* January cattle placements down 2 percent
* Feb 1 cattle supply up 2 percent
* January marketings up 2 percent
By Theopolis Waters
CHICAGO, Feb 24 - The number of cattle that moved into U.S. feedlots fell for a second straight month in January, a government report showed on Friday, signaling a further tightening of beef and cattle supplies due in part to a devastating drought.
The U.S. Department of Agriculture's cattle-on-feed report said placements fell 2 percent last month from a year ago, after dropping 6 percent in December, while supplies in feedlots were up 2 percent, the smallest increase in more than a year.
The data should support live cattle futures at the Chicago Mercantile Exchange next week, even though futures have been trending higher for weeks as meat packers scrambled to buy cash cattle for beef plants.
Retail beef prices through January have been setting record highs for five successive months. Expectations are for prices to continue higher this spring at a time as Americans gear up for outdoor grilling.
"We're on a heck of a roll. The (price) trend is up sharply and I don't see anything in this report that's going to stop this trend," said Ron Plain, a livestock economist with the University of Missouri.
The strong demand for cattle by packers, who have been buying despite negative margins of more than $30 per head of cattle, was reflected in the report's marketing number -- which was higher than expected at 102 percent of a year ago. Analysts, on average, expected marketings to be flat with a year earlier.
"Packers pulled cattle out of feedlots aggressively. The pool of animals outside (feedlots) are over a million head below last year. So, one would expect those year-to-year increases in the feelot inventory to decline," said Livestock Marketing Information Center director Jim Robb.
Robb sees no let up in retail beef prices, expecting them to set more records in the next two years. It will take a least that long before ranchers can increase cattle supplies.
With spring on the horizon, several retailers are already shopping for fresh beef for grilling as temperatures begin to moderate across the country.
Rich Nelson, director of research for Allendale Inc, said he was expecting the lower-than-expected placements to support deferred live cattle futures, particularly the August and October.
"Longer-term, and it didn't show up in this report, placements will be declining and I think that will take beef supply off the market nearing the end of the year so there will be less beef for consumers," he added.
Robb said the report's only surprise was the 9 percent increase in placed cattle that weighed more than 800 pounds.
"It tells us that animals performed well because of the warm weather and growing programs, either inside or outside, feedyards," said Robb. "These high prices continued to attract these animals into feedyards even though our total cattle population was down significantly." (Additional reporting by Sam Nelson, Meredith Davis, Mike Hitzer; Editing by Bob Burgdorfer)