The 3 P's of Beef Expansion

Host: Joanna Coles, Warren County Extension Agent for Agriculture & Natural Resources

Guest: Dr. Kenny Burdine, UK Extension Livestock Marketing Specialist

Topic: The 3 P’s of Beef Expansion

Beef cow inventory is at a 62 year low. 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 US 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, including my home state of Kentucky. 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 farmer 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 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.