For cattle producers wondering whether today’s price levels are sustainable, or whether the market has already peaked, the underlying fundamentals suggest the industry may not be finished yet. Despite historically high cattle and beef prices, the U.S. cow herd continues to contract, herd rebuilding has yet to meaningfully begin and beef demand remains resilient even as prices climb. And when you combine those forces together, it’s a recipe that indicates tight supplies are likely to persist well into the second half of the decade, setting the stage for continued strength, and potentially even higher highs yet this year.
That outlook was reinforced during a U.S. Farm Report roundtable markets discussion at this year’s CattleCon in Nashville, with Oklahoma State University Extension livestock economist Derrell Peel, Don Close, senior protein analyst for Terrain, and Joe Vaclavik of Standard Grain.
Close has been in the business for 48 years, and he says he’s waited his whole career for this, as the dynamics in the cattle market continue to build a strong case for cattle prices. And while there is definite risk at these price levels, and volatility is certain, both Peel and Close are bullish on cattle this year.
Inventory Report Confirms the Industry is Still Shrinking
The latest USDA Cattle Inventory report released last week showed another year-over-year decline in beef cows, underscoring just how tight supplies have become. While the number itself was not shocking, the market’s reaction reflected the realization that contraction is not over.
“The fact that [the beef herd] was down some was not a particular surprise,” Peel says. “I thought it also could have been up slightly, so plus or minus unchanged. It came in a little smaller than that. But in general, the report from my standpoint was pretty much what I expected.”
What matters most, according to Peel, is not a single percentage point, but the trend line producers are still on.
“The net effect is we continue to get smaller in this industry, and we are not growing at this point,” he adds.
For producers hoping tighter numbers would soon give way to expansion, the report instead confirmed the industry is still digging deeper into contraction.
Replacement Heifers Signal Intention, Not Expansion
One of the few increases in the report came in beef replacement heifers, but Close cautions producers should not confuse that with meaningful herd growth.
“I think it’s an encouraging indication that they’re starting to think about it,” Close says. “If you look at the offset to the decline in count numbers to an increase of 42,000, 44,000 heifers, there’s no real offset there. We’re still in the infancy of any expansion, and it can, depending on weather, go either way.”
From Close’s perspective, the increase reflects mindset more than action. After several years of drought and forced liquidation, producers are beginning to consider rebuilding, but that process is slow, cautious and far from uniform.
“I think the anecdotal evidence we’re seeing when talking with producers is [they’re] starting to see some very modest expansion,” he says. “And I would conclude with the number of ads we’re seeing online of bred heifers for sale, we’re just starting.”
That “just starting” phase suggests calf supplies will remain tight for several more years, even if expansion intentions continue to grow.
Very Solid Technical Uptrend in Cattle
From a market structure standpoint, Vaclavik says cattle and feeder cattle futures continue to reflect the supply realities producers are seeing today.
“The cattle market and the feeder cattle market are two of the strongest and most orderly bull markets that we’ve seen in a long, long time,” he says.
Vaclavik points to the long-term chart as evidence the rally is not speculative, but fundamentally driven.
“You basically go back, and it’s very easy to see. You go back to when the lows were posted in 2020, like right around the COVID timeframe, and what we built out of that,” he says. “I know there’s been some volatility, but big picture, it’s a very, very solid technical uptrend.”
While he acknowledges the potential for short-term disruptions, Vaclavik says the underlying fundamentals remain firmly in control.
“I just, I don’t see anything fundamentally to set this thing back,” he says. “I do worry about things like headline risk. You know, you worry about ‘Is Trump going to go on another crusade against beef prices?’ ‘Is there going to be a screwworm headline?’ There’s a lot of things that, over the near term, could result in a setback.”
However, he emphasizes recent inventory data does little to change the bigger picture.
“I just, I don’t see it as being material. It’s not enough to reverse the course,” Vaclavik says.
Market Structure Suggests the Highs May Not Be In Yet
When asked whether cattle prices have already peaked, Close was clear in his assessment.
