Much has been written recently about the strength of the current cattle market. With beef cow inventory at a 60+ year low and demand being very strong, cow-calf operations are clearly in the driver’s seat. Calf values are more than double what they were three years ago, which speaks to considerable opportunity for cow-calf operators to invest in their cowherds. Expansion is often the first opportunity that comes to mind in a strong calf market, and there is likely merit in expansion, if doing so is consistent with the goals of the operation. However, some producers may not be interested in growing the size of their cowherds due to land constraints, management limitations, or other reasons. The following are a few other investment opportunities worth consideration.
Genetics – Some producers may choose to use the current increase in cow-calf revenues to improve the genetics of their herds. Investment in genetics often has long-run implications, resulting in more valuable calves to sell over multiple years. Sires certainly come to mind, but the current calf market combined with the strong cull cow prices may provide an opportunity to cull a bit harder and also purchase some higher quality females.
Facilities – Working facilities are crucial resources for cow-calf operations for numerous reasons. Value-added opportunities such as health protocols, post-weaning programs, castration, implants, etc. are made much easier with quality working facilities. The same is true for receiving, sorting and loading of cattle. If facilities have historically been a constraint, the current market may be providing an opportunity to make improvements and position the operation to sell higher value calves in the future.
Grazing systems – Winter feeding days are typically the most expensive days for cow-calf operations as stored feed (hay) is being fed. Improved grazing systems (interior fencing, additional water sources, portable mineral feeders, etc.) allow for more efficient use of existing forage during the grazing season. This has the potential to increase the number of grazing days and reduce the number of hay feeding days. In most cases, this results in lower costs per cow per year and puts an operation in a better position when calf prices fall.
Debt service / financial management – Strong markets also provide an opportunity to make financial moves that set an operation up for the long run. Increased revenues may allow an operation to pay down some debt and thereby lower their cost structure going forward. Similarly, it may provide an opportunity to build some working capital and lower dependence on operating loans. In both cases, future interest expenses are reduced, which has implications for profitability.
To be clear, the purpose of this article was not to discourage expansion. There are likely operations that need to do just that. But I also live in an area where land constraints are real and know that expansion is not always feasible. Plus, I have seen situations where operations expanded during strong markets and wished they had not done so a few years later. The main point is that the current calf market provides a significant opportunity for a cow-calf operation to position itself for the long-run, and that will look different for each one of them.
USDA released its Cattle on Feed and July Cattle inventory reports on Friday, July 25th. These reports are a good opportunity to poll some thoughts from our SAT authors across the South.
Will Secor – University of Georgia
The July Cattle and Cattle on Feed reports from USDA provided indications that the cattle herd is approaching a low in inventory but may not be there just yet. The mid-year Cattle report provided a first estimate of the 2025 calf crop, which is projected to be roughly 1.3 percent smaller than the 2024 calf crop. Combined with January’s report of fewer beef cow replacement heifers, this is an indication that the cattle herd may still be smaller come January 2026. However, the Cattle on Feed report indicates that the share of cattle on feed that are heifers declined again year-over-year to its lowest July reading since 2019. Overall, these reports show a continued decline in the cattle inventory, but they also shed some light on the potential of a rebuild that may be starting soon.
Kenny Burdine – University of Kentucky
The fact that there was no mid-year inventory report in 2024 makes comparison a bit difficult. Beef cow inventory was down by 1.2% from July of 2023. Most were expecting beef cow inventory to be down a bit more over the last two years, but I think this speaks to how much lower beef cow slaughter has been running. For the 12 months from July 2024 to June 2025, nearly 650,000 fewer beef cows were harvested than from July 2023 to June 2024. I think it’s likely that beef cow inventory was down by more than that from July 2023 to July 2024, but increased over the last 12 months due to lower slaughter levels. Heifers held for beef cow replacement were down 3% from 2023, which is a decrease of 100,00 head. The best way to think about this number is to consider it as a percentage of beef cow inventory. When looking at it that way, our heifer retention pace is lower than it was in 2023.
The surprise of this quarterly cattle-on-feed report was June placements, which were down 8% from 2024 and outside the range of expectations. Marketings continue to suggest we may be pulling cattle ahead, but placements suggest we are not replenishing them at the same pace.
Heifers, as a percentage of on-feed inventory, came in at 38.1%. This is about a percent and a half lower than July 1 of 2024, but up about half a percent from April of this year. Much like the beef replacement heifer estimate from the inventory report, this does not suggest much retention is occurring. Any growth in beef cow numbers is coming from reduced cow slaughter.
Shifting my focus towards home, I don’t think much retention is occurring in Kentucky at present. Anecdotally, producers tell me they are not keeping heifers at these price levels. I also think interest rates are impacting this decision. I do expect some expansion to occur in the Commonwealth over the next few years, but we are limited by land constraints and land costs.
