As I write this article in early October, beef cow inventory is at a 62-year low. Tight supplies have driven cattle markets and calf prices have increased by roughly $1 per lb. over the last two years. With limited heifer retention and beef cow slaughter on track to exceed 10% of beef cow inventory for the year, it appears very likely that beef cow numbers will be even lower going into 2025. At some point, we will expand this cowherd but there appears to be little evidence that producers have an appetite for that, currently. In order for the cow herd to grow, we need to have the 3 Ps of herd expansion at the cow-calf level: profit, pasture and patience.

The first P is probably the most obvious – profit. There will be no interest in cowherd expansion if money is not being made at the cow-calf level. While profit has largely been there recently, it is important to remember that these strong calf price levels are relatively new. We actually went from November 2015 to February 2023 (7 years and 4 months) with the state average price of a 550 lb. medium / large frame #1-2 steer in Kentucky being under $2 per lb. Coming out of that challenging 7-year period, I think a lot of cow-calf operators have been cautious and guarded. Just as importantly, a lot of costs are substantially higher now than they were ten years ago, so comparing current calf prices to historical calf prices can be misleading. Still, I think current returns at the cow-calf level are sufficient to see heifer retention if the other two Ps fall into place.

The second P is pasture, and I am using pasture broadly to describe forage/feed availability. While profit may be the first driver of expansion, no level of profit can make it rain and limited pasture and hay supplies can nix any interest in expansion in a hurry. As a recent example, drought was so widespread in the U.S. during 2022 that expansion would have been highly unlikely, regardless of calf price levels. Both hay supplies and pasture and range conditions have improved since 2022, but a lot of areas have been dry this year. Regardless, there is no doubt that both profit and pasture/hay are needed in order to see a significant interest in expansion.

The final P is patience, and I actually think this may be the one that is most lacking in the cattle industry right now. When a producer decides to expand the size of their cowherd, they are trading income from the sale of heifers today for a stream of income from additional calf sales in the future. Weaned heifers are valuable in 2024 and passing up that income in the short run is difficult. Developing heifers is also costly and is an expense that is incurred well before additional calves can be sold. These same factors were largely present when our last expansion began in 2015, but interest rates were considerably lower than they are today. Higher interest rates increase the cost of production and also increase the preference for income today, rather than in the future. Put another way, patience is at a premium in higher interest rate environments like the present.

At some point, the three Ps will line up and we will expand this cowherd. When that will happen is a difficult question to answer, but it is safe to say there are no signs of heifer retention right now. Limited heifer retention, combined with cow slaughter levels, suggest that another decrease in beef cow inventory is almost certain when the January 2025 estimates are released. So, supply fundamentals are encouraging and should continue to support calf prices next year. Many are also expecting some reductions in interest rates over the several months, which may factor into this decision at the producer level.

If weather cooperates, I do think increased heifer retention could be seen in 2025, but it is important to remember that this would just be the first step towards expansion. And the initial impact of heifer retention is actually a tightening of calf markets as those heifers are held back. There are always risk factors out there, but I remain optimistic about the next couple of years largely because cattle supplies are tight and likely to get tighter. We are not seeing signs up expansion yet, so all we can do is watch for the 3 Ps!