Global AgriTrends

06.18.25

Cattle to New Record Highs – What’s the Risk?

The U.S. feeder cattle index recently topped $317/cwt last week, another record high. Fed steers traded at a record $238/cwt. On a per head basis feeders are now around $2,400 and fed cattle are near $3,600. PER HEAD?! These price levels are euphoric for cattle producers, painful for beef packers, and unnerving for financiers of the cattle sector.

Consider 11.8 million cattle on feed five years ago at $108/cwt (2020) valued at US$17.2 billion. Today’s 11.8 million (larger) fed cattle at $238/cwt would value around $40.7 billion, requiring a staggering additional $23.5 billion to finance. And that isn’t including feed.

So in these times of “never another bad day” prices, what is the risk? Markets are notorious for unpredictability. And unknowns lurk. The possibility and impact vary widely, and may be miniscule, but a 10% correction in feeder cattle futures erodes $240/head in value. And how often can that happen? This chart below shows monthly feeder prices and the months where prices were down -1% from the prior 2-month high. To alter a common phase, “It happens”.

What to do? Consider the USDA LRP options. These are widely available and government subsidized, providing a “put” option to protect at a certain price while leaving the upside open. For those financing feeder cattle, these protect against expensive margin calls were markets to shift. And these may be even more critical as margin calls add up fast in a nervous global and political environment.

I’m not a broker, nor do I benefit from promoting livestock risk management. But with the big piles of money on the table, it may be wise to consider your risk tolerance and determine if you feel the need to protect yourself against downward market moves. While we see some time before this current cattle cycle shifts, note on this chart what happened as the cattle cycle turned in 2015/2016.