Despite high beef prices, the U.S. cattle herd remains at record low numbers. Nate Kauffman, the senior vice president and Omaha branch executive for the Kansas City Fed, said the numbers show there should be some rebuilding underway.
“You might ask the question that, especially as you look at the chart on the right-hand side and see that inventories have been declining for some time, this market would be suggesting that there should be some expansion happening, and there should be some herd rebuilding. And the reality is that that has been pretty slow.”
He talked about what’s holding producers back from adding to their herds.
“Part of the reason is that, while there are still costs involved, these costs really have to be taken into account for multiple years, and not just the current environment. I think there’s some hesitation and some amount of risk aversion, just given the current level of prices. To think about expanding or investing in this market, whether you’re the operation or the lender, there is some risk involved. And so, just given the level of prices, and essentially the point at which you would be investing in this market, the herd rebuilding has been relatively slow. It’s happening in some places.”
What’s amazing is how much beef is still getting produced despite the smaller herd size.
“Now it is important to keep in mind that it’s not just the, I think this point sometimes gets missed, but it’s not just the number of animals. You obviously have to be thinking about what it means in terms of beef production. And beef production has been declining, but overall, that level has been higher than what the inventories would otherwise suggest. And this is just because the animals are generally heavier than they were years and years ago. And so, the production that we get from beef hasn’t declined quite as much as what the inventories might suggest.”