Cattle updates - Price strength persists, drought risk builds

Tight cattle supplies and strong consumer demand continue to support historically strong market conditions, though drought risk is escalating. Pasture conditions and hay production will be key drivers of cattle production capacity heading into 2026.

As of May 26, 60% of U.S. cattle regions were in drought, up sharply from 37% a year earlier. Within AgWest states, Arizona, Idaho, Oregon, and Montana face some of the most severe conditions, while California and Washington remain comparatively manageable. In contrast, drought is intensifying across major production areas in the Central and Southern Plains, where 52% of Oklahoma, 65% of Texas, and 75% of Nebraska cattle regions are classified in D2 (severe) drought or worse. While a transition to El Niño may improve moisture conditions in key central regions, the West is expected to remain hot and dry, posing ongoing challenges for forage production and limiting herd expansion.

With rising drought concerns and water cutbacks, hay production is likely to be constrained, keeping forage costs elevated. In response, cow-calf producers in Idaho and Montana have already begun purchasing hay, contributing to recent price increases. (See the hay update for additional details.) In contrast, corn supplies are projected to remain adequate. Prices are stabilizing in a moderate range that will support feedlot cost-of-gain.

The lack of carrying capacity won’t be conducive to herd expansion and points to continued cattle supply constraints. Domestic inventories have contracted significantly from the 2019 cycle peak, with total cattle numbers down roughly 8–9% and the beef cow herd down about 12–13%.

U.S. beef production has remained resilient despite tight domestic cattle supplies. The industry has partially offset lower slaughter volumes through heavier carcass weights, adding an estimated 200+ million pounds of production in 2025 compared to the previous year. Carcass weights remain elevated in 2026 and are expected to continue supporting overall output. However, these larger animals are creating processing challenges, as not all slaughter facilities are equipped with the infrastructure needed to handle increased carcass size. At the same time, the expansion of beef-on-dairy cattle has strengthened the supply base, now accounting for more than 12% of fed cattle production. One emerging downside risk is the New World screwworm; despite extensive mitigation efforts, a confirmed case in Texas on June 3 marks a meaningful escalation in the threat to U.S. cattle supplies.

Consumer demand for beef remains consistently strong, supported by its enduring role in protein consumption despite normal market cycles. While higher prices have not significantly weakened demand, consumers and retailers are placing greater emphasis on meat quality and grade, influencing purchasing behavior and shaping how producers raise and finish cattle. Going forward, rising household cost pressures may limit further price gains, leading to a more stable demand environment.

Cattle prices are expected to remain historically strong but may face some near-term pressure. Fed cattle prices have recently reached record highs, though seasonal patterns suggest potential softening later in the year. While tight supply fundamentals should provide ongoing support, prices may face headwinds from seasonal trends, rising cost constraints, and broader market volatility.

Profitability

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

Strong fed cattle prices and heavy carcass weights have helped offset higher feeder cattle costs.

Record-high calf prices, driven by historically tight cattle supplies and strong beef demand, have more than offset elevated production costs.