Cattle markets adjust to tight supplies and processing constraints

U.S. cattle markets continue to face headwinds as reduced cattle supplies and ongoing trade uncertainty shape market conditions. While cow/calf producers are positioned for another year of strong margins as the national herd begins to stabilize, downstream segments remain under pressure. Feedlots started February with an estimated 11.5 million head on feed, slightly below year-ago levels. Meanwhile, packers have scaled back operations amid sustained financial losses, with cattle slaughter running 12% lower than last year.

Between fewer cattle and favorable prices for feeders, feedlots are retaining cattle longer. The number of cattle on feed for more than 150 days is more than 20% higher than a year ago. Unlike typical seasonal patterns, fed cattle weights have continued to rise rather than decline heading into spring.

Capacity utilization is a limiting factor in packer profitability. As packers operate below capacity, they are cutting shifts to minimize losses amidst tight cattle supplies. Current dynamics led Tyson to permanently close its Lexington, Nebraska plant (one of Tyson’s largest, with a capacity of nearly 5,000 head per day) in January.

Cattle supplies are further constrained by a smaller calf crop and the ongoing suspension of Mexican cattle imports, limiting feeder cattle availability and intensifying pressure on both feedlots and packers. While wholesale beef prices remain elevated, packer margins continue to operate deep in negative territory, highlighting the strain across the supply chain. Higher beef values have not been sufficient to offset reduced throughput and higher costs.

Trade policy adds uncertainty to outlook.

Recent export data highlights a softening contribution from trade to the U.S. beef complex, with the primary impact on beef byproducts. In 2025, beef and beef product exports accounted for 12.7% of total production, down from 13.9% in 2024, while export value per head of fed slaughter fell to $391.94, the lowest level since 2020. Although muscle cuts can largely be absorbed by the domestic market, declines in exports of offal and hides materially reduce total carcass value. Lost demand for products such as tongues, tripe, livers and hides can reduce animal value by tens of dollars per head, directly compressing packer margins.

This byproduct drag is becoming increasingly consequential in the current cattle cycle. U.S. beef exports to China have effectively stalled, down 67% year over year, and shipments to Japan, Mexico, Canada and Taiwan have also softened. Even if domestic beef demand remains strong, U.S. consumers do not replace specialized export demand for items such as tongue to Japan or tripe to Mexico. When these outlets disappear, byproducts are pushed into low value channels where rendering becomes the price setter, lowering the value of the entire animal. This dynamic increases pressure on packers through weaker margins and contributes to decisions around plant closures, reduced shifts, and lower cattle bids.

At the same time, imports are increasingly filling the gap left by tight domestic cattle supplies. U.S. net beef supply has increased each year since 2023, supported by rising imports from countries such as Brazil and Australia, even as the U.S. cow herd declined another 1% year over year. Strong consumer demand has masked some of the downstream effects, but imported beef represents a growing long-term competitive threat, particularly if domestic herd rebuilding eventually coincides with heavier carcass weights and higher slaughter volumes. In that scenario, increased imports could amplify price volatility at the cow/calf level.

Trade policy uncertainty adds another layer of risk. Following the Supreme Court ruling that invalidated tariffs imposed earlier in 2025, the Trump administration implemented a new import surcharge that was later increased to 15%. Australian beef remains exempt, while Canadian and Mexican beef continues to move duty-free under USMCA protections. While a planned meeting between U.S. and Chinese leadership at the end of March has raised expectations for dialogue, longer term prospects for China as a reliable export market remain limited. Structural competition, geopolitical tensions, and shifting supply chains suggest any improvement is more likely to be temporary than transformational.

Overall, tighter cattle supplies, low plant utilization amid high fixed processing costs, weakening byproduct values, and rising imports are converging to create a challenging environment for packers and producers alike. Even as market outcomes over the past year have exceeded expectations, the underlying structural pressures remain unresolved. How quickly processing capacity adjusts, how imports evolve, and whether global byproduct demand recovers will be key factors in determining when, or if, the current cycle reaches a breaking point.

Profitability

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

Cattle feeders are currently profitable, supported by firm fed cattle prices and manageable feed costs. However, tighter feeder supplies and dry weather conditions pose growing headwinds.

Tight cattle supplies, strong calf prices and steady beef demand are keeping cow/calf producers very profitable. Slow herd rebuilding is expected to support strong margins throughout the year.