Some of the thoughts I shared last week raised a few questions, so I decided to expand this discussion.   Since we have not seen a true bottom to a cattle cycle since 1996, many have forgotten how the cattle cycle works.   For the most part, the cattle cycle is based on supply and demand.   When supply exceeds demand, prices go down – and when demand exceeds supply, prices go up.   Unlike crop production, it takes a few years to significantly change supply in the beef industry.   Cattle prices are also affected by things like widespread drought, BSE and emotion.

Even though there were a few bumps in the road, cow-calf producers enjoyed relatively high prices for nearly 20 years.   As a result of an extensive, widespread drought, beef supply continued to go down.   This was the first time in my lifetime that cattle prices stayed so high for so long.   Prior to this, you could expect to see a bottom in cattle prices approximately every ten years.   Things were so good for so long most cow-calf producers became complacent.

Emotions became involved in 2014 – causing cattle prices to increase at unprecedented rates.   Cattle prices peaked at an unbelievable all-time high in the fall of 2014.   I don’t know of anyone who thought those prices would ever be attainable in their lifetime.   We were living the dream!   Everyone was elated!   Instead of selling at the top of the market, everyone decided to increase the size of their cowherd.   They must have believed cattle prices were going to remain that high.

Looking back… I believe cattle prices went up too fast and too much in 2014.   They simply could not be sustained.   This caused prices to fall fairly rapidly in 2015 and 2016.   This too may have been driven more by emotion than by anything else.   There continues to be a lot of volatility in our markets.   It doesn’t require much to send prices higher or lower – often within the same week.

Even though cattle prices dropped for most of two years, herd expansion continues.   More heifers and cows are being retained for breeding purposes.   When herd expansion is taking place, fewer heifers and cows are going to slaughter.   This temporarily reduces beef supply.   This is the reason cattle prices have been increasing for the past six or seven months.

Since cattle prices have been increasing, it is easy to think we have already seen the bottom of this cattle cycle.   What do you think?   Have we seen the bottom of this cattle cycle?   Will cattle prices continue to increase for the next few years?   I sincerely hope we have seen the bottom of this cycle – but logic tells me we have not yet seen the bottom.

As we continue to put more and more cows and heifers in production, what will eventually happen to our beef supply?   Supply will increase.   When supply exceeds demand, what will happen to prices?   Prices will fall.   How far will they fall?   No one knows.   It will depend on how much we increase beef supplies.   Once the ball gets rolling, however, it is very difficult to stop it.

As I said last week… most of the experts I listen to believe the nation’s cowherd will continue to expand through 2018.   Some believe it will expand through 2019 if the weather cooperates (no major droughts).   This pretty much guarantees we will have near record-high beef production in the next few years – which pretty much guarantees we will have much lower calf prices.