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After crashing throughout the fourth quarter of 2024, live cattle futures have rebounded strongly in the new year. After touching an all-time high above $1.90 per lb in September, front month prices had dipped by as much as -14.5% to under $1.64/lb. However, they’ve nearly surged all the way back to their previous highs in recent days, fueled by a continual shrinkage in the US’s cattle herd – now at its narrowest count since 1951. The country’s 87.2 million head of cattle has fallen significantly from a tally of 98.0 million in 2000.
Still, the US was responsible for almost 22% of the world’s beef production in 2022, the largest share of any single nation, and what happens with the cattle population there is going to reverberate through prices across the globe. MRP warned last June that large swathes of the US Midwest have been affected and continue to feel the sting of dryness, struggling with several phases of drought since 2020. In particular, we noted that Texas’s northern high plains had been one of the most heavily impacted by persistent drought conditions. These prolonged shortages of precipitation have left the soil in many parts of the state relatively dry.
Those droughts likely set the stage for what is now transpiring in the panhandle region, where over 85% of the state’s cattle population is located. This area has been the most devastated by an intense wildfire season. With over 1.075 million acres burned, the main body of the ongoing blazes, known as the Smokehouse Creek fire, is now the state’s largest wildfire ever. As of the weekend, the fire was only 15% contained and has crossed into Oklahoma, burning a further 31,000 acres in the Sooner State – one of the US’s top cattle powerhouses in its own right.
Texas Agricultural Commissioner Sid Miller predicts a total of 10,000 cattle will have either been killed by the blazes or will need to be euthanized as a result of severe injuries. Some farmers told the Associated Press that dead cows represent a massive loss of $2,500 – $3,000 per head. The destruction of grain in storage bins will reduce the livestock’s food supply. These factors will put further strain on farmers going forward. Hemphill County AgriLife Extension Agent Andy Holloway told CNN that 28% of the nation’s beef supply comes from the Texas Panhandle.
Though the cattle directly lost from these wildfires will represent just a fraction of a percent of Texas’s 4.1 million beef cattle population, that figure has been shrinking for decades. Back in 2010, the state’s herd was nearly a fifth larger than it is today at more than 5.1 million heads. Texas carries almost 15% of the nation’s total supply of cattle and has a herd double the size of Kansas, the second leading state for cattle farming.
As MRP told Interactive Brokers last year, the nearly unbroken momentum of live cattle futures over the past few years began back in 2020, as the initial outbreak of the COVID-19 pandemic led to a closing down of slaughterhouses and meat packing plants in the US and beyond. The economic impact of the pandemic was more limited than expected and those facilities reopened with a massive glut of cattle. At this point, culling of the herd became necessary to reverse a significant decline in prices that pushed cattle futures to what was more than a decade low at the time. This culling became very aggressive, however, and was exacerbated in 2022 by drought-induced water shortages that facilitated even more culling. Although a lot of ranchers didn’t necessarily want to cull any further by the next year, ranchers were running out of options due to the water situation. The US drought monitor shows that water shortages in most areas of Texas have eased over the past year, but dryness remains prevalent in 42.7% of the state. The implications of 2022-2023’s more severe conditions continue to linger today.
Texas’s latest Census of Agriculture shows that farmland in the state has declined by more than -1.6 million acres, including the loss of 17,700 farms over the past five years. Throughout the US, There are the number of farms has declined by 442,000 or -7.0% over the same period. This phenomenon appears to be mirrored throughout the world, as Our World in Data notes that global pasture area, as well as land used for agriculture in general, peaked in the early 2000s and has only fallen throughout the past two decades. This is in spite of the global population’s meat consumption exploding throughout the 21st century; a trend that has been projected by OECD’s Food and Agriculture Organization to pack another 14% of growth onto that demand between 2021 and 2030.
The Financial Times notes that institutions are now pouring record amounts of money into US farmland, likely recognizing this divergence in supply and demand. The value of farmland held by investment groups hit $16.6 billion at the end of 2023, up from $7.4 billion at the end of 2020 and $1.8 billion in 2008, according to data from the National Council of Real Estate Investment Fiduciaries (NCREIF). Investors can gain exposure to livestock futures and other agricultural commodity contracts via the Invesco DB Agriculture Fund (DBA). Additonally, Farmland Partners Inc (FPI) is a farmland REIT that extends loans to farmers secured by farm real estate.
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