“We’re not convinced we’ve seen the highs,” he says.
Looking at supply constraints and demand strength, he sees room for additional gains in fed cattle prices.
“We’re thinking we could see fed cattle prices this year up an additional 8% to as much as 10% over the average prices we saw in 2025,” Close says.
He points out the market correction tied to political headlines last fall ultimately strengthened the rally prices are currently experiencing, rather than ending it.
“When we went through that period in October, we had the headlines and the involvement from the administration, and that really gave us a scare, but it also gave a correction in the market,” he explains. “So, when we take the fundamentals we think we’ve been working with, and that was confirmed in that cattle inventory report last Friday, I think the structure of the market to continue the rally is absolutely in place.”
Even with the resounding bullish sentiment headlining the discussion, Vaclavik has a clear and pointed message for producers.
“I love all this optimism, but it scares me a little bit. Remember to keep your business a business. Don’t gamble,” he says.
Herd Rebuilding Timeline Keeps Slipping
One of the most critical implications for producers is how far the industry has delayed rebuilding the cow herd.
“We keep pushing off the timeline,” Peel says. “Every year that we could have started some heifer retention, we haven’t. So, I think we’re still pushing off that timeline.”
Even if producers begin retaining heifers in 2026, Peel says the biological clock means supply relief will not arrive quickly.
“If we start saving heifers in 2026, then that’s the start, but time it out. If you save a heifer calf in ’26, breed her in ’27, it’s 2028 or the end of the decade before we change beef production,” he says.
Peel also notes replacement heifers will first be used just to hold the line.
“The small increase we saw in replacement heifers may signal that we’re thinking about it a little bit,” he says. “But the other thing you have to keep in mind is that the beef cow herd has gotten smaller, and we’ve been culling less, so we need to replace some of those cows going forward. It’s going to take some of these additional heifers just to maintain the herd we’ve got.”
Delayed Culling Could Push Slaughter Higher
Close adds that years of holding onto older cows could create another wrinkle in the supply picture.
“If you take the number of cows that probably should have gone to town, but were kept back in 2024 to get one more calf, the same thing repeated in 2025,” he says. “I actually think we could see a modest increase in cow slaughter in 2026 just because of those cows that we kept an extra year or two longer than they probably should have stayed.”
That dynamic could further slow the pace of true herd expansion, even as producers begin thinking about rebuilding.
Another Bullish Factor: Beef Demand Continues to Hold Firm
High prices have raised concerns about whether consumers will eventually push back, but Close says demand data continues to defy that narrative.
“Over the last two years at Terrain, we’ve spent more time trying to evaluate and study what we can about demand,” he says. “We’ve known what the supply is.”
By examining beef prices relative to income, inflation and competing proteins, Close said the results remain consistent.
“We’re looking at all-fresh beef prices against the consumer price index. We’re looking all fresh against average hourly wage. We’re now looking at beef in relationship to both pork and broilers,” he says. “And all those matrices that we’re looking at, we’re not seeing and have not yet seen any softening in beef demand. It’s still in place.”
Peel agrees consumer behavior continues to support higher prices, even if there is talk about bringing beef prices down.
“I don’t think we have a demand problem or a beef price problem. Consumers are still paying,” Close says. “If consumers didn’t want to pay high prices for beef, they don’t have to. There’s places they can go. They’re still paying it.”
Tighter supplies mean prices may need to rise further.
“We do have supply getting tighter, and it’s going to continue to get tighter, which probably means we’re going to use higher prices in the future to ration a tighter supply even compared to where we are now,” Peel says.
What it All Means for Cattle Producers
With herd rebuilding still largely on hold, cow numbers continuing to tighten and beef demand holding firm, their message to producers is consistent: the fundamentals that drove cattle prices to record levels are still in place. While volatility and headline risk remain, the supply-side realities suggest the market may not yet be finished rewarding cattle producers as the industry heads toward 2026.