In short, grazing is much better. In this sentence, the idea is to suggest that they have the capability to watch cows in the action of what they are doing, in this case grazing. The idea is not that they have the capability to watch specific kinds of cows, in this case, cows that graze in meadows as opposed to cows doing other things in other environments. Options: between Guernsey and Hereford cows grazing in a meadow. (Best and most concise) between Guernsey and Hereford cows as they graze in a meadow. between Guernsey and Hereford cows while they graze in a meadow.

The first sentence is correct and more concise, but the sentence isn't concise, and it isn't intended to be. It doesn't matter what the cows are doing or what breed they are. Those details are just there to create a mental image and add color. Something like "distinguish between cow breeds on the ground." would be concise.

They are two different ways to express the same thing, for communicating what is happening. But grammatically it means as below. Grazing in a meadow means the cows were in the process of grazing /eating when the US surveillance satellites were overhead, or took photos or filmed them. Cows that graze in a meadow means the cows in the field/meadow "cows that graze in a meadow" is just put in to emphasise how close the surveillance cameras could/can zoom in to pick out individual cows.

The first one ("grazing"). The second one ("that graze") is at best awkward and unidiomatic.