NASHVILLE, TENN. (RFD NEWS) — The U.S. Department of Agriculture (USDA) biannual Cattle Inventory Report is set for release on Friday, offering a snapshot of cattle numbers, herd sizes, and values across the country. Early indications suggest the U.S. cattle industry may be nearing the end of its liquidation phase. Oklahoma State University livestock economist Dr. Derrell Peel says the industry could be at or near the cyclical low.
“My expectation is that we will probably see a very fractional increase in the beef cow herd coming into 2026,” Peel said. “That would make 2025 the official cyclical low, and that’s based on the fact that we reduced cow culling enough last year to stabilize the herd. We sort of stopped the liquidation, if you will, on the basis of less cow culling, you know, or a very low rate of cow culling, I should say. But we don’t have enough replacement heifers to grow in 2026.”
While there may be modest growth in the replacement category, Peel recommends managing expectations.
“I think there’s a decent chance that this report may show a fractional increase in the beef replacement heifer category, but I don’t think it’ll be the kind of thing that indicates any significant or really aggressive pace of rebuilding or heifer retention,” Peel said. “So, it probably limits our prospects, not only in 2026. We already know from the heifers on the ground that we don’t have enough to grow in 2026. We probably don’t have enough to grow much in 2027, so it’s going to depend on what we do going forward to do that.”
He adds that feeder cattle numbers are also expected to remain limited, according to the report.
Beef Production Trends Signal Tighter Market Conditions Ahead
Commercial beef production trends are pointing toward a tighter supply environment in 2026, reinforcing expectations for continued price sensitivity and volatility across the cattle market. Hyrum Egbert with The Big Bad Packer newsletter says output has declined steadily from its 2022 peak, not sharply enough to signal collapse, but enough to keep pressure firmly in place.
U.S. beef production peaked at roughly 28.3 billion pounds in 2022, then slipped to about 27 billion in 2023 and 2024, and fell further to an estimated 26 billion pounds in 2025. Current projections place 2026 production near 25.7 billion pounds, extending the multi-year drawdown tied to herd liquidation and slow rebuilding.
Operationally, heavier carcass weights have helped offset some supply loss, but weights alone cannot replace missing cattle. With fewer animals moving through the system, production declines increasingly translate into price rationing through higher values, product mix adjustments, and sharper volatility.
The impact emerges unevenly across the chain. Packers face immediate margin pressure as fixed costs are spread across fewer cattle, while feedlots are likely to feel tighter supplies later in the year as placements trail marketings.
Looking ahead, market signals to monitor include placement trends, carcass weights, cow slaughter rates, and developments in animal health that could tighten supplies abruptly.
RFD NEWS Markets Specialist Tony St. James was joined by Kansas State University Livestock Economist Glynn Tonsor on Thursday’s Market Day Report to discuss economic drivers and recent trends in the cattle sector. In their conversation, they outline and discuss the latest findings in K-State’s Monthly Meat Demand Monitor.
Extreme Winter Weather Could Mitigate the Spread of Screwworm
Meanwhile, harsh winter weather across much of farm country has caused dangerous conditions and major disruptions — but it may bring one unexpected benefit. Recent Arctic cold has pushed deep into Texas and northern Mexico, and DTN analysis suggests freezing temperatures could slow the spread of the New World screwworm.
Experts say cold weather can delay the parasite’s life cycle, potentially reducing the risk of it moving toward the U.S. border later this year.
Between high prices, low inventory, and animal health threats, livestock producers are facing what some describe as a perfect storm. University of Illinois economist Brittany Goodrich says there are tools available to help manage long-term risk.
“It’s called Livestock Risk Protection (LRP), and it’s essentially a subsidized option that works directly off futures markets,” Goodrich said. “ It’s really good for small producers who can’t afford to participate directly in futures markets because the contracts are just so big. This USDA program actually allows you to protect against that downward price risk in a subsidized way, and you can insure as few as one head of cattle if you would like.”
Goodrich also pointed to the Pasture, Rangeland, and Forage Rainfall Index Insurance Program, which protects producers during drought conditions.
“This protects against lower than average rainfall and pays an indemnity when you have these drought-like conditions,” she said, noting that even with strong prices, volatility remains a major concern.
Beef x Dairy: Record Milk Production May Reverse Course
Meanwhile, major shifts are underway in the dairy sector. American Farm Bureau Federation (AFBF) economist Danny Munch says U.S. milk production is reaching record levels — but the trend may not last.
“That output is being propped up by older cows staying in production longer, not by new herd growth,” Munch said. “At the same time, the pipeline behind the herd is shrinking. Replacement heifers are at their lowest levels since 1978, and the number expected to calve in the future has fallen sharply. So, while milk supplies are high today, the system supporting that future supply of milk is thinner.”
Munch said one factor driving the shift in dairy is the broader beef economics at play.
“Strong beef prices and beef-on-dairy premiums have encouraged dairy farmers to breed more cows to beef genetics and keep those milk cows in production longer,” Munch explained. “That boosts short-term revenue for calf sales. We see about $4-$5 per hundredweight for dairy farmers, but it also means fewer dairy-bred heifers entering the replacement pool. So, the result is higher milk output now, but greater risk of sharper adjustments later in the milk markets.”
He adds that growing global milk supplies from the European Union, New Zealand, and Argentina could increase competition for U.S. producers.
Looking ahead, the cattle industry’s largest annual gathering — The National Cattlemen’s Beef Association’s CattleCon — is coming to Nashville, Tennessee, next week. RFD News will have coverage throughout the event, with the full broadcast team on-site. Viewers are invited to stop by the RFD booth, #606, on Tuesday, February 3, from 4 to 6 p.m. local time.
