Uncertainty in the beef market amid herd decline and trade tensions

The U.S. beef markets are challenged by declining cattle inventory and international trade tensions. Maintaining record prices will depend on continued strong consumer demand.

The annual cattle inventory report indicates a sixth straight year of decline in the national herd, suggesting that U.S. cattle supply won't recover soon. As of January 1, the cattle inventory was 86.7 million head, down over 8 million since the peak in 2019. Rebuilding herds in 2025 would need a significant reduction in beef cow slaughter, but the cattle on feed report suggests this is unlikely. The high percentage of heifers, 38.7%, in feedlot inventories will prolong herd rebuilding efforts. Despite a smaller cattle herd, beef production has been maintained by heavier carcass weights, averaging 848 lbs, nearly 40 lbs heavier than in 2019. There has also been a large influx of beef imports into the U.S. as importing nations (Brazil, Australia, and New Zealand) capitalize on low U.S. beef inventories.

With a shrinking herd and competition for feeder and fed cattle, prices are likely to remain elevated. Spring 2025 live cattle futures contracts are above $200 per cwt. Record cattle prices depend on sustained consumer beef demand.

Cattle and beef markets face uncertainty due to potential tariffs and other issues with Canada and Mexico. These countries are major cattle trade partners, accounting for about 2% and 5% of U.S. feedlot placement respectively.

On Nov. 22, 2024, USDA temporarily suspended livestock imports from Mexico after detecting New World Screwworm (NWS) in Chiapas. Only one cow and a bull calf were affected, with all neighboring herds testing negative and under surveillance. USDA and Mexico are working on an enhanced protocol to resume cattle imports. The resumption of equine imports in late January suggests that resumption of cattle imports may soon follow.

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.