Most cattlemen know there is a very predictable and repeatable cattle cycle that is driven by supply and demand. The wise ones know how to use it to their advantage. When there are high cow numbers, cattle prices will go down. When there are low cow numbers, cattle prices will go up.

According to Derrell Peel, professor in agriculture economics at Oklahoma State University, “Cattle cycles emerged as the ranching industry developed in the late 1800s.” The first cyclical peak occurred in 1890 when cow numbers reached a record high of 60 million head. This caused cattle prices to crash. There have been 12 cattle cycles since 1890. Although we often refer to them as 10-year cycles, these cycles have averaged 12 years from one high price point to the next high price point.

Cattle Cycles are not complicated. Cowherd expansion is triggered by high cattle prices. Expansion will continue until calf prices drop to the point that the cow-calf producer is no longer profitable. Low calf prices will result in cow liquidation to the point that cow numbers decline enough to prompt higher prices. We repeat this process over and over and over again because we are unable to stop it. The best cure for high prices is high prices and the best cure for low prices is low prices! That’s the way it’s always been!

Cattle cycles can be predicated on Mother Nature. The last two cattle cycles, for example, were greatly affected by long-lasting and widespread droughts. When it doesn’t rain, the grass doesn’t grow — and cow-calf producers are forced to sell cows. When cow numbers get extremely low, calf prices will get extremely high. That is precisely where we are today — extremely low cow numbers and extremely high calf prices. Cowherd expansion is in the beginning stages — and you know what that will lead to.

When calf prices are extremely high, everyone wants to get in on the action. They mistakenly believe calf prices will never fall again. In previous cattle cycles, I have noticed that high calf prices will cause non-cattlemen to become cattlemen. I’m referring to people like doctors, lawyers, bankers and such who are always looking for a good place to invest their savings. They buy cows at the top of the market. By the time they sell their first set of calves, the calf market will be falling. They will end up selling their cows at the bottom of the market. Lesson learned!

In my 39 years of ranching, however, I have seen a few very astute cattlemen make a considerable amount of money on both ends of the cattle cycle. They know every cycle will have years of high prices that are followed by years of low prices — and they know how to use that to their advantage. They are able to take advantage of some big opportunities because they take time to plan and prepare for them. Unfortunately, most people don’t see very many opportunities until it is too late to take advantage of them.