In recent years, rising beef markets have presented substantial revenue opportunities for dairy producers. Beef cattle prices have been in a strong upward trend since 2020, driven by a reduction in cattle herd numbers to levels not seen since the 1950s and consistently solid consumer beef demand despite high prices.
In the November World Agricultural Supply and Demand Estimates (WASDE) forecasts, USDA predicted commercial beef production to fall 2.7% from 2024 to 2025. Private analysts expect similar conditions in cattle numbers, which are not expected to bottom out until possibly 2026. In July, USDA Agricultural Marketing Service (AMS) reported record-high cash steer prices in the five-state area, with over 80% Choice steers reaching a peak of $198.22 per hundredweight (cwt.). Calf and cow inventories remain tight following several years of drought-induced herd reductions.
Beef market constraints
Beef cow-calf producers are poised to experience strong margins through 2024 and 2025, with cow margins expected to be between $500 and $600 annually. This is significantly above the prior decade estimated average of $175 per head.
Despite high prices, beef demand has been robust. USDA is forecasting higher total beef consumption per capita, slating an uptick of 2.4% in 2024 from 58.1 to 59.5 pounds. Given the lengthy cattle growth cycle — over 18 months from birth to maturity — any efforts to rebuild the herd may span several years, contingent on favorable pasture conditions and good calf crops. Additionally, demographic headwinds pose challenges to rebuilding the herd, with many cow-calf producers nearing retirement age, which may affect future herd expansion growth.
The beef premium
Beef-on-dairy breeding has surged over the last five years. Estimates suggest almost 4 million crossbred calves were born in 2024; that could reach up to 6 million in the next two years. At that point, dairy-beef animals could represent almost one-sixth of the fed beef cattle market.
Dairy-beef crossbreeding can enhance the genetic quality of a dairy herd by allowing producers to focus their best genetics on milking traits while using beef sires for nonreplacement calves. This approach optimizes both milk production and beef income.
Prices for dairy-beef calves have skyrocketed, with day-old crossbred calves fetching up to $1,000 per cwt. in some regions this summer — up from below $200 per cwt. just five years ago. These calves can command a substantial premium over traditional dairy-bred calves, offering dairy producers a chance to capitalize on high beef market prices.
This trend has led many dairy operations to prioritize crossbreeding over raising dairy replacement heifers, reducing U.S. dairy herd replacement numbers. As of January 1, 2024, USDA estimated U.S. dairy replacement heifers at 4.059 million head, down 642,000 (14%) from January 2019. With calf prices so high, producers are incentivized to sell calves rather than retain them for future breeding. Beef revenue, between day-old calves and cull cows, can now account for more than 20% of total income for some dairies, underscoring the importance of effective risk management.
Risk management updates
Under currently existing Livestock Risk Protection (LRP) rules, dairy producers could only use the “unborn steers and heifers” type to protect their calves. This type is priced at 110% of the feeder cattle index, which is woefully short of the current market relative value for day-old dairy-beef calves; current market prices per cwt. are reaching as high as 350% of the feeder cattle index.
To address this situation, our company has proposed modifications to LRP offers to the Federal Crop Insurance Corporation (FCIC). If the FCIC approves our requested reforms, in July 2025, dairy producers will have access to enhanced tools for managing beef price risks. The newly proposed “unborn calves” type will focus on providing effective coverage for dairy-beef calves, and the new “cull cows” type will offer protection against reduction in value of cull dairy cows. Both new LRP types will be tied to the CME Feeder Cattle Index, using a Price Adjustment Factor (PAF) which sets the expected and actual prices as multiples of the CME Feeder Cattle Index.
For day-old dairy-beef calves, a dynamic PAF will be updated each sales month to reflect evolving market conditions and seasonality of prices. Both cull and calf markets have shown strong correlations with the CME Feeder Cattle Index, making these new risk management offers viable options for producers looking to stabilize their beef income amid fluctuating prices. By adding LRP to the risk management toolbox, dairy producers can enhance profitability and build a more resilient business model amid the quickly growing beef-on-dairy trend.
