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Will We See The Cattle Cycle Again?
DR. ANDREW P. GRIFFITH
KNOXVILLE, TENN.
The cattle business is filled with seasonal patterns, trends and cycles, and these three time dimensions feed off of each other to some degree. Seasonal patterns are repeating patterns completed once every 12 months. Seasonality is easily observable in the feeder cattle, fed cattle and boxed beef markets, as the seasonal highs and lows typically occur about the same time each year. Trends are longer than seasonal patterns and can be thought of as a long-term direction covering several years. Lastly, a cycle is defined as a pattern that repeats itself regularly over a number of years.
The most commonly recognized cycle in the cattle business is the expansion and contraction of cattle inventories. Cow-calf producers have expanded inventories in response to profits and contracted herd size in response to losses and, ultimately, this process has created what is commonly called the “cattle cycle.” Cycles are measured from one trough to the next trough. Seven full cattle inventory cycles have occurred since 1928, with the average length of a cycle lasting about 10 years. However, the last full cycle (1990-2004) persisted for 14 years with six years of herd expansion and eight years of herd liquidation.
Producers and experts are asking questions regarding the cattle cycle in relation to liquidation years. Prior to the cycle starting in 1979, the average length of liquidation in a cycle was four years. The 1979 to 1990 cycle resulted in seven years of declining inventory while the 1990 to 2004 cycle resulted in eight years of declining inventory. Currently, cattle inventory has declined six consecutive years and is facing a seventh year, which will be revealed when the Jan. 1, 2014, cattle inventory numbers are released.
What does this mean for the cattle cycle? Does the cattle cycle no longer exist? Is the industry going to continue to contract? What have been the drivers in recent years, and how will producers react to changing conditions? These are the questions being asked. The answers may not be as dismal as they first appear, but they do require a little thought.
Derrell Peel, Oklahoma State University Extension livestock marketing specialist, noted in an article that “the cattle cycles that the beef industry has observed for many years were self-regulating cycles of inventory driven by internal beef industry factors including calf price levels, beef cattle biology and the rigidity of forage resources used in the industry.” These factors along with other production factors are key in the decision-making process for cow-calf producers and result in the expansion and contraction of the industry. However, the entrance of external factors into the equation can disrupt the cycle. External shocks can provide support or resistance to the current directional movement of cattle inventory. External contributors to the current decline in inventory include multiple years of drought in cattle and feed grain-producing states as well as changes in input market factors.
Some may say the cattle cycle is history and is a thing of the past. History also has been known to repeat itself. The cattle cycle also is likely to repeat itself if external shocks do not continue to disrupt the cycle. Cows typically have an estrous cycle every 21 days until bred, and if the cow lives long enough, she will eventually stop cycling and be replaced with a younger animal, which results in another cycle. Disruptions have and will continue to occur and that is one reason why no two cattle cycles related to inventory have been exactly the same. The current disruption has been longer than most and has resulted in longer-lasting effects. However, elevated feeder cattle prices and improved pasture and feeding conditions would indicate a strong potential for profit in the cow-calf sector, which promotes herd expansion.
The drought has resulted in a large liquidation of older cows, many of which were less productive than their younger herd mates. A younger and more productive herd provides a strong foundation for expansion and the re-establishment of what is commonly known as the “cattle cycle.” Internal beef industry factors will continue to influence herd inventory and thus work to restore the cattle cycle. Similarly, external factors will continue to disrupt internal factors and confound the cattle cycle.∆
DR. ANDREW P. GRIFFITH: Assistant Professor, Department of Agricultural and Resource Economics, UT Extension Livestock Marketing Specialist, University of Tennessee
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