LAKEWOOD, Colo. — In addition to record strong basis levels for calves everywhere, including South Dakota, look at last week’s ITCM – margins for the first quarter communicate much trouble for downstream firms in the beef business. The complexity of feeder cattle futures, contract prices, and live cattle futures prices are approaching record highs established last October. Cash market prices have moved up and, in many cases, more than futures have. The underlying market fundamentals are clear. Supplies are tight, and demand is strong. The story for the past five years has been more of the same – a continued tightening of beef animal numbers and a continued strengthening of – especially domestic – consumer demand. (Exports are present increasingly, and the escalating beef values are pricing foreign destinations out of the market. Imports are the reverse story.) With the underlying fundamentals unchanged, the downside risk emerges from the negative margins in meatpacking and cattle feeding.
Packer margins – the revenue from beef and byproduct sales less the cost of finished cattle – spent all but four months of 2025 below $200 per head. These gross margins were negative in February 2026 – the amounts paid for fed cattle were greater than the amount for which beef and byproducts were sold. Margins did bounce back in March 2026, but to just short of $250 per head. These margins are what packing companies need to pay for labor, facilities, supplies, equipment, and management. Reasonable estimates of packer per head slaughter and fabrication costs are between $285 and $365 per head – on every head. Packer losses through 2025 and into 2026 will result in facility closings. This has occurred, but also will continue. And this is not good news for the cattle industry.
Turning to the cattle feeding industry, cash returns have been very strong into 2026 and for all of 2025– these are easy to measure with fed, feeder, and feedstuff prices. But these cash returns are substantially offset by hedging losses – and are not publicly available. It is reasonably easy to construct hedgeable margins for cattle feeders for the rest of 2026. Deferred live cattle contract prices are used to estimate revenue and nearby feeder cattle and corn contract prices are used to estimate costs. For the rest of the year cattle feeders can hedge between a $100 and $300 per head loss – on every head. (The lesson learned is don’t hedge?) The situation is the same as the meatpacker.
This downstream margin trouble is long-term trouble – excellent calve prices now with much asset and investment risk and volatility in the future. Or will there be some creative business models that are constructed to create better long-term opportunities with less boom and bust in the different segments of the beef supply chain?
— Stephen R. Koontz, Department of Agricultural and Resource Economics, Colorado State University
Livestock Marketing Information Center