August 1, 2008

The US cattle herd continues to decline as the USDA reports a 500,000 head fall for the second consecutive year, to 104.3 million head as of July 1, 2008.

The current July 1 cattle inventory is the third smallest on record, with the smallest in July 2004 at 103.6 million head.

The US cattle industry continues to face challenges and squeezed profit margins from high production costs, continued droughts in some regions and a weakening US economy.

The numbers of heifers for beef cow replacement decreased 2 percent from 2007 to 4.6 million head. Analysts had expected this rate of decline but indicate that a high percentage of heifers are placed on feed rather than kept for herd rebuilding.

Lower beef replacement heifers and a 6.5-percent increase in beef cow slaughter in 2007-08 has seen the beef cow inventory decrease by 200,000 head to 33.15 million, a new record low since 1990.

US cattle herd is not expected to grow in the near future due to reduced US corn prospects, continued droughts in some key cow-calf areas and rising input costs, all of which affect operating profits of industry players.

While cow slaughter is expected to return to year-ago levels for the second half of 2008, both the inventory report and lower placements of cattle onto feed suggest that US beef supplies will tighten in the short term. This is likely to increase demand for imported beef, supporting imported beef prices at their current record levels.