are longevity, while the minuses include the initial investment, rebreeding potential, nutritional needs and cull rate.
With low inventory numbers, low feed costs, climbing cattle prices and improved land conditions, it's time to rebuild the U.S. beef cattle herd. Beef cattle producers have a variety of things to consider, and each situation is different. Producers should develop a tailored plan that will maximize efficiency and profitability for their individual operations.
Beef cow rankings
Missouri has reclaimed its status as the number-two beef cow state in the nation, with a 63,000-cow increase in 2013. The U.S. Department of Agriculture's annual cow count showed that Missouri rose from number three back to the second position, which it held from 1983 to 2008.
The state has 1.82 million cows, down from more than 2 million in 2008. The USDA inventory showed Missouri to be one of only three states to grow its herd size by more than 50,000 cows. In 2013, Kansas added 86,000 cows, and Oklahoma added 51,000. Arkansas added 31,000, making it the fourth-fastest-growing cow state in the nation.
Texas remains number one, with 3.91 million head. During the long-term drought, Texas cow numbers dropped 1.1 million head from the 2011 USDA report.
Nebraska, which had been number two for two years, dropped to number four, with Oklahoma coming in third in beef cow numbers.
In contrast, 37 states declined or held steady at 2013 levels, said Daniel Madison, research economist at the University of Missouri division of applied social sciences.
Nationally, the cow herd continued declining, losing 255,000 head in 2013. The U.S. herd now has 29 million cows, the lowest level since 1962.
Observers anticipate an upturn in cow numbers. The declining beef supply brought sharp increases in cattle prices. Meanwhile, sharp drops in feed prices point to higher profits. That should lead to rebuilding the cow herd.
However, droughts and doubts about grass and hay supplies are causing caution for herd owners nationally as dry weather continues in parts of the U.S.
"The economics seem to be in place for future growth in the beef cow numbers," University of Missouri beef economist Scott Brown said. "Missouri producers see those signals. Heifers retained in the herd are an indicator of optimism."
Nationally, the heifer inventory rose 1.7% over 2013. In Missouri, heifer numbers are up 5.2%.
"Unlike the last few years, feed price projections are more promising for anyone raising cattle," Brown added. "Feedlots are selling fed cattle at prices never seen before. Now that their feed bills are dropping, they pay more for feeder calves. They want to refill their lots."
The strongest developing trend in cattle prices is higher premiums for quality beef.
"The biggest premiums are paid for USDA Prime-grade cattle," Brown said. "Missouri producers in the Quality Beef by the Numbers program gain current high market prices plus grid premiums, in some cases, of hundreds of dollars."
However, more than economics are in play, he noted. "Drought continues to be a concern" Brown explained. "California and Nevada herds are being reduced because of lack of water and grass."
According to the U.S. Drought Monitor, conditions ranging from abnormally dry to moderate drought continue to cover a swath of the country from northern Missouri through Iowa to southern Minnesota.