Why expand if a smaller cattle herd brings higher prices?

University of Wisconsin Cooperative Extension

The January 2012 Cattle report provides numbers to indicate this is the smallest cattle herd since 1952. However, it should be noted that beef production totaled over 26 billion pounds in 2011, compared to about 10 billion in 1952. The beef industry produces much more beef with the same number of cattle that existed in the 1950s. The record highest beef production was the 27 billion produced in 2002. Unfortunately, genetics will make is harder to continue producing more beef with less cattle.
Smaller beef production leads to smaller beef consumption. Beef consumption is measured by adjusting beef production for international trade and freezer stocks. When this number is divided by the current population, we get per capital beef consumption of 55.3 pounds, a 3.5% decline from 2011 levels.
It is vital for the long-term health of the industry not to have beef production fall too low. With declining cattle numbers, smaller packers and feedlots will likely exit the business. This infrastructure is not easily re-developed when cattle numbers increase.
Lower cattle numbers will eventually mean lower beef production and then retailers and wholesalers will encounter challenges when attempting to procure and feature beef. Consumers will find beef prices high and substitute lower price protein products for beef, leading to continued decline of domestic beef demand. Finally, U.S. exporters will have less beef quantities. These exports have added to the higher prices experienced last year. With insufficient quantities of beef to export, U.S. beef will have a higher price, making competition from Brazil and Australia even greater.
The important issue to note is that once procurement methods change, either for domestic retailers or foreign markets, it is difficult to regain those markets. Additionally, consumers are mostly creatures of habit, and if consumption of beef gets too low and consumers have substituted in lower prices proteins, it will be difficult to get them to increase consumption just because cattle numbers have increased.
Source: Brenda Boetel, UW Extension Livestock Economist