Here I’ll explain why this is happening though I’ve written about it repeatedly.

Anyone in the industry would acknowledge the expansion but very few expect a prolonged downturn like I do. They have their reasons but suffice it to say that producers can’t see the bubble because they’re on the bubble.

Determining when the first wave of calves will head to slaughter requires us to understand a cow’s lifecycle, as a heifer gives birth to a calf that grows into a harvestable cow.

If you look at the slide below, the herd expansion of the early 90’s occurred within an era of steadily declining beef consumption in the U.S. Coincident with the decline in consumption though, the weight of the average cow has increased by 300 pounds since the 1990’s so it’s simply not necessary to have as many cows.

Timing matters in every investment decision. I believe we are at the precipice of a sharp increase in the number of cattle going to slaughter and this will bring beef prices down a full 50% from their recent highs. Keep in mind that this is not a one-time event.

The first thing a cattle farmer does when he wants to increase the herd size is withhold his heifers from slaughter so they can reproduce. As you can see in the chart below, when beef prices gapped up beginning in 2009, the incentive to hold back heifers escalated. Now, the heifer retention rate is the highest EVER. That is exactly why I think it will be the largest herd expansion EVER.

Bubbles have their own rules and they pop at the slightest provocation like an overfilled balloon might pop upon a light brush against the carpet. This is a bubble like none in history.

The biological clock started ticking when the number of calves in the market first increased in 2012. Add about 20 months and the first wave of cattle from the herd rebuild is entering the feed lot right now. Since these cattle are of greater weight than usual, I expect that they will not remain on feed as long as usual, therefore, the first wave of this crop should move onto slaughter in about March of 2016.