Much discussion about the cattle markets in 2022 has focused on factors impacting current and future supply. Drought-related feed placements, higher cow and heifer slaughter and lower auction proceeds are all issues discussed in this newsletter over the last few months and have implications for future cattle supplies. Today I want to take a step back and look at the supply situation from a longer-term perspective, typically referred to as the livestock cycle.
The cattle industry is inherently cyclical. The production delays inherent in the sector lead to long-lasting effects of production decisions. Increased liquidation in 2022 implies tighter supplies for the next year. Similarly, periods of herd expansion are typically multi-year periods. This expansion story lasted from 2014 to 2018. The cliche that it takes a while to turn a big ship around is apt.
The cattle industry has been in cycles for as long as we can see data. The chart above shows the last eight cattle cycles since 1938. A cycle is defined as the cattle herd trough, through the peak and back to the next trough where the next cycle begins. As shown in the graph, these cycles typically last around 10 years. January 1, 2023 marks the ninth year of the current cycle, which began in 2014. We are currently in the contraction phase of the cycle after the 2018/19 peak. The current cycle always ends when the next expansion phase begins.
How long we continue to shrink is directly affected by drought and grazing conditions. Below is a chart pulled from drought monitor data from 2000 to present. The current drought draws comparisons to 2011-2013 and has resulted in similar liquidation effects on the cattle herd. Herd expansion will be difficult until the drought abates.
Producer profitability will be the key factor in determining when the next phase of expansion occurs and when the next cattle cycle begins. 2014/15 was a clear example. At record-high prices, producers figured out how to produce more, and the result ended seven straight years of contraction. Just a few years ago, the thought of reaching these record prices again seemed far-fetched. However, we are again witnessing many of the same ingredients that led to the 2014/15 market. Cattle futures markets for 2023 are at levels not seen since 2015. The timing is still in the stars and beef demand will certainly play a role, but ultimately the end of the current beef cycle might not look all that different than the end of the last one.
Source: Mississippi State University, which is solely responsible for the information provided and fully owns the source. Informa Business Media and any of its affiliates are not responsible for the content of this information resource.
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