Navigating the U.S. cattle cycle

Every cattle rancher experiences ups and downs in the marketplace. Much of this is driven by the U.S. cattle cycle, a predictable pattern of herd expansion and contraction that typically lasts eight to ten years. Understanding this cycle is key to managing your operation's revenue potential and making smart decisions for the future. This includes focusing on how you manage the risks you can through the right cattle insurance.

“The cattle cycle gives us a general framework to work from, but it’s not always easy to get it right,” said Nationwide Senior Consultant Erin Cumings, who also raises beef cattle in central Iowa. “We do our best to make informed decisions, like whether to keep more heifers or buy pairs to grow the herd or to cull cows. It also affects how we think about feed and hay — whether we need to buy, raise or even sell more — all depending on the year.”

Two phases: expansion and contraction

The cattle cycle unfolds in two distinct phases. Between the two phases is a normal inflection point at which the current trend is reversed based on general cattle and beef supplies.

• Herd expansion. This phase starts when cattle prices are high and optimism is strong. Cow-calf producers normally see strong revenue, prompting them to retain more heifers for breeding instead of sending them to market. This reduces the immediate beef supply, which pushes prices even higher. This period of herd building can last for several years as ranchers grow their herds to produce more calves.
• Herd contraction. Eventually, those larger herds lead to a generally bigger calf crop. As these animals enter the market, it increases the beef supply and begins to push down prices. Lower revenue becomes a signal that it’s time to shrink the herd. That signal means ranchers start selling more cows and older heifers for slaughter. This liquidation floods the market with more beef in the short term, causing prices to fall even faster. The contraction phase continues until the national herd is small enough to create a supply shortage, which kicks off a new expansion phase with rising prices.

How prices react during the cattle cycle

Different classes of cattle feel the effects of the cycle differently.

• Calf and feeder cattle prices. These prices are the most volatile. During expansion when producers are retaining heifers, the supply of young cattle for sale is low. This scarcity drives calf and feeder prices to their peak. During contraction, a larger calf crop and cow liquidation create an oversupply causing these prices to drop sharply.
• Live cattle prices. Prices for finished cattle also follow the cycle but are usually less extreme than calf prices. They climb during expansion due to a tighter overall beef supply and fall during contraction as more animals become available for processing.

Factors that can disrupt the cattle cycle

While the cycle is generally predictable, several outside forces can throw it off course. “Black Swan” events like a sudden beef processing plant closure or the COVID-19 pandemic can cause extensions of one of the two main phases well beyond its normal inflection. Staying aware of factors like these and more common disruptions like these can help you anticipate shifts in the market:

• Weather. Drought is a major disruptor. A lack of forage and water can force you to sell off part of your herd sooner than planned, accelerating a contraction phase. On the other hand, good rainfall and ample grass can extend an expansion phase.
• Feed costs. High feed prices, especially for corn, squeeze profits for feedlots. This can lead them to buy fewer calves, pushing the market toward contraction. Low feed costs have the opposite effect, encouraging expansion.
• Trade and exports. Strong export demand for U.S. beef can pull prices up and keep the expansion phase going longer. Conversely trade disputes tariffs or import bans can slash demand and trigger a contraction.
• The macroeconomy. During a recession consumers may buy less beef which can lower prices and speed up herd contraction. A strong economy often boosts demand and supports an expansion phase.
• Herd management decisions. Ranchers’ behavior and decision-making play huge roles. If everyone expands too aggressively during high prices, the following herd contraction can be more severe. Caution after a tough financial period can also slow down the next herd rebuilding phase.

“When there’s drought in places where there’s a high concentration of beef cattle, we know those conditions will likely reduce the herd size, even if it’s temporary,” Cumings said. “And when beef exports decline, we know demand is generally lower. Paying attention to things like that helps us stay ahead and make more informed choices for our own operations.”

By understanding these cyclical trends and the factors that influence them, ranchers can make more strategic decisions. Knowing the current position in the cattle cycle can help manage risk, plan breeding and marketing strategies and better navigate the inevitable highs and lows of the cattle business. Talk to your Nationwide Farm Certified agent to see how you can manage risk for your herd with the right cattle insurance.

Nationwide is proud to serve as an Allied Industry Partner of the National Cattlemen’s Beef Association—the nation’s oldest and largest cattle industry organization. We also collaborate with esteemed organizations such as the North Dakota Angus Association, South Dakota Angus Association, South Dakota Hereford Association and South Dakota Simmental Association.