Record prices, profits and losses. This is the story of the U.S. cattle and beef industry in 2025 – a year best described as volatile and uncertain.
Market volatility in an economic environment of tight cattle numbers has been further stressed by the uncertainty of tariffs and their impact on U.S. beef trade. At the same time, there is also the additional uncertainty of a structurally changing industry. What this means to the supply chain going forward is not totally known or perhaps even perceived by many, but change is afloat.
I speak often about capacity and utilization of capacity and for good reason — it is a crucial factor impacting margins. During the last week of July (August 2), when fed plants operated at 77% utilization and cow plants at 60%, beef packers saw their average margin fall to a record low. That is at least according to my estimates, which I began compiling in January 1988.
With supply fundamentals remaining on the current path of further tightening cattle numbers for at least the next three years, the industry’s negative margin situation is not likely to change given the over-capacity situation. Consequently, capacity will be reduced. I believe this will occur through permanent plant closures, particularly as the newest plants brought online in recent years incorporate innovative technologies and equipment that will make it increasingly difficult for old plants to compete in production efficiency and efficient use of labor.
Packers are not the only beef industry sector with over-capacity. Feedlots are facing or will likely face the same dilemma as feeder cattle numbers continue to tighten. While one might conclude that that only means greater competition for feeder cattle and even higher prices beyond an already record-high market, that will not likely be the case. Just as with packers, I believe feedlots will also face consolidation of capacity and this is further supported by packer-feeder supply agreements that are supported by formula prices. The industry is increasingly headed in this direction and there is no going back.
With or without tariffs, the U.S. beef industry is transitioning to one defined by the supply-demand dynamics across the entire supply chain. In this context, it will be increasingly important to manage capacity.
The old pricing models that we have known for decades will become increasingly outdated as the industry aligns pricing from retail/food service to packer to producer. Market analysis has become much more than assessing the cattle on feed numbers.
