The mid-year cattle inventory report showed that cattle numbers continue to get smaller, and there is no significant indication of herd rebuilding so far.

Despite sharply higher cattle prices this year, there is no data to suggest heifer retention or enough decrease in beef cow slaughter to initiate herd expansion, although the most recent weekly slaughter data are encouraging.

The process thus far is considerably slower than the herd expansion after the drought in 2011-13 pushed cattle inventories to a cyclical low in 2014. There are several reasons why producers are moving more slowly and cautiously thus far. Continuing Drought is still an issue in significant regions of cattle country.

While drought is not likely causing a great deal of additional herd liquidation from a broader market perspective, it surely is preventing herd expansion in those droughtstricken areas.

Financial Recovery Many cattle operations have suffered from considerable financial stress from drought and high input costs. The short run needs to realize immediate returns from higher cattle prices may be causing continued heifer and cull cow sales for now.

Input Cost Uncertainty High, and in many cases record high, input prices were a particular challenge in 2022. Record hay prices and elevated supplemental feed costs have had a huge impact in drought regions. Record or near-record high fertilizer, chemical and fuel costs have been a significant challenge for producers, especially in regions of introduced pastures. Though some input prices have moderated in 2023, input price uncertainty has producers reacting cautiously to higher cattle prices.

Producer Expectations All the above factors contribute to the economic backdrop of the industry and become part of the producer expectations that are the key to herd rebuilding. Until enough cow-calf producers anticipate enough returns for a long enough period, herd expansion will be tempered. In the meantime, cattle supplies will continue to tighten. Market prices for calves and feeder cattle will continue to increase as the market provides more price incentives that will eventually strengthen producer expectations and jump-start herd expansion. That process is likely to begin in earnest in the remainder of 2023