The trajectory of cattle prices increasing or decreasing is not known nor is the exact timing of the beginning, middle or end. However, there may be something to learn from the last time cattle prices shot up like a rocket and then fell like a lifeless box of rocks. In June 2013, the CME feeder cattle index price began to increase. Prices increased from $131 per hundredweight to $245 per hundredweight in December 2014. The index then spent the next two years declining and finally found a bottom near $125 per hundredweight. From the end of 2016 to July 2022, the CME feeder cattle index price traded in a range of $114 to $170 per hundredweight with most of that time spent below $150. Thus, the price decline resulted in lower prices than where the market started before it increased and then it was underwhelming for several years.
What does this mean for the current environment? Prices are again likely to escalate and do so quickly as soon as heifer retention starts. How high prices will go and how fast is not known but two years of increasing prices are realistic. A third year of high but softening prices is also realistic. The issue comes in when the discussion moves past year three and how to manage for lower cattle prices in 2026 and beyond. This may look different for many people, but there is planning to be done.
First, producers should not plan on spending all profits on assets such as machinery or a new truck to reduce the income tax burden. Some of these profits may be needed four or five years down the road for operating capital. Second, do not expect prices to remain elevated forever. This leads to poor decision making. Third, there is nothing wrong with slowly reducing the herd size during a period when cattle prices are high, because females can be purchased to grow the herd when prices are much lower. Fourth, use the higher profit years to upgrade farm infrastructure including fences, working facilities and renovating perennial pastures. Lastly, remember to enjoy the good times, because they make the difficult times more bearable.
Source : tennessee.edu