Cattle rebuilding unlikely as high interest rates and costs stick around

The grass may be greener, but America’s cattle shortage continues as ranchers hesitate to rebuild herds amid high interest rates and input costs.

Drought conditions and high feed costs drove farmers to sell off cattle over the past few years as a method to contain costs. But with pastures improving with wetter weather and feed costs declining, there’s still little sign producers are looking to expand their herds. 

“Weather-wise, we’re in a good spot,” said Brock Thorburg, managing director of agribusiness, central region at BMO Commercial Bank. “It’s just whether or not the rancher who’s getting older wants to plow in and reinvest with higher interest rates and costs — We’re just not seeing it yet.”

The number of calves is down 2% from last year and hit its lowest point since 1948, according to an analysis from the American Farm Bureau Federation. Many producers are choosing to send their heifers to slaughter instead of retaining them for breeding purposes. 

“We’re at a point where heifers are right now 40% of the slaughter mix,” Thorberg said Wednesday during an investor panel in New York City, adding that a 35% to 37% heifer share would indicate herd expansion. 

Higher prices and borrowing costs are putting pressure on profit margins for beef producers, which could lead to an extended period of cattle compression. According to the Federal Reserve Bank of Kansas City, interest rates on farm loans have tripled from the beginning of 2022 to the end of 2023, making it difficult for producers to purchase livestock.

Tight cattle supplies have also compressed margins for meat giants like Tyson Foods. The company’s beef segment recently reported a $35 million quarterly loss driven by higher prices that slowed sales as customers reached for cheaper chicken and pork.

“We’re closer today to heifer retention than we have been, but I can’t predict exactly when that’s going to occur in a meaningful way,” Tyson President and CEO Donnie King said at BMO’s food and agriculture conference on Wednesday, noting the impact of high interest rates as grain prices decline. 

Improving pasture quality this year, however, could encourage ranchers to rebuild. According to the U.S. Drought Monitor, less than 14% of the Alfalfa Hay crop is within an area experiencing extreme heat or dryness as heavy rainfall rolls across most of the country.

“The thing that I’ll tell you might be changing a little bit is we’ve got great grass,” Thorborg said.