He knows it’s a broken record, but Kansas State University (KSU) livestock economist Glynn Tonsor says it’s important to never lose sight of the fact that we have historically tight cattle numbers. That is one of the key, fundamental metrics underpinning another fact that’s not news to anybody in the beef industry—record-high cattle prices, regardless of the weight class you’re talking about.

Add that together and you get some mind-boggling estimates for returns over cash costs for cow-calf producers.

Now consider the caveat—drought. For the past several years, USDA estimates showed cow-calf producers kept heifers in an attempt to restock pastures and regrow their breeding herds. Mother Nature had other ideas, however, and most of those heifers went feedyard-bound as pastures withered under an unrelenting drought.

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And drought is certainly the wild card in 2014, Tonsor said during the second of four quarterly cattle market outlook webinars he hosts, co-sponsored by BEEF. But even though the current drought monitor map shows much of the Central and Southern Plains and the Southwest, particularly California, is under severe to debilitating drought, it also shows that areas that are home to about 42% of the beef cows in the nation at present are enjoying more normal moisture conditions.

Which begs this question: is the projected $350/cow return over cash costs for 2014 and 2015 enough to pull the trigger on expansion?

Tonsor thinks so. “I think we have started that process. The exact magnitude is very much up for debate, but there are signals as we look at feedyard placements and slaughter numbers to say we probably have started the process.”

Take feedyard placements, for example. Looking at heifers placed on feed, Tonsor says the first quarter of 2014 registered a 34% placement percentage. That’s nearly identical to 1996 and 2005-2006, when the industry last attempted to expand.

Cow slaughter is also signaling a desire to grow the breeding herd. That’s tricky, Tonsor says, because cow slaughter may well have been lower this year than last year simply because there are fewer cows. But cow slaughter so far in 2014 gives him an indication that more cows are staying home as a result of higher profit expectations.

Where herd rebuilding occurs will be dictated by drought and relative production costs. But Tonsor thinks the industry is on the front end of finally being able to release some of that pent-up desire to put more hooves in more pastures. “In aggregate, I think we’ve put the wheels in motion to try to expand the herd,” he says.

 

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