Tighter cattle supplies have set up a high stakes market in the U.S. cattle industry, with fed cattle prices leapfrogging the record highs of late 2014.

The five-area negotiated cash fed cattle price hit $172.33 a hundredweight on April 6, eclipsing the previous record daily price of $172.08 cwt set on Nov. 26, 2014.

The USDA report covers cattle country from Minnesota south to Texas and New Mexico.

The next day, the fed cattle price set another record at $175.87 cwt.

The lofty prices were expected, and analysts believe tight supplies will drive them higher.

The situation has been building the last couple of months, and everyone knew it was coming, said Derrell Peel, livestock marketing specialist with Oklahoma State University.

“This is just the beginning,” he said.

The country has been in drought in various places for more than two years, sending more cattle to feedlots than intended, and the calf crop has been getting smaller since it peaked in 2018 due to a shrinking beef cow herd, he said.

“All that sets up tighter supplies at the feedlot,” he said.

A smaller calf crop eventually shows up in tighter fed cattle supplies, but the drought — which sent feeder cattle to feedlots early — delayed the effects, he said.

Four years of progressively smaller calf crops hasn’t been felt until now. But earlier or later “you only get to market them once,” he said.

Feedlot inventory didn’t start coming down until the end of the year, and it’s going to continue to get smaller at least through this year, he said.

“Now that it’s turned, it’s really tightening the market,” he said.

Part of the peak in fed cattle prices might be seasonal, and prices could come down this summer before moving up in the fall in the typical pattern. But if they do come down, it’ll only be to a limited degree, he said.

They could also plateau through July or August or continue to go higher, as they did the last two years, he said.

Feeder cattle prices aren’t at record levels yet, but he expects they’ll get there and exceed the highs of late 2014. Feeder cattle prices are currently about 80% of the record price levels of late 2014 and are advancing, he said.

Cattle prices will absolutely go higher moving forward, he said.

“This is an extended thing. It took several years to set it up; it will take several years to recover from the drought liquidation and rebuild the cattle herd — with higher prices in the meantime,” he said.

The situation is similar from a price standpoint to 2014 and 2015, with drought liquidation, smaller feeder supplies and even tighter feeder supplies when producers retain heifers to rebuild the herd.

That rebuilding is really going to squeeze the market. It could start at the end of the year, but it will probably start next year, he said.