Economists deal in averages and “it depends,” but in the unpredictable world of cattle marketing, producers are the unfortunate recipients of dangerous volatility. University of Arkansas Extension livestock economist James Mitchell looks to national and international factors to gain awareness of the challenges cattle producers will face at their local livestock auction in the near future.
“Average cattle prices are going to be high; we all know that. But none of us sell cattle at the average, do we?” Mitchell said. “We sell cattle on a day of the week at a specific market at a specific point in time, and the issue has been our markets are incredibly volatile.”
Typically, market volatility is an indicator of a fundamentally shaky foundation, but in this case, Mitchell said the market is aware of how supply and demand works; it’s just unduly influenced by outside information.
“We’ve got the lowest cattle inventories we’ve had since the 1950s,” Mitchell said. “We’ve had really resilient and very strong consumer demand. People are just sensitive to all the news and the doom and gloom that’s been out there lately.”
What’s weighing on markets?
Slight weakness in consumer demand, a smaller corn crop outlook, fuel prices, drought and imports are all factors decision-makers weigh when pulling the trigger on cattle purchases.
Each factor plays into another. Consumer demand for ground beef is high, and cow slaughter is low, increasing the need for imports to meet lean trimming requirements. Although the reopening of the southern border triggered price reactions, Mitchell said he sees a long-term timeline before the number of cattle imports into the U.S. has much impact on overall cattle numbers or price.
“My estimates were that if Monday morning we returned feeder cattle imports to pre-closure numbers, that would represent about 5% of monthly cattle-on-feed placements,” Mitchell said. “If we returned to that level, I would estimate about a 6% to 8% decline in feeder cattle prices, which is significant. But we’re not going to return to that level anytime quick, and so the initial market impact was a bit of an overreaction in my opinion.”
Additionally, tight cattle supplies change the shape of the overall cattle market flow. High calf prices caused by low cattle numbers tighten profit margins for feeder and fed cattle, in turn lowering later calf prices as the further value chain members struggle to profit.
“When those prices are really, really high, when those cattle inventories are really, really tight, those calf crops annually come in at record lows, and that disproportionately raises that calf price relative to your feeder and fed cattle market,” Mitchell said. “It starts impacting those feedlot margins negatively.”
Can cattle numbers keep up?
When — and how quickly — herd expansion will commence is on the mind of every member of the beef industry, from cow-calf producers to processors. When the July 1 USDA cattle inventory showed a 0.2% improvement of 200,000 head from July 2025, the cattle situation appeared to be improving.
“The caveat to this is whenever USDA puts out these reports, they also will go back and revise [the] previous year’s numbers. So they revised last year’s number downward by 200,000 head,” Mitchell said. “Exactly the increase that we just saw.”
The moving target of beef inventory makes it hard to identify if herd numbers are truly beginning to increase, but looking at cow slaughter rates might give a more accurate picture.
“Beef cow slaughter is down over 30% compared to its peak in 2022,” Mitchell said. Historically, the low in cull cow numbers occurs the year after the low in beef inventory numbers. “If you’re using history to predict the future, this would suggest that cow slaughter is actually going to come down even more this next year, but it’s just hard for me to believe that we’re going to have a slaughter rate lower than what is currently the lowest number to record.”
In addition to changes in cull cow numbers, replacement heifer numbers increased 3%, up 3.8 million head from July 2025. The good percentage increase is put into perspective by the 800,000 fewer replacement heifers in the U.S. beef cattle herd than the last time widespread expansion occurred in 2015.
“In terms of absolute numbers, we are years away from having heifer inventories at a level that would suggest mass herd expansion is occurring throughout the United States,” Mitchell said. “We do not have the replacement heifers to do it, so we’re not putting any heifers into the herd, and we’re also not culling very many of them.”
What’s next?
How are cattle producers keeping up with consumer demand, low cattle numbers and the need for profit as well as progress? Bigger cows. But the larger meat-to-animal ratio can only carry the industry so far.
“Last year, all the talk was heavier carcass weights are making up for lower slaughter,” Mitchell said. “We’ve passed that point where the pace of slaughter was so much lower that it’s not being made up for with heavy carcass weights.”
Once herd expansion commences, the industry may be searching for a new normal for carcass weights to more comfortably support demand. As for continued herd expansion, Mitchell said he doesn’t expect to see any big herd or price changes through 2027.
“I’m expecting to see prices kind of increase to level out through 2027 once that herd starts to expand,” he said. “It won’t do so aggressively until we get into 2028, and then, we’re going to see those prices start to come down at that point in time.”
The gradual scenario is much different from the 2015 expansion, where the market dropped suddenly. “There’s a lot preventing us from rebuilding the herd as quickly as we did last time,” Mitchell said.
Unrelenting drought in cattle-rich areas, relatively high interest rates and increasing cost of production are all playing a role in slowing herd progress over time.
New herd rebuilding tool
Earlier in August, the University of Arkansas launched the Beef Cow and Heifer Investment Analysis tool to assist cattle producers in making financially sound selection decisions. Mitchell and fellow University of Arkansas Extension economist Ryan Loy designed the tool with a user-focused interface in mind.
“What should you pay for a bred heifer?” Mitchell asked. “There are all the different rules of thumb for what you should pay for a bull. One of the classic rules was you should pay two times the price of a fed steer or five times the value of a feeder calf.”
Instead of estimating based on fluctuating market prices, Mitchell looked to create a tool more focused on evaluating cattle as assets.
“We developed a web-based app where you can plug and play with numbers that uses [net present value] and treats bred heifers as a capital asset to see — given your cost structure, given your outlook on price, given interest rates — is that purchase a good investment for your operation?” he explained.
If the number output by the final form is positive, the bred heifer or breeding stock purchase is easily a good investment, if it’s negative, it might be good to “press pause,” Mitchell said.
“We do a lot of sensitivity analysis with it, too, so this shows you your breakeven price for a bread heifer given how many calves you expect that heifer to generate on your operation as well as your annual cow cost,” Mitchell said. “Higher-cost operations have a lower breakeven price on bred heifers. If you expect that bred heifer to be in your operation longer, you can obviously pay a higher price for bread heifers too.”