Through mid-October 2025, excitement built across the live sectors of the beef industry, with high-price records sometimes being reset daily for many classes of cattle. Though drought conditions persisted through the Great Plains and much of the West, the fundamentals supported rising prices.
Consumer demand was steady. Fed cattle inventory was holding its own due to increased days on feed. Feeder cattle supply was ever-tightening, accelerated by the suspension of feeder cattle imports from Mexico. Enthusiasm fueled investment, and both live and feeder cattle futures were paralleling the upward trajectory of prices. All this excitement suggested “down” days for the live segments of the beef industry were in the distant future.
Then, along came uninvited political intervention and a concomitant change in price trajectory. Though the fundamentals had not changed, futures traded on the news headlines and led to the erosion of prices. Perhaps the peak prices realized in late 2025 are the top for this cycle. If so, the impending question is: Has cow-calf enterprise profitability tracked with rising and record-high cattle prices?
Obviously, there is no universal answer that represents all of the large and small cow-calf operations across this great country. It depends on several factors, all of which are included in the consideration of how much to pay for or invest in replacement females.
Side note: Retaining heifers as replacements is typically the most efficacious approach to rebuilding for larger cow-calf operations. The economics thereof are influenced by book value or capitalization cost and development costs, which are operationally unique. As a result, the focus here is on purchasing replacements. But whether replacements are raised or purchased, these factors determine the lifetime profitability of a replacement beef female.
Here at the King Ranch Institute for Ranch Management, we use net present value (NPV) as a means to evaluate replacement female decisions. Therein, the variables involved include purchase price, productivity, production costs, salvage value and a discount rate.
Purchase price
Culling in response to the lingering drought across the western half of the country has resulted in a relatively young cow herd. That youthfulness is allowing many operations to sell heifer calves at the expense of rebuilding the herd. Strong demand for productive heifers and younger cows is supportive of prices high enough to deter some from purchasing females.
Purchase price is a high-leverage variable, meaning small changes therein have a large impact on the NPV. The amount of leverage is inversely related to longevity; the longer the female remains productive and in the herd, the lesser the impact of purchase price.
Productivity
Productivity has four components: longevity, weaning rate, weaning weight and market price. Reproductive performance remains a major influencer of cow-calf enterprise profitability. Few operations can afford to grant more than one strike to open cows. As such, high-priced cows that fail to conceive and exit the herd prematurely for packer prices compromise enterprise profitability. Cows that remain productive after exiting the depreciation schedule can be exceptionally profitable.
The value of the cow herd production involves the other three productivity variables in this manner: value = weaning rate × weaning weight × market price. These three combined are another high-leverage point. Environmental adaptability, health, body condition and reproductive performance are management-influenced control points. Management has much less control over market price. As observed in the last quarter of 2025, markets can operate absent the fundamentals and make rapid moves (both up and down).
An NPV analysis requires projecting production, costs and revenues over a multiyear horizon (hopefully a minimum of five years) when considering the purchase of bred heifers or young cows. The market volatility experienced in 2025 is a reminder of how challenging longer-term price/value predictions can be.
Production cost
Our approach to managerial accounting wraps production cost up into a single, all-inclusive number – annual cow cost. Big contributors thereto include labor, supplemental nutrition, land cost or grass lease, and depreciation. Divide the annual cow cost by the percent calf crop weaned, and you arrive at the unit cost of production per calf.
While weaned calf market prices are predictably influenced by availability, quality and basis, annual cow cost is unique to individual operations and can be independent of geographic location and size of operation. Though a publicly accessible cow cost database is lacking, experience suggests a comparison of accurate and uniformly calculated annual costs would likely reveal at least a twofold difference between least and greatest. Nevertheless, annual cow cost is among the three most influential variables affecting cow-calf enterprise profitability.
Cull cow value
Assuming a cow has a long and productive life (a minimum of five calves and 7 years of age), her value upon removal from the herd has a significant and almost direct influence on the NPV calculation. Like weaned calf values, predicting salvage value several years into the future is a challenge. Absent a natural disaster or widespread health concern, death loss among mature cows (assumed to be greater than or equal to 2%) has relatively minimal influence on the outcome of the NPV calculation.
Discount rate
A discount rate is used to calculate the time value of money or the present value of future cash flows in an NPV computation. Perhaps more applicable here, consider a hurdle rate that indicates a minimum acceptable return for investment approval; the pivot on which a go or no-go decision is determined. Many cow-calf businesses will use their cost of capital as the discount/hurdle rate.
Interest rates have risen sharply since the previous cattle price peak in 2014. The federal funds effective rate (FRED) for most of 2014 was 0.09%. The rate peaked at 5.33% in the fall of 2023 and as of December 2025 was 3.89%. The FRED influences operating loan rates (and total cost of financed cattle purchases) but is immune to regional volatility and borrower-specific interest rates. A rising unit cost of production has paralleled the rising cost of capital.
As demonstrated in the last quarter of 2025, cow-calf producers have relatively little control over market price, but they are solely responsible for cow herd productivity and the associated costs. Low-cost producers who optimize production have and will continue to be best positioned to benefit from record-high prices. For those exceptional managers, record-high calf prices are generating record annual profits.
Future profitability hinges on the age-old economic principles of demand and supply. Continued consumer demand is essential. The pace of rebuilding the cow herd (i.e., cattle supply) will be inversely related to drought continuation. The magnitude of the rebuild will be influenced by how well longer feeding periods and heavier carcass weights pacify domestic and export demand for beef. Despite the market turbulence at the conclusion of 2025, the outlook for cow-calf businesses appears bright.
This article is a follow-up to the February 2024 article, “Will record-high prices = record-high profitability?”