Andrew Griffith – University of Tennessee
I don’t really know what to say about these reports. A lot of the time we discuss industry estimates compared to USDA estimates. The main thing in this report is we saw lower beef cow numbers, a smaller calf crop, and fewer cattle on feed.
It looks like more heifers are being retained this year and fewer cows are being slaughtered. There is a good chance we see a steady to slightly higher beef cow number come January 1, 2026. Of course, drought could hit once again and further delay rebuilding.
The one thing I feel certain is that the competition for cattle is going to be fierce the next couple of years. I think we will see closures, idling, or consolidation of packing plants and feedlots. Even if that does not happen, capacity utilization is going to be small. This also feeds back to stocker and backgrounders who will be growing a smaller number of cattle than usual, which will influence profitability.
Josh Maples – Mississippi State University
I don’t see significant signs of expansion from these reports. Heifers held for beef cow replacement were down 3% from the 2023 report. The 5% drop in heifers placed into feedlots during the last quarter is the number that jumps out as the question mark. But, taken with all of the other data, I’m not yet ready to call it an obvious sign of expansion. After accounting for fewer imports from Mexico, heifer placement is down 2.5% during the first half of 2025 compared to the first half of 2024. It could just be that we have fewer heifers due to smaller calf crops, and that there are some differences in placement timing. The overall percentage of heifers on feed ticked back up to 38% after dropping in the previous quarter. I think 2025 is likely a stabilization year for beef cow inventory, with 2026 having the higher odds for modest expansion if pasture conditions cooperate.
Hannah Baker – University of Florida
While the 2025 July Inventory Report does not include state breakdowns, the numbers reported in both the inventory and cattle on feed reports reflect what is happening across Florida: some producers are thinking of and starting to retain heifers, but the majority are still capitalizing on record-high calf prices. Beef replacement heifers are down 3 percent from 2023, and the beef cow herd is smaller by 350,000 head. The number of “other heifers over 500 pounds” is also 3 percent lower than 2023, meaning there is also a smaller pool of heifers to pull from for any impulse breeding in the back half of 2025 and early 2026. Signs of slow heifer retention are also shown in the Cattle on Feed report, where the number of heifers on feed was 5% lower than 2024, but the percentage of heifers on feed rose by 0.5% since April to 38.1%.
James Mitchell – University of Arkansas
A statistic I like to track is the ratio of July beef replacement heifers relative to the previous year’s calf crop (as estimated in the January report). I use this as a crude indicator of retention and potential herd expansion. The estimate for July 2025 is 11.04%, nearly identical to July 2023 at 11.03%. For comparison, the ratio was 14.32% in July 2015. We’re not there yet, which makes me wonder: with strong profitability over the last few years, are producers reinvesting in other ways – farm infrastructure, equipment, land?
Charley Martinez – University of Tennessee
It’s unfortunate that we didn’t have last year’s July 1 report. But, when looking at the percentage of changes between 2023 and 2025, I think the trends were expected. The most interesting statistic to me was the expected 2025 calf crop of 33.1 million head. The calf crop was 33.56 million in 2023, and 33.52 million in 2024. The calf crop expectation highlights the impacts of the shrinking herd over the last two years, and the expected tighter feeder calf supply signals continued elevated feeder calf prices. This report also starts the excitement for the January 1 report, where we will have statistics and more detailed data.
While it is hard to dispute the overall strength of the recent cattle market, it is also important to note that during the last 26 months there have been multiple times when markets saw significant downward swings. The most recent of these occurred since the end of January and was likely sparked by the resumption of live cattle imports from Mexico, continued talk of trade disruptions, Avian Influenza, and any number of other factors. The market also fell by more than $40 per cwt from September to December 2023 and more than $30 per cwt from late May to early September 2024. For producers who sold cattle during those pullbacks, the impact on returns was significant.
There are a lot of potential strategies to manage price risk, and the simplest one may be a forward contract. By forward contracting cattle, price risk is largely eliminated as the seller and buyer agree on a purchase price prior to delivery of the cattle. A similar strategy would be selling cattle through an internet auction and specifying delivery at a later time. In both cases, the seller entering the forward contract still has production risk as they must meet the specifications of the contract (weight, quality, etc.), but market swings are no longer a concern.
Finally, I have talked more about Livestock Risk Protection (LRP) insurance than any other risk management strategy recently. It works almost exactly like a put option but is much simpler and has the advantage of flexibility on scale. Unlike several other price risk management tools, LRP insurance can be purchased on any number of head, which is much easier for smaller operations to utilize. LRP has been made more attractive over the last several years through increased premium subsidies and allowing producers to pay premiums after the ending date of the policy.
The specific tool or strategy that cattle producers utilize to manage price risk is less important than their overall risk management plan. I encourage producers to know what risk management tools are available to them, understand how changes in sale price impact their profits, and plan to cover themselves from downside price risk. I still feel good about the fundamentals of the cattle market, but I think the first couple weeks of February have been a good reminder that price risk always exists, even in a bull market!
