USDA restricts Mexican cattle imports due to New World screwworm detection

In late November, Mexico detected their first case of New World screwworm (NWS). NWS flies lay their larvae in the open wounds of livestock, which then eat the livestock’s flesh, causing infections. In the 1950s, the U.S. eradicated this pest, which historically ranged as far north as central California and Arizona. However, there is concern that if NWS returns to the U.S., it could spread even further than its historic range. Since 2006, the U.S. has worked with Panama to prevent NWS from moving north into Central and North America. Despite control efforts NWS has spread north over the past two years and has now been detected in Chiapas, the southernmost state in Mexico. In response, USDA is restricting live cattle imports from Mexico for at least three weeks to assess the situation and will likely establish quarantine measures for imported cattle. NWS infections are hard to detect.

Cattle imports from Mexico are vital to the U.S. cattle inventory, making up 5% of total feedlot placements. November and December are peak times for these imports, potentially affecting imports of over 1 million head if temporary restrictions last longer than three weeks. Feedlots in the Southwest would be most impacted by a temporary shutdown through reduced feeder cattle supplies and increased prices. However, on December 2, USDA reported trade should be restored by January, leading to sharp losses in feeder cattle futures, with prices dropping $2.02 to $3.07 per cwt.

Looking ahead, conditions are likely to support lower input costs for cattle producers in 2025. In the U.S., drought conditions have improved over the past month, going from 62% of cattle inventory in drought down to 40% on December 3. Western cattle producers saw some of the most significant reductions in drought conditions for cattle regions. The lower 2024 hay prices due to drought improvement are likely to be sustained into 2025.

Cattle prices are likely to remain elevated in 2025 on tight supplies. Steer calf prices saw improvements in October and November. Feeder cattle prices are also historically strong. As of November 1, feedlot inventories were at 11.99 million head, equivalent to inventories from a year ago. October's feedlot placements were slightly higher than pre-report expectations, at 105.3% of year-ago levels. Placements grew in all regions except the Northwest, which saw a slight decline from 2023 numbers. Placement rates suggest the beef cow herd has continued to decrease in 2024. Heifer retention is crucial for herd expansion, but current heifer slaughter rates indicate this is not yet occurring. This limits prospects for herd expansion in 2025.

Profitability

Cattle feeders: Profitable - Neutral 12-month outlook
Cow-calf producers: Profitable - Neutral 12-month outlook

Packers and feedlots will have to balance over-capacity against a continued tightening cattle supply. The cost of acquiring cattle will pose significant challenges for profitability. Scarcity may lead to intensified competition and higher prices, but lower feed costs will help mitigate high placement costs.

Historically high cattle prices and lower feed costs support long-term cow-calf profitability. However, consumer demand could pose headwinds if it doesn't keep pace with rising beef prices.