In 1821, Mexico gained its independence from Spain, first as the First Mexican Empire, then as the Mexican Republic. Alta California became a territory rather than a full state. The territorial capital remained in Monterey, California, with a governor as executive official. Mexico, after independence, was unstable with about 40 changes of government, in the 27 years prior to 1848—an average government duration was 7.9 months. In Alta California, Mexico inherited a large, sparsely settled, poor, backwater province paying little or no net tax revenue to the Mexican state. In addition, Alta California had a declining Mission system as the Mission Indian population in Alta California continued to rapidly decrease. The number of Alta California settlers, always a minority of total population, slowly increased mostly by more births than deaths in the Californio population in California. After the closure of the de Anza Trail across the Colorado River in 1781 immigration from Mexico was nearly all by ship. California continued to be a sparsely populated and isolated territory.

The settlers, and their descendants (who became known as Californios), were eager to trade for new commodities, finished goods, luxury goods, and other merchandise. The Mexican government abolished the no trade with foreign ships policy and soon regular trading trips were being made. In addition, a number of Europeans and Americans became naturalized Mexican citizens and settled in early California. Some of those became rancheros and traders during the Mexican period, such as Abel Stearns.

Cattle hides and tallow, along with marine mammal fur and other goods, provided the necessary trade articles for mutually beneficial trade. The first American, English, and Russian trading ships first appeared in California a few years before 1820. From 1825 to 1848 the average number of ships traveling to California increased to about 25 ships per year—a large increase from the average of 2.5 ships per year from 1769 to 1824. The main port of entry for trading purposes was Monterey, where custom duties of up to 100% (also called tariffs) were applied.