The cattle market continues to move through one of its strongest cycles in decades, creating new opportunities and challenges for dairy producers raising beef-on-dairy calves.
During a Beef-on-Dairy Dialogue webinar, Oklahoma State Extension livestock economist Derrell Peel examines the cattle market and its growing influence on dairy herd management.
“From a dairy industry perspective, these beef markets become much more important and certainly something to pay more attention to,” Peel says. “We’re certainly seeing that and continuing to look at that.”
Tight Cattle Supplies Drive Strong Markets
The U.S. cattle industry continues to operate with historically tight supplies. Peel says the beef cow herd reached its smallest level since the early 1960s, creating a supply situation expected to influence markets for years.
“The beef cow herd in January of 2026 was the smallest since 1961,” Peel says. “That fundamentally is the main driver of the inventory and the supply fundamentals here.”
The industry’s shrinking cattle inventory can be traced largely to years of drought, which forced many beef producers to liquidate cows and postpone herd growth. Those decisions continue to limit cattle supplies and support higher prices throughout the beef industry.
“Drought is what got us here,” Peel says. “From the standpoint of the beef cow herd liquidation that happened from 2019 to where we are now, drought was the driver.”
While some areas have seen improved moisture conditions, many cattle-producing regions continue to face drought concerns. Peel says those challenges are slowing the industry’s ability to rebuild cow numbers.
“We may be at a low now, but we don’t know that yet,” he says. “We have to wait and see whether or not we’ve stabilized the herd.”
Beef-on-Dairy Calves Benefit from Market Strength
Strong beef demand and limited cattle supplies have driven record prices for cattle at every stage of production, including beef-on-dairy calves.
“Crossbred calves are bringing extremely strong prices as newborns and continue to hold their value as they move into feedlots,” Peel says.
For dairy producers, the value of beef-on-dairy calves has changed how some farms approach herd management. Peel says the beef market has influenced dairy decisions, including cow retention and replacement strategies.
“From a dairy perspective, I do think the beef market impact has significantly impacted dairy herd management, at least in the short run,” Peel says.
The industry has seen dairy producers reduce culling rates and maintain cows longer, helping increase dairy cow numbers despite fewer replacement heifers entering the herd.
“The dairy industry was able to increase the dairy cow herd largely by reducing culling rates and hanging on to cows longer,” Peel says.
However, Peel cautions this strategy has limits.
“I don’t think these cows can continue to get older,” he says. “It appears very much that the dairy cow herd has gotten a little bit older over the last couple of years.”
Herd Rebuilding Will Take Time
Although cattle prices remain strong, Peel says rebuilding cattle inventories will require producers to retain more heifers, reducing the number of animals available for beef production in the short term.
“We have to retain heifers, which means we have to make a tight supply even tighter,” Peel says. “We’re really not seeing that yet.”
Historically, herd expansion begins when producers increase heifer retention. Peel says the current market has created financial incentives to rebuild, but other factors are slowing the process.
“We’re in a very strong return situation,” Peel says. “We’ve had very good returns in 2025 and 2026, and we’re projecting them to continue through 2027 at a minimum.”
Despite those returns, drought concerns, higher interest rates and uncertainty throughout agriculture are causing producers to remain cautious.
“There’s so much additional uncertainty and volatility in markets that alone is a source of caution for producers,” Peel says.
Beef Demand Remains Resilient
While cattle supplies remain tight, consumer demand for beef continues to support the market. Despite record-high retail prices, consumers have continued purchasing beef, showing little sign of slowing demand.
“We continue to enjoy extremely strong beef demand,” Peel says. “We’ve been watching for signs of noticeable pushback to these record high retail prices. The latest data shows a continuation of record high retail beef prices.”
Peel says imported beef continues to play a role in maintaining supply, particularly for ground beef and processed products.
“About 47% or 48% of our beef consumption in this country is in the form of ground beef,” Peel says. “Maintaining that supply of beef, which has actually decreased more from the standpoint of cow slaughter in recent years, is very important.”
Long-Term Outlook Remains Favorable
Looking ahead, Peel expects cattle prices to remain elevated as the industry works through limited supplies.
“It’s beginning to look to me like the slow pace here probably means we will stay at a very strong elevated plateau of cattle prices through the end of the decade,” Peel says.
While markets could change depending on consumer demand, Peel says current fundamentals point toward continued strength. The industry continues to monitor consumer response to higher beef prices, but demand has remained resilient.
“We continue to watch demand closely,” Peel says. “I think consumers still want to eat beef, but if something were to happen to change consumer demand preferences, that could change the path a little bit.”
For dairy producers, the current market environment highlights the growing connection between dairy management decisions and beef markets. Beef-on-dairy animals are contributing more than just additional pounds to the beef supply, with differences in carcass traits creating new opportunities throughout the industry.
“The biggest implication I think is not so much in the size or the total pounds impact on the beef industry,” Peel says. “It’s the fact these crossbred calves have different carcass configuration and different muscle configuration.”
Those differences are helping expand markets for dairy-beef animals compared to traditional dairy beef.
“It’s opened up more markets for that dairy-type beef compared to straight dairy beef,” Peel says.
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