By Allison Wilton
High prices are supposedly the cure for high prices. That may not be the case with beef-on-dairy.
In recent years, the popularity of crossbred calves has grown exponentially as dairy farmers faced tight margins and beef cattle fetched record prices. Margins have improved on the dairy side, but the beef market has shown few signs of cooling down, suggesting a dairy herd boom is unlikely to materialize.
The beef herd is typically cyclical in nature, even as it has steadily shrunk since the 1990s. It’s now the smallest since 1951, leaving little supply cushion when weather or markets cause disruption. Droughts in 2022 and 2023 pushed many ranchers to liquidate herds; heifer and cow cull rates climbed in 2022 (up 4.8% and 10.9%, respectively), sparking the current cycle of high prices. Today, even with sky-high beef prices, calves on the ground at the beginning of 2024 were down 2.7% from the year earlier.
With drought in decline, ranchers may be looking to rebuild their herds. But a beef supply increase will take time. It will even result in higher prices in the short term as producers retain more heifers, which typically take at least two years to calve, and it will take another two years for those calves to be processed. Beef producers also operate under similar incentives as dairy farmers where today’s prices are pushing many to eschew a herd rebuild in favor of sending calves to market as soon as possible. These factors will all constrain the supply of beef animals for the next few years and support elevated prices for dairy-beef crosses.
Is change ahead?
Even as the beef herd is likely to remain constrained for the foreseeable future, two factors could still lower prices.
First, U.S. dairy farmers’ foray into beef crosses could shift supply dynamics in the beef market. U.S. farmers and ranchers purchased 9.4 million units of beef semen in 2023, according to the National Association of Animal Breeders, double as much as just five years ago. Notably, 85% of the beef semen purchased was by dairy farmers. Those calves have only recently made it to feedlots.
Second, several high-profile announcements of new feedlots specifically designed for dairy-beef crosses are likely to further entrench dairy’s investment in beef, permanently expanding the universe of potential beef production. Dairy could possibly cool off the beef market, but dairy’s own limitations to growing its herd naturally limit how many beef calves can come from dairy without seeing the dairy herd itself expand, which then would require switching away from beef — a highly unlikely outcome.
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