Cattle Crisis: The Shrinking U.S. Herd and Its Economic Impact

Ladies and gentlemen, buckle up! We're diving headfirst into the heart of the U.S. cattle industry, where the latest USDA reports are painting a picture that's as alarming as it is fascinating. The July Cattle Inventory report is back, and it's not pretty. The U.S. cattle herd is shrinking, and the implications are massive. Let's break it down!

THE NUMBERS DON'T LIE!

The inventory of all cattle and calves in the U.S. on July 1, 2025, was 94.2 million head, down 1% from 95.4 million head on July 1, 2023. That's a drop of 1.2 million head in just two years! But that's not all. The 2025 calf crop is estimated at 33.1 million head, down 1% from last year. That's the smallest calf crop on record, folks! Beef cows were estimated at 28.7 million head, also down 1% from 2023 and a record low since data started being collected in 1973.

WHAT DOES THIS MEAN FOR YOU?

The shrinking herd means less supply, and less supply means higher prices. Beef prices have already jumped nearly 9% since January, with ground beef and steak leading the surge. But it's not just about the price of beef. The contraction in the herd size could lead to a shortage of cattle for breeding, making it difficult for the industry to expand in the future. And with high input costs and rising export restrictions, cattle producers are facing a perfect storm of challenges.

THE CATTLE CYCLE: A HYPERCYCLE?

The cattle cycle refers to expansion and contraction in the cattle inventory in response to perceived profitability. One full cycle typically takes about 10 years. But the current cycle is in year 12 and has been contracting for seven years, making it a "hypercycle." Since it takes almost two years from the time a calf is born before it can have a calf of its own, the current calf crop is the first generation of cattle that could increase the herd size in this cattle cycle. But will it happen? That's the million-dollar question.

OBSTACLES TO EXPANSION

The average age of a farmer has risen to 58.1 years old. Imagine being in this person’s shoes, approaching retirement age while prices are near-record profit levels. Supply and input costs, such as labor, fuel and equipment, remain elevated from factors such as inflation. Interest rates also remain high, driving up the cost of borrowing money to purchase cattle or pay for business expenses. These are serious obstacles to expansion in this cattle cycle for both the retirement-aged farmers and ranchers and new and beginning farmers. It’s a good time to get out, and a hard time to get in, a big reason the “hypercycle” continues.

THE NEW WORLD SCREWWORM THREAT

But wait, there's more! The New World screwworm (NWS) is a fly endemic to Cuba, Haiti, the Dominican Republic and countries in South America. The fly lays eggs on a warm-blooded animal, typically on or near a wound. When the eggs hatch, the larva feed on the surrounding flesh as they burrow into the wound, which is how the pest got its name. NWS can infest any warm-blooded animal including livestock, poultry, wildlife, domestic animals, and, though rarely, humans. NWS has spread northward to Costa Rica, Guatemala, Nicaragua, Belize, El Salvador and, more recently, Mexico. USDA estimates there have been 3,800 detections of NWS since it was first detected in Mexico in November 2022. USDA announced the closure of southern border ports to livestock trade on July 9 after new detections indicated northward movement of the pest to toward the U.S.-Mexico border. This closure came after an announcement to open ports starting July 7.

Approximately 1.2 million-1.5 million head of cattle are imported into the U.S. from Mexico every year. When ports are open, cattle imported from Mexico are typically a significant portion of U.S. beef cattle, representing about 4-5% of all cattle marketed for U.S. beef production. If NWS reached the U.S., it would cost billions in economic losses. Closing ports further restricts already tight beef cattle supplies, but it helps protect the United States from the massive economic fallout if NWS ever crossed the border.

SUMMARY AND CONCLUSIONS

USDA revived the July cattle report after cancelling it in 2024. This report is one of two reports that provides detailed estimates of the inventory of all cattle and calves in the United States. When combined with USDA’s monthly Cattle on Feed report, there is evidence of continued contraction in the U.S. beef herd. If female cattle from this year’s calf crop are kept this fall, they would be capable of producing their first calf in 2027. This would provide an opportunity for the first meaningful growth in the U.S. cattle herd in 14 years and signal the start of a new cattle cycle.

So, what's the bottom line? The U.S. cattle industry is facing a perfect storm of challenges, from a shrinking herd to high input costs and the threat of the New World screwworm. But there's also opportunity. The current calf crop could be the first step towards herd expansion, and the right investments could pay off big time. So, do your homework, stay informed, and get ready to make some moves. The cattle market is on fire, and you don't want to miss out!