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Iowa cattle producers buck national trendIowa cattle producers buck national trend

Livestock Outlook: In cattle production, it’s about prudence and tailoring actions to circumstances.

Lee Schulz

February 18, 2022

6 Min Read
cattle grazing with barn and cornstalks
AMPLE FEED: Iowa's cow herd increased in 2021, opposite the national trend. One factor may have been ample fall feed, as mild weather kept harvested cornfields open for grazing.DarcyMaulsby/Getty images

Antithesis literally means opposite. People use it in everyday speech when describing two ideas or terms placed in strong contrast to each other. Some common ones are: go big or go home; get busy living or get busy dying; no pain, no gain; no guts, no glory. One even helps explain academics — those who can, do; those who can’t do, teach.

Can producers use knowledge of the cattle cycle to make more profitable investment decisions? Yes, if they apply two basic principles. First, buy low and sell high. Second, find out what everyone else is doing, and do the opposite. While easier said than done, these principles can provide some guidance when making long-range plans.

Iowa climbs in beef cow rankings

A year ago, Iowa was the 13th-largest beef cow state, with 2.8% of the national beef cow herd. Today, Iowa ranks 10th, with 3.1% of the U.S. inventory. Thirteenth is the lowest Iowa has sat in the rankings; it was also there on Jan. 1, 2011. In the last 30 years, Iowa has made it as high as the ninth-largest beef cow state three times — at the beginning of 1993, 2016 and 2017.

The beef cow herd is the foundation of the total cattle inventory, and Iowa appears to be leading the national herd by about two years in the current cattle cycle. Iowa’s beef cow herd last peaked on Jan. 1, 2017, at 965,000 beef cows, and fell to 860,000 beef cows on Jan. 1, 2021. The U.S. beef cow inventory peaked on Jan. 1, 2019, at 31.691 million head and has not yet hit its cyclical bottom.

The 30.125 million beef cows in the U.S. as of Jan. 1 were down 2.3% from Jan. 1, 2021, according to the USDA National Agricultural Statistics Service Cattle inventory report. Two-thirds of the states reported fewer beef cows than a year ago. This was headlined by 189,000 fewer beef cows in South Dakota and 160,000 fewer beef cows in Texas. Missouri and Montana were down 94,000 and 90,000 head, respectively, while Nebraska had 48,000 fewer beef cows.

Iowa’s herd of 925,000 beef cows was up 7.6% from a year ago. The 65,000-head gain was the largest of any state. Idaho rose 34,000 head. Minnesota grew by 25,000 head. Ohio was up 20,000 beef cows, a notable 6.8% year-over-year rise.

Beef replacement heifers nationally as of Jan. 1 totaled 5.612 million head, 3.3% below the 5.803 million head on Jan. 1, 2021. Beef replacement heifers in Iowa, at 160,000 head, were up 3.2%, above the previous year’s 6.9% rise.

Investment timing matters

The market value of cows is one factor influencing herd investment strategies and results. As calf prices rise, the values of bred cows, replacement heifers and cull animals all rise. Breeding stock will sell at higher prices over the next couple of years.

Beef cow herds are capital-intensive enterprises and should be viewed as other capital investments. The initial investment in cows, purchased heifers or farm-raised replacement heifers generates a future earnings stream from calf sales that provides a return on the original investment. The cull income at the end of the cow’s productive life provides a salvage value. The timing of when you invest impacts the return, because the cattle cycle impacts the investment cost and future earnings.

Many producers who are trimming herds now likely bought them at very high prices, by buying or retaining exceptionally more heifers back in 2014 and 2015. The replacement females may not have paid for themselves yet. But, the situation has been complicated by widespread drought in 2021, which impacted what many producers had to do — as opposed to what they would have liked to do. The same may be true in 2022.

The cost of producing or purchasing feed accounts for about three-quarters of the total operating cost in cow-calf production. Types and costs of feed used are quite variable. Producers not only graze cows on pasture and range, but also on land used primarily for other purposes. For example, crop residues are frequently grazed following harvest.

Weather conditions in Iowa were mild, including a lack of snow cover, until the middle of January this year. Cattle continued to graze on cornstalks, minimizing the need for supplemental hay. In other regions, drought and poor grazing conditions were limiting factors and may have neutralized any cost advantages.

Cost structure also matters

The portion of production costs that are fixed and the portion that are variable can significantly impact the benefits or costs producers experience by trimming or growing their herds. When times are tough, farms with relatively high variable costs and low fixed costs benefit most from herd reductions. If these farms sell their least-productive cows, then average production per cow should rise. This will lower the average variable cost for each calf produced. Fixed costs per unit produced will also change.

These farms now have fewer cows producing fewer calves to spread their costs around, so average fixed cost per cow rises. But because fixed costs were relatively low to begin with, the net effect on total cost of the herd reduction may well be positive. On the other hand, herd expansions or holding inventories best suit farms with a lower variable cost and higher fixed-cost structure. Therefore, reducing the cow herd during low price periods does not benefit every farm.

USDA’s Economic Research Service defines farm resource regions based on geography and a host of other factors. North and South Dakota are in the Northern Great Plains region. Parts of Montana, Wyoming, Nebraska and Colorado are also in this region. According to the Commodity Costs and Returns estimates, this region traditionally has the highest proportion of variable cost as a percentage of total cost, that is, a 50-50 percentage split on fixed and variable costs. In 2021, variable costs certainly skyrocketed in the region due to weather and feed prices. Not coincidentally, these states notably trimmed beef cow herds.

The Heartland region, which includes Iowa, is estimated to have a 60-40 split on fixed and variable costs. Increasing the beef cow herd, even during a relatively tight margin period, can be beneficial with such a cost structure. If these farms are losing money on every calf, they would lose more money after reducing their herd, because total unit production cost would increase dramatically, driven by a much higher fixed cost. Adding cows may allow them to lose less or make more.

Price impact in Iowa

I received an insightful question in response to the recent dynamics in cattle inventories. The question: Will having more cattle in Iowa impact local cash prices? Remember, when supplies rise, all else equal, prices tend to decline.

The change in Iowa inventories does little to affect the downturn in the total U.S. cattle inventory. Prices tend to vary inversely (though not perfectly) with cattle numbers, meaning that as inventories decline nationally, all prices should increase. Also, cash price differences reflect quality differences. Iowa has a reputation for producing high-quality cattle.

Iowa is in the top 10 nationally for cow-calf production and top four for cattle on feed, meaning Iowa is a net importer of cattle for finishing. If anything, recent dynamics may move Iowa to being more self-sustainable, helping to insulate from outside shocks, and becoming even more competitive on the national landscape.

Schulz is an Extension ag economist with Iowa State University.


About the Author(s)

Lee Schulz

Lee Schulz is the Iowa State University Extension livestock economist.

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