“No Apparent Turnaround in Sight” for Contracting Cattle Herd

What Happened

On Jan. 31, the USDA issued its cattle inventory report. The report is published every six months and quantifies the entire U.S. cattle herd. Once again, the report confirmed that the U.S. beef herd is not growing. In fact, it is shrinking. The long-term implications are for continued tight supply, high feeder prices, and concern that consumer demand could decline. 

The highlights of the report indicated all cattle and calves in the U.S. (as of Jan. 1, 2025) totaled 86.7 million head, down 1% from the same time a year ago. All major categories, including all cows and heifers that have calved, steers weighing 500 pounds and more, calves weighing under 500 pounds, and cattle and calves on feed were down 1%. Record-high beef prices have not moved the needle to expansion.

Why This Is Important

The old saying is: “High prices cure high prices.” While this is accurate in concept, there is not a defined timetable with a direct correlation of when prices peak or demand declines. The cow-calf operators, background feeders, and dairy producers are faced with the dilemma of deciding whether to hold heifers back or build their herds. The bird in hand — cash for high-priced calves — is so attractive that it appears the risk of holding back calves and heifers is too high. The result is a continued contraction of the herd with no apparent turnaround in sight. 

Drought conditions over the last decade in the Southern and Western Plains regions, coupled with bouts of high-priced and difficult-to-source feed, have also contributed to the herd contraction. Another factor is the average age of the cow-calf producer, which is estimated to be in the upper 50s to low 60s. This begs the question if they want to take on additional work and risk.

What Can You Do?

Depending on where you are in the herd continuum, you need to keep a sharp marketing pencil at hand. Buying high-priced calves or feeders comes with significant risk. The market rarely offers much above breakeven when purchases are made, so locking in a forward contract or hedging futures may not be attractive. Yet, buying puts or placing sell stops under current futures prices is a way to manage risk. If you need or want to purchase calves or feeders, using call options to manage upside price risk is a consideration.

Communication may be more important than ever. Have frequent and consistent conversations with your advisor. Measure the pros and cons of each strategy and then implement the strategy. Gathering information to sit on and do nothing with may be a big mistake in an environment where the stakes are higher than ever. Use the tools provided to integrate a strategic plan.

Find What Works for You

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation rather than emotionally charged responses to market moves, which are always dynamic.

Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: (800) 334-9779.

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy, or discipline will guarantee success or profits. Any decisions you may make to buy, sell, or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.