There was a time when the livestock expansion cycle was completely predictable, but time and change has taken its toll, especially in the hog markets.
Throw in trade uncertainty and a global pandemic, and Scott Brown says it is very difficult to see much in the way of the traditional cycle.
“The cycle is there, but it’s very different,” says Brown, Extension livestock marketing economist with the University of Missouri. “We no longer see the contraction we used to see, that period of time where we would reduce the herd.
“As we became larger and more specialized, we have so much capital in facilities that we can’t leave them empty.”
He says that while there may not be severe contraction in the breeding herd, that does not mean the numbers are always growing.
“We may look to just maintain numbers at times,” Brown says. “We can expand more rapidly than we could in the past, so we can react quickly to opportunity.”
He says the COVID-19 pandemic has been brutal on the hog industry, adding he is concerned about downside risk in the market. Brown says it could get bad enough that contraction will be necessary.
“It doesn’t look good this year and into next year,” he says. “It’s just very hard to forecast what might happen.”
He says the industry has positioned itself to be ready should opportunity knock. Brown says this is somewhat cyclical — when demand increases, the industry can respond.
An example would be the added packing capacity built in the Midwest over the last few years. He says producers were quickly able to provide hogs for the new facilities.
The export market also plays a factor. The industry expands in anticipation of growing markets, he says.
But that comes with some risk, Brown says.
“China is starting to grow its domestic production, so what happens in 2022 and 2023 if they cut back on imports?” he says. “That throws another issue into the mix.”
Things appear to be much more predictable on the cattle side. Coming into 2020, inventory numbers were already contracting, says Lee Schulz, Extension livestock marketing economist with Iowa State University.
“As estimated by the Livestock Marketing Information Center, 2019’s cow-calf return above cash costs plus pasture rent was the poorest since 1996,” he says.
Despite the blow dealt by the pandemic, Schulz says there is some hope on the horizon.
“The events of the first half of 2020 likely did not change the trajectory and could have accelerated reductions in the cow herd,” he says. “However, even with all that’s gone on so far in 2020, fall weaned calves look to still price similar to a year ago and could be even higher than a year ago in the fourth quarter.
“This will be commanded by drought, the demand from feedlots, the economics of calf feeding, winter forage prospects and optimism regarding fed cattle prices at the time of marketing.”