The January Cattle on Feed report was released on Friday afternoon. Total on-feed inventory to start the year was estimated at a little over 11.8 million head, which is down by just under 1% from January of 2024. Even though feeder cattle supplies have been lower, feedlot inventories ran above year-ago levels for eight of twelve months in 2024 as lower feed prices encouraged longer feeding times. While I don’t want to read too much into it, this was the largest year-over-year decline since May.
Placements were once again the headliner of the report as they came in below, and outside the range of pre-report estimates. December 2024 placements were estimated at 1.64 million, which was 3.3% below December 2023. On the surface, this seemed logical as December represented a full month of not receiving live cattle imports from Mexico. This also marked the second month in a row with placement levels being more than 3% below year-ago.
Friday’s report was also a quarterly cattle-on-feed report, which means it included an estimate of the steer/heifer breakdown. In the absence of a July cattle inventory report, this has been one of the main indicators economists have been tracking for evidence of heifer retention. Heifers accounted for 38.7% of the total on-feed inventory on January 1, 2025. While this doesn’t speak to retention, it is worth noting that this is about 1% lower than last January and 1% lower than October 2024. So, it does bear watching as we move further into 2025. Again, I think imports from Mexico had some impact here as heifers had represented a higher than usual share of imports prior to the ban in late November.
Last week’s cattle on feed report will be overshadowed later this week as USDA-NASS will release their annual inventory estimates on the afternoon of January 31st. While beef cow slaughter was down sharply for 2024, most are still expecting continued decreases in beef cattle numbers at the national level. It will be interesting to see the state-by-state numbers and specifically to look at areas where heifer retention may have already begun. Given the favorable price outlook for calves, I think heifer retention is very possible in 2025 if weather is cooperative. But I also think this will be a relatively slow cow-herd expansion once retention does begin.
Trends are always difficult to ascertain coming out of holiday periods as many markets are closed and volumes tend to be pretty light, but cattle prices have started 2025 very strong. While questions exist on the demand side, tight cattle supplies will remain the primary driver in the new year and should continue to support prices. And as always, weather will have a significant impact on feed and forage availability and cattle marketing patterns. As I write this article in early January, I want to discuss four questions that I think will be important for the 2025 cattle market to answer.
Will we start to see significant heifer retention? – This question has been circulating for the better part of the last two years. There are a lot of reasons why retention has been delayed including weather, production costs and interest rates. But market conditions should be very favorable again and I do think heifer retention could be seen in 2025 if weather cooperates. When heifer retention does pick up, it will further tighten supplies of cattle as those females are held out of the marketing system. This will be the first stage of growing this cowherd, which is currently at a 60+ year low.
Can slaughter weights keep increasing? – Most analysts are forecasting beef production to be lower in 2025. These forecasts are based on continued decreases in cattle numbers and the potential for decreased female harvest in response to high prices. In truth, I could have written this exact same thing last year. But with cattle supplies tight, beef prices high, and feed prices relatively low, cattle were fed longer and to heavier weights. This increase in pounds largely offset the decrease in female slaughter and resulted in steady beef production levels for 2024. I will readily admit that I don’t know how much further weights can be pushed, if at all, but those same factors are largely at play again this year. So, I will be watching harvest weight trends very closely.
Will we see greater than expected growth in pork and poultry production? – Holding everything else constant, lower feed prices increase returns across all livestock species and lead to greater production levels. And production levels of competing meats do impact beef and cattle prices. Recent increases in pork production have been driven almost entirely by productivity, rather than increases in breeding inventory, and increases in broiler production have been running close to the long run trend. I just point this out because production increases can occur much faster in the hog sector than the cattle sector, and faster still in the poultry sector. While there aren’t many indications of expansion in other species currently, this was a factor in 2015, and I think it bears watching in 2025. It is important to remember that beef supplies are not the only factor that impacts beef prices. All proteins compete in the meat case.
What will be the impact of any changes in trade policy? – Trade has been a major topic of discussion recently and I doubt that will change in 2025. Beef exports have been lower in recent years due to tight domestic supplies and high prices, but the US still exported the equivalent of roughly 11 percent of production last year. In the past, retaliatory tariffs have impacted beef and cattle prices, so it bears watching going forward. It is also important to remember that the nature of beef trade very much depends on the trading partner. For example, we export a lot of beef to Mexico and Canada, but we are also a significant import market for those two countries. And while trade discussions typically focus on beef, a significant number of live cattle enter the US from Mexico and Canada each year. Conversely, over half of US beef exports go to Japan, South Korea and China, but those are almost exclusively export markets. The complexity of each of these trading relationships makes discussion of trade impacts very complex and something that will be interesting to follow this year.
