Beef Industry to See Strong Expansion in 2025
Published: Friday, November 29, 2024
After seeing cattle numbers drop to a 75-year low, the U.S. cattle industry is about to begin an expansion phase next year. That should be good news for both cattlemen and consumers.
Kevin Good, analyst with CattleFax, said 2024 has been the sixth straight year of liquidation in the U.S. cattle industry. The low water mark for beef cow inventory will occur in early 2025, then the expansion is expected to get underway.
Speaking virtually at a central Indiana gathering of cattlemen, on Nov. 9, Good said the market is ready to grow. Consumer demand for beef is very strong, but supplies are low due to continued liquidation. A Western drought that prompted the selloff should let up sometime next year, he said. With record calf values, producers are expected to add more cattle to their herds.
While cattle numbers are lower, beef production is higher—thanks to cattle coming to market heavier and more production coming from the dairy industry.
"This tells us we're doing more with less," he said.
The cattle market runs in a 10-year cycle, he said, driven mainly by beef but also dairy cows.
The liquidation phase has lasted longer than expected, but Good said the industry is at the point "where we should start turning the corner."
The culling rate for cows peaked in 2022 at 4 million head. This year, 480,000 fewer cows will head to slaughter compared to a year ago, Good noted.
"This is a massive drop over the past two years," he said.
All of this means producers are keeping cows rather than selling them.
Looking at heifers, Good said the data suggests that more heifers are being placed on feed. Out West, weather patterns have encouraged large heifer placements on feedlots. At the same time, commercial cow slaughter is trending downward.
Replacement heifers, at 4.9 million head, was the lowest in history in 2024. Looking ahead to next year, USDA projects farms will keep more heifers, 5.1 million in 2025 and 5.3 million in 2026.
Good expects the beef cow inventory to gradually increase starting next year and continuing through 2027.
Headwinds will provide challenging circumstances, according to the CattleFax analyst. Some of those factors include higher interest rates, drought, labor availability, availability of credit and the growing age of the average cattleman.
"There are more headwinds today than we've had in previous cycles," Good said. "So, when we come back up the ladder, it's going to take us longer, in our opinion."
On the positive side, feed prices are lower. However, Good said corn prices appear to have reached a bottom. Export demand is driving up prices.
"The market is starting to bust out on the top side," he said.
Corn prices could climb to $4.50 or $4.60 per bushel next year, he said. Corn and beans have been undervalued in the past few months. He said the market could be anticipating tariffs when the new administration takes over in January. Overall, he believes the market is undervalued and has room to improve.
Average annual prices from 2023 to 2025, respectively, are: $5.64, $4.25 and $4.20 per bushel.
According to CattleFax projections, the U.S. beef cow inventory will be down 716,000 head in 2024 and 200,000 head in 2025. Then the inventory will climb by 200,000 head in 2026 and 300,000 head in 2027.
Ten years ago, the packing industry was shutting processing plants, but today it's adding capacity.
"So, the leverage should stay with the cattle producer much longer," Good said.
Feeder cattle numbers have steadily declined from almost 41 million in 2021 to 38.6 million this year and 38.2 million next year (projected).
As the beef industry begins to add cow numbers, the dairy industry is helping to fill the gap. Good said many farms utilize beef-on-dairy genetics to produce crossbred cattle for the beef market. This adds about 300,000 more cattle to the beef industry every year.
By 2026, roughly 15% of fed slaughter cattle will be sourced from dairy-influenced cattle, Good said. Last year, that number was just 10%.
Beef on dairy represents a bigger share of the income stream for many dairy farms.
"We have more cattle coming out of the dairy system today that are going in the feed yard—to the tune of close to a 1 million head on an annual basis compared to just five or six years ago," he said.
In addition, the U.S. is importing significantly more feeder cattle from Mexico. This has helped fill the production gap created by liquidation in the U.S.
"This year, they (Mexico) brought a lot of heifers across," he said. "We're envisioning that that will decline as we go forward into next year."
U.S. fed cattle slaughter will be down only 75,000 head this year compared to 2023. He said that's a surprise considering the herd liquidation taking place over the past six years. Two reasons are because of the increase in Mexican imports and more production from the dairy industry.
Another factor is that producers are holding onto cattle longer and sending them to market at higher weights.
"As cattle producers, how do you get a bigger paycheck?" he asked. "Make them heavier, more pounds."
The long-term average for cold carcass weights is roughly a 5-pound increase per year. However, over the past two years, cattle have come to market at 10 to 15 pounds heavier, Good said.
Good estimates U.S. commercial beef production will total 26.8 billion pounds in 2024, down .3%. The downward trend will continue for two more years, 26.1 billion pounds in 2025 and 25 billion pounds in 2026.
"The market is calling for product, and we're doing that with heavier carcass weights," he said.
In 2025, producers will start expanding their herds, but he said it takes a long time for herd sizes to rebuild after a liquidation.
U.S. beef imports are at an all-time high, with Australia and Brazil leading the way. The U.S. currently has a beef trade imbalance, with imports up 20% and exports down slightly compared to 2022.
Good said beef remains popular with U.S. consumers, even though prices have increased 208% since 2000. Beef demand has been going up faster than other proteins like pork and poultry.
Retail beef prices are around $8 per pound this year and will climb to $8.10 in 2025, Good said.
"For cattle values of all classes, beef prices are at record highs," he said. "It tells you that demand has been stout enough to absorb bigger supplies at higher prices. It's absolutely a great message for our industry."
Strong consumer demand should lead to a profitable outlook for producers. Cattlemen "have been getting the short end of the stick over the past several years," Good said, but now they are "getting what they rightly deserve."
Fed steer prices this year will average around $186 per hundredweight and should average around $190 next year, with the highs coming in the early summer.
Feeder cattle (550-pounds) are worth $310 per hundredweight this year and will move to $325 by next fall, Good said. The peak should occur next spring, with prices at $340 per hundredweight.
Cattle prices are high, but Good said "there's still enough dollars in the system for the market to continue to march higher" next year. With the fundamentals supporting higher prices, beef producers will have leverage with both packers and retailers.
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