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Bullish


Cattle in field

Beefing up the nation’s herds gets even more challenging with higher interest rates that may not fall until late this year. The American Farm Bureau laid out how much the cattle industry has declined in recent years:


  • Cattle and calves: 87.2 million head (lowest January 1 inventory since 1951)

  • Calf crop: 33.6 million head (smallest calf crop since 1948)



“Cattle producers may face challenges maintaining or restocking herds, as higher interest expenses on cattle and input purchases in 2022–23 have constrained profit margins,” read a report from the Federal Reserve Bank of Kansas City.


The report continued, “Although feed costs have decreased slightly, higher costs for financing and other operating expenses could continue to put pressure on cattle production and profitability.”

The agricultural sector felt the blow of higher interest rates when the Fed started to up rates in March 20222 and followed that with 10 additional increases. Interest rates on farm loans nearly tripled over that time, according to the Federal Reserve Bank of Kansas City’s report.


In 2023, “interest expenses represented the fastest growing source of total farm production expenses,” the report stated. That strained farmers who recently purchased agricultural land or refinanced assets. But it “also increased dramatically for producers along the beef supply chain.”

The higher interest rates impacted several stages along that beef supply chain. The report stated that, “interest expenses for cattle producers have been intensified by higher interest rates, higher prices for cattle to restock herds, and increases in other production expenses. Together, higher prices and borrowing costs could squeeze profit margins for cattle producers and contribute to a prolonged period of lower cattle supply.”


The positive aspect of 2022 and 2023, the report stated, was that increased cattle prices largely offset the additional interest expenses. However, profit margins have tightened, and that adds to the concerns of ranchers.


Prices in 2024 have remained below the cost of production. Low inventories helped to keep cattle prices strong. But that wasn’t enough to offset the heightened cost of borrowing.


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