The cattle cycle is the single most important force impacting your beef cow profits. For years, the alternative economic booms and busts associated with cattle cycles have been a matter of great concern to the beef industry. Always the question arises as to why the beef industry cannot attain a sustainable animal growth number that would prevent the market price gyrations associated with changing cattle numbers during a cattle cycle.
The underlying force behind cattle cycles is the biological lag between the time cattle producers get the market price signal to expand beef production and the time they can actually do so - by which time prices have tilted downward, giving a new price signal to reduce beef cattle numbers. The biological lag is what causes cattle cycles and why we will continue to have cattle cycles.
The effect of this decade's cattle cycle on beef cow profits is illustrated in Figure 1. The decade began with reasonably good net returns from beef cows and then deteriorated in the middle of the decade. The 72 percent drop in average profits in 1994 down to a profit of $49 per cow certainly got the attention of North Dakota beef cow producers. Average profits deteriorated even more in 1995 to a loss of $28 per cow, and then dropped to a $51 loss per cow in 1996. In short, the three low- or no-profit years were right in the middle of the decade. This year, 1997, is proving to be the turnaround year. Profits are up and projections indicate that profits will continue to increase as we round out the rest of this decade.
This net profit pattern - high at the beginning of the decade, low in the middle and high again toward the end - is representative of a typical 10-year beef price cycle caused by a typical 10-year cattle cycle.
The Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University and the University of Missouri publish a set of 10-year planning prices for the beef industry annually. Figure 2 illustrates FAPRI's most recent long-range price projections for Oklahoma 600- to 700-pound feeder steers. FAPRI projects that feeder cattle prices will trend upward through the yea r 2001, and then trend downward into the middle of the next decade. The driving force behind these price projections is the cattle cycle. For an expanded set of these price projections, click the "price analysis" button on my World Wide Web site at www.ag.ndsu.nodak.edu/cow.The key thing beef cow producers should note today is that these price projections suggest that we are now entering the upward portion of this decade's beef price cycle. Do you have an action plan to take maximum advantage of the favorable beef prices that lie just ahead of us? Or, will you be one of the many who will miss this profit opportunity? In my next article, I will share with you how some of my IRM cooperators are managing added profits from the cattle cycle.
Harlan Hughes is Extension Livestock Economist at North Dakota State University. He conducts educational programs for cow/calf producers and writes a biweekly market advisory column published throughout the western United States and Canada.