“We’re seeing the collision of the beef and dairy markets in a way we wouldn’t have dreamed of a few years ago.”
That’s how Derrell Peel, Ph.D., Extension and livestock marketing specialist, Oklahoma State University, began a late summer update on the cattle market. He said no one could have anticipated the current historic prices.
“Lots of things are happening on both sides of these two markets,” said Peel. “There’s direct interaction and we’ve seen a significant increase in prices for calves. The fed cattle market is the same story – across the board we’ve seen higher cattle prices that go back to late 2022 when this market really took off, and we’ve had a relatively steady increase since then.”
There was a similar run up in beef prices about a decade ago that set new records, and those conditions were close to what’s happening today: a largely drought-driven liquidation. However, those prices only lasted about two years, then the markets came back down dramatically.
“As the spread between calf and feeder prices gets wider, the spread between feeder cattle and fed cattle gets wider, and this goes all the way to meat levels,” said Peel. “This market is very focused on calf prices right now because we’re trying to incentivize herd rebuilding.”
Stocker or background producers are buying calves and putting weight on them to sell as feeder cattle. The buy/sell margin becomes trickier as prices rise. The price of calves is rising further and faster than feeder cattle, and the price of feeder cattle is rising further and faster than fed cattle. Dairy farmers are seeing cull cow prices rise.
“The underlying story is one of numbers,” said Peel. “The beef cattle industry is inherently cyclical. We have been liquidating since 2018 or 2019. Coming into 2025 we’re at the lowest beef cow inventory since 1961. Heifer levels coming into 2025 were also low.”
The beef industry has been cyclical for 150 years. “We may see a fractional increase in the beef cow herd in 2026, given the decrease in cow culling we’ve had,” Peel said. “But in 2025, we were about 1.1 million head smaller than in 2014, which was the beginning of the last set of high prices and the herd rebuild. The big difference is we are not equipped to change this fast.”
In 2014, heifer retention was at record levels and cow culling was minimal, and both are required for herd rebuilding. However, as of late August 2025, there’s no indication beef heifers are being retained to begin rebuilding the herd.
While the dairy industry isn’t as cyclical as the beef industry, advances in reproductive technology such as sexed semen have led to changes. Dairy replacement heifers are at the lowest level in the history. Peel added that the dairy industry faces internal challenges to maintain herd levels and productivity.
“The biggest impact of beef on dairy relative to straight dairy is what it does to carcass conformation – muscle size and shape,” said Peel. “Crosses feed a bit differently but that doesn’t change the overall picture.”
Certain markets have always relied on dairy-type carcasses and cuts, but now, crossbred carcasses can fit into a broader range of markets.
There’s a significant reduction in Select grade beef in the market. Not long ago, 50% of the market was Select. “Now we’re running about 85% Choice and Prime,” he said. “Dairy animals have always graded very well. Even though they’re lighter muscled, they grade at a better percentage of Prime than beef cattle did for a long time. There’s a need for Select meat in the market and we use imports to supplement non-fed beef that comes from cull cow slaughter.” Unresolved tariff issues will likely affect the imported lean beef supply.
The average steer carcass weight has risen by about 4.5 lbs./year since the early 1960s, and Peel said that trend remains unchanged. Larger carcasses and individual muscles mean larger steaks, but consumers haven’t been asking for bigger steaks for about 20 years.
“We saw a huge jump in carcass weights in 2024,” said Peel. “We’re still above those levels in 2025 but the gap is narrowing. In 2024, slaughter didn’t drop as much as we expected. It decreased, but the increase in carcass weights more than offset that. Cattle slaughter is down about 5.4% so far this year, both steers and heifers.”
Feedlot numbers will influence growth. “For eight consecutive months, we’ve had year-over-year decreases in cattle on feed numbers,” said Peel. “In a longer-term context, feedlot inventories will continue to tighten up, and this is all happening without saving heifers.”
Grocery store prices are affected by market changes. “Almost all beef cuts are higher, but the most pronounced is ground beef, which is at record levels because of the decrease in the non-fed beef supply,” he said. “We use cull cows and bulls for lean to go into ground beef and those prices are at record levels. That adds up to record level retail beef prices.”
The northward movement of the New World screwworm will directly impact the beef market. “We average about 1.1 million to 1.2 million cattle from Mexico, but it varies somewhat from year to year,” said Peel. “Imports of cattle from Mexico are about 3.3% of the U.S. calf crop, so it isn’t a major part of our supply, but it’s a component of the total feeder cattle supply. That market has been mostly closed since last November when the NWS was first detected in Mexico. The border is closed again, and I expect it will likely stay closed for the foreseeable future.”
Preconditioning measures such as weaning health management will continue to be worthwhile for beef producers. Peel said buyers are spending so much on calves that health problems and death loss pose a high risk. Through several cattle cycles, premiums go up during high prices, resulting in producers taking more risk with high-value calves.
“Cow/calf producers are in the driver’s seat,” said Peel. “They’re seeing record level returns. The market is trying to focus on them and provide the incentives for herd rebuilding. So far, the response has been slow. Feedlots have done okay, cow/calf producers are doing good, but the stocker/backgrounding operations in the middle are facing a challenge.”
