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December 16, 2004 Market Advisor: What Happened To The Cattle Cycle?
Most cattle cycles last 10 years, but the current cycle has lasted 14 years. Why is this cycle longer than normal? What will the next cycle look like? Cattle cycles have been measured for more than 100 years. There are actually three components to a cycle; the cattle inventory, beef production and the cattle price cycle. Cattle inventory cycles experience periods of increasing numbers called accumulation phases and periods of decreasing numbers called liquidation phases. Beef production cycles lag inventory cycles by about a year because, to liquidate numbers, more cattle must be slaughtered. To accumulate numbers, fewer cattle are slaughtered. Price cycles are typified by periods of increasing prices called increasing phases and decreasing prices called decreasing phases. Cattle price cycles tend to be opposite of beef production cycles. The two factors that most affect the length of cattle cycles are the reproductive biology of cattle and the weather. Cattle inventory cycles typically experience six-to-eight year accumulation phases and three-to-four year liquidation phases. So, a typical cycle would be about 10 years in length. The accumulation phases are longer because of the relatively long time, compared with other livestock species, it takes to rebuild herds. Heifer calves retained in the fall for breeding purposes will be bred the following summer and have a calf the next spring. That calf will not reach slaughter weight and be reflected in the market until the following year. Since this reproductive biology cannot be changed given current technology, cattle cycles likely will continue to occur. Years ending in five and six are usually times when cattle numbers and beef production are high and prices are low. That has been the case for many decades, including 1975-76, 1985-86 and 1995-96. However, in 2005-06 we likely will see cyclically low numbers and beef production and the beginning of a new cycle. The current cattle inventory cycle began in 1990 with the accumulation phase lasting six years until 1996, just as expected. The resulting cyclically low prices in 1995-96 caused producers to liquidate herds for four years through 2000, again as expected for the 10- year cycle to be completed. However, in spite of relatively favorable prices in 2001, when rebuilding normally would have started, liquidation of cows continued. By Jan.1, 2004, cyclical liquidation had lasted for eight years, which is twice the normal length of a liquidation phase. The USDA tabulates cattle numbers each year on Jan. 1. This longer-than-normal liquidation has occurred because of abnormally dry weather conditions in much of the cattle producing areas of the United States. In 2003, close to 50 percent of the beef cows were in areas experiencing dry conditions. Moisture conditions have improved nicely in much of the beef cattle producing area, although dry conditions still persist in parts of the West. Improved moisture conditions and cyclically high prices are stimulating interest in expanding the beef cow herd again. The USDA National Agricultural Statistics Service will release the Jan. 1 cattle report on Jan. 28, 2005. That report will show how much, if any, cattle numbers have increased this year. A theoretical six-year accumulation phase would mean cyclically high production and low prices in 2010, with cyclically high prices again by 2015. So, instead of years ending in five and six seeing cyclically low prices, years ending in zero and one may now experience low prices instead of the highs they have registered for many cycles in the past. Happy Holidays and a prosperous New Year to all readers of the Market Advisor! ### Source:
Tim Petry, (701) 231-7469, tpetry@ndsuext.nodak.edu |
Market Advisor: |
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North Dakota State University |
