"Feeder and fed cattle prices are at or near all-time highs and are poised to keep moving higher. Both feeder and live cattle futures suggest that higher prices are yet to come. In several recent meetings and conversations with producers, I am seeing a couple of reactions to the current situation.
"There seems to be an overall feeling of disbelief or a sense that there is another shoe to fall. The basic question seems to be one of ‘Is this for real?’ Given everything we have been through in recent years and the amount of volatility in most input and output markets, such hesitancy is understandable. It is easy to remember corn and wheat markets in 2008, which soared to astronomical heights for a brief period of time. Are cattle markets in the same situation: set for a wild but short-lived ride into the stratosphere?"
The preceding paragraph was taken from an article that I wrote in January 2011. I stumbled across it recently and realized that it applies to an even greater extent today with a market situation that is significantly different than when the original article was written. Feeder cattle prices today are nearly double (up over 90 percent) the level when the question was posed in 2011. Fed cattle prices are up over 50 percent from early 2011. No one knew in January 2011 that the beef industry would suffer tremendously with drought impacts into 2014 that would take an already tight supply situation to extreme levels and provoke the current unimaginable production and market situation.
It appeared in early 2011 that the beef cattle industry was poised for herd expansion with cattle inventories already lower than intended by the industry. Instead, we find ourselves in 2014 with the beef cow herd down another 6 percent from the 2011 level. Though herd expansion has likely started in 2014, it will take another three years to recover the 1.87 million head of beef cows lost since 2011.
Additional expansion beyond that level is likely but will depend on domestic and international market conditions towards the end of the decade. The prospects for herd expansion for much of the rest of the decade suggest that cattle prices are likely to grind higher yet from current record levels before peaking and working lower towards the end of the decade. I’m hearing many producers and others repeating the adage that “high prices cure high prices,” and they do; but in the case of the beef industry, it will likely take most of the rest of the decade for that to happen.
The beef industry does not work like crop production in which major production adjustments can occur in a matter of one crop year. Heifer retention will make tight cattle supplies tighter for a couple of years before any resulting production increase hits the market. The current situation pretty much ensures a four- to six-year recovery process, with supply driven price strength for much of that process. 
Derrell S. Peel is an Oklahoma State University Extension livestock marketing specialist. This originally appeared in the OSU Cow/Calf Newsletter.
