Livestock Rally: Why U.S. Cattle Markets Are Heating Up in 2025

The U.S. cattle market is in the grip of a historic rally, with cash prices surging to multi-decade highs and CME futures reaching elevated levels. Driven by structural supply shortages, geopolitical disruptions, and robust consumer demand, the livestock sector is defying traditional cyclical norms. Here’s why investors should pay close attention to this bull run—and the risks lurking beneath.

The Perfect Storm: Supply Constraints and Trade Disruptions

At the core of the rally is an unprecedented contraction in cattle inventories. The U.S. beef cow herd, now projected to fall to 27.9–28.1 million head by early 2025—the smallest since 1951—has created a self-reinforcing cycle of scarcity. Limited heifer retention and persistent drought, affecting 74% of U.S. land, have stifled herd recovery. Meanwhile, the New World screwworm outbreak in Mexico has shut down critical feeder cattle imports, reducing weekly supplies by 30,000 head.

These factors are pushing cash prices to stratospheric levels:
- Fed steers are expected to average $198/cwt in 2025, up $12/cwt from 2024.
- Feeder cattle remain firm, with 450-pound calves holding in the $375–$390/cwt range.

Demand Drivers: Beef’s Dominance in the Protein Market

Consumer preference for beef continues to outpace competing proteins. U.S. retail beef prices are forecast to average $8.25/lb in 2025, up from $8.01/lb in 2024, even as inflation persists. This resilience reflects a 5% year-to-date increase in real per capita beef expenditures, contrasting sharply with declines in pork (-1.6%) and chicken (-3.2%).

The premium placement of Choice-grade beef in grocery stores and restaurants is further fueling demand. Wholesale cutout prices, a key indicator of restaurant demand, are projected to hit $320/cwt, underscoring the shift toward higher-value cuts.

Trade Dynamics: A Narrowing Export Window

While U.S. beef exports are expected to dip 5% in 2025 due to domestic price inflation and reduced production, imports are set to surge. Foreign competitors like Australia and Brazil are filling gaps, with total beef imports peaking at 4.4 billion pounds—a record. This trade imbalance, combined with a 1.8 billion-pound net import deficit, is intensifying competition for scarce domestic supplies.

Weather and Drought: The Wildcards

Drought remains the most unpredictable variable. Though storms in the Southern Plains offered temporary relief, the Northern Plains (WY, NE, SD, ND, MT) remain in severe drought, limiting grazing and raising feed costs. A strong North American monsoon in 2025 could ease conditions, but prolonged dryness would further tighten supplies.

The Bulls’ Case for Q2 2025

The second quarter typically sees seasonal strength in cattle markets due to grilling demand and herd liquidation. Analysts project:
- Fed steers to hit $190/cwt or higher, nearing the annual average of $198/cwt.
- Feeder cattle to stay elevated, with 800-lb steers averaging $270/cwt and 550-lb steers at $340/cwt.

Risks on the Horizon

• Economic slowdown: A U.S. growth rate below 2% could curb consumer spending, though current data shows no signs of a downturn.
• Trade reopening: If Mexico’s border reopens, it could flood the market with feeder cattle, capping upside.
• Fed policy: While rate cuts support demand, uncertainty looms ahead of the 2025 elections.

Conclusion: A Bull Market with Bulls and Bears

The U.S. cattle market is in a uniquely bullish phase, underpinned by supply constraints at a 70-year low, resilient consumer demand, and geopolitical disruptions. Cash prices for fed steers are on track to hit $198/cwt in 2025, with Q2 likely exceeding this average.

However, investors must tread cautiously. While the CVOL Index (tracking implied volatility) suggests markets anticipate continued turbulence, the path to $200/cwt could be bumpy. For now, the fundamentals argue for a long bias, but hedging remains critical. As the old adage goes: “In cattle, hope for the best, but plan for the worst—and always watch the weather.”

The rally isn’t just about cows—it’s about the anatomy of scarcity in a protein-hungry world. For investors, this is a story worth following.