Bulls on the Brink: Why Feeder Cattle Futures Are Poised to Charge Ahead

The U.S. cattle herd has entered uncharted territory. As of January 2025, total cattle inventories have plummeted to 86.7 million head—the lowest since 1951—marking a historic contraction driven by drought, high costs, and a dwindling calf crop. This structural shortage, paired with geopolitical trade risks and favorable feed cost dynamics, is setting the stage for a multiyear bull market in feeder cattle futures (FE live). Investors who position themselves now stand to profit from a confluence of factors that will keep prices elevated for years to come.

The Structural Shortage: Herd Decline and Biological Lag

The USDA's January 2025 inventory report reveals the severity of the contraction: beef cow numbers fell to 27.9 million head, the smallest since records began. The calf crop for 2024, at 33.5 million, was the smallest since 1948. These metrics underscore a stark reality: the U.S. cattle herd is operating at capacity constraints unseen in generations.

Crucially, the biological cycle of cattle herds creates a lag of two years before retained heifers can produce calves. Even if producers begin expanding herds today—a scenario made economically viable only by record-high cattle prices—the resulting supply won't materialize until late 2027 at the earliest. This lag ensures feeder cattle prices will remain underpinned by scarcity through at least 2026.

Geopolitical Risks: Mexico's Trade Disputes Add Volatility

The U.S. cattle industry faces a geopolitical wildcard: Mexico's unresolved trade disputes. Despite recent agreements to resume livestock exports, the screwworm crisis and U.S. tariff threats loom large. A 1% tariff on Mexican beef imports, set to take effect July 9, 2025, could disrupt regional supply chains. Meanwhile, diplomatic tensions over remittance taxes and border issues highlight the fragility of North American trade relations.

A prolonged disruption to Mexico's $1 billion annual cattle exports to the U.S. would tighten domestic supplies further. Even a partial halt in cross-border flows could push feeder cattle prices higher, as U.S. producers compete for limited domestic inventory.

Feed Costs: Corn Prices Are Collapsing—But Not Fast Enough

Corn, the cornerstone of cattle feed, has dropped to $4.80 per bushel in 2025—down from $6.54 in 2022—easing one of the key cost pressures on ranchers. However, this decline comes too late to reverse the herd contraction already underway. Producers, still reeling from years of drought and inflation, remain cautious about expanding herds.

The falling corn price does, however, reduce the marginal cost of retaining feeder cattle for breeding. This creates a sweet spot for investors: lower feed costs support current operations while the biological lag ensures supply remains tight.

Demand Dynamics: Consumers Are Still Hungry

Despite rising retail beef prices—projected to average $4.50 per pound for ground beef by 2026—U.S. consumers remain resilient. The USDA forecasts per capita beef consumption to dip only slightly to 56 pounds in 2024, down from 57.9 pounds in 2023. Meanwhile, global demand from Asia and the Middle East continues to outpace supply, with U.S. beef exports expected to rebound post-2027 as domestic inventories stabilize.

This demand resilience ensures that even as production gradually recovers, prices will stay elevated. The current trade deficit—1.8 billion pounds in 2025—will persist until U.S. herds expand meaningfully, which is unlikely before 2028.

The Investment Thesis: Long Feeder Cattle Futures (FE)

The combination of structural shortages, geopolitical risks, and favorable feed costs creates a compelling case for a long position in CME feeder cattle futures (FE). Key catalysts include:

1. Inventory Bottoming: The herd is at a 74-year low, with no near-term rebound.
2. Price Momentum: Cash feeder cattle prices hit a record $2.15 per pound in Q2 2025, with futures pricing in further gains through 2026.
3. Geopolitical Volatility: Mexico's unresolved trade issues add a risk premium to prices.
4. Feed Cost Support: Lower corn prices reduce breakeven costs for producers, amplifying profit margins when prices rise.

Investors should consider scaling into FE contracts now, with a focus on quarterly expiration dates through 2026. A stop-loss below the $2.00-per-pound threshold would protect against unexpected herd expansions or demand collapses.

Risks to the Bull Case

• Unexpected Herd Expansion: A sudden surge in heifer retention could accelerate supply recovery.
• Global Economic Downturn: Reduced consumer spending could soften beef demand.
• Policy Shifts: U.S.-Mexico trade negotiations could resolve tariffs faster than anticipated.

Conclusion: Ride the Cattle Cycle's Contractions

The U.S. cattle industry is at a critical inflection point. With inventories at historic lows and biological constraints locking in scarcity, feeder cattle futures are positioned to deliver outsized returns. While geopolitical risks and macroeconomic factors introduce volatility, the structural dynamics favor a sustained bullish trajectory. For investors willing to ride out short-term noise, FE offers a rare opportunity to profit from a cycle that's only just hitting its peak.

Actionable Recommendation: Establish a long position in CME feeder cattle futures (FE) at current levels, targeting a 15–20% return by late 2026. Monitor corn prices and U.S.-Mexico trade updates for entry/exit signals.