February 1, 2013 / 11:27 PM / in 5 years

US cattle herd at 61-year low, but rebuilding may be under way

* USDA cattle herd down about 1.6 pct yr-over-yr
    * Cattle herd remains lowest in 61 years
    * Ranchers begin retaining breeding stock
    * Record high beef prices seen through 2014

    By Theopolis Waters
    CHICAGO, Feb 1 (Reuters) - The U.S. cattle herd shrunk for a
sixth straight in 2012 due to high feed costs tied to drought
and that should mean consumers will continue paying record high
prices for beef.
    The U.S. Department of Agriculture on Friday said the U.S.
cattle herd as January 1 was 89.30 million head, down 1.6
percent from a year earlier and the smallest U.S. herd since
1952. Analysts expected a 1.8 percent decline.
    However, the data suggests ranchers are beginning to retain
female breeding stock, the foundation for herd rebuilding,
possibly in anticipation even higher cattle prices.
    "Ranchers are retaining heifers because of record prices for
feeder cattle and the futures market is saying we're going to
get higher," said University of Missouri livestock economist Ron
    Friday's herd inventory results also reaffirms results
issued in the government's report in July 2012 in which the U.S.
cattle herd at the start of 2012 was 2.3965 million head larger
than 60 years earlier, but dropped below that level around April
    U.S. cattle numbers have declined for several years as 
producers have encountered a number of hardships including mad
cow disease that reduced U.S. beef exports for several years, a
recession that hurt domestic beef consumption, a lengthy drought
that damaged pastures, and record high feed prices.
    Those who raise, feed and process cattle in the central and
western U.S. Plains this year felt the heat from the worst dry
spell in more than 50 years. It raised feed and hay costs --
main staples in cattle feeding -- to all-time highs last summer.
    Chicago Board of Trade corn futures in December
averaged $7.24-1/8 per bushel, the fourth highest as drought
damaged the crop. Prices reached a record high of $8.43-3/4 on
August 10.   
    The smaller cattle herd has increased retail beef prices,
with a record high of $5.15 per lb set in November 2012. That
slipped to $5.11 the following month but was still up from $5.01
a year earlier.
    Still, Friday's report showed that heifers earmarked for the
beef breeding herd were up nearly 2 percent from a year earlier,
raising eyebrows among analysts who had expected a 0.4 percent
decrease. The increase may indicate that the herd contraction is
about over.
   "Normally, that would mean some measure of expansion, but I
believe there are people waiting for the feedlot demand to pick
up," said Rich Nelson, chief strategist with Allendale Inc.
   Feedlot owners, who fatten young cattle for sale to packers,
struggled to be profitable as elevated feed costs and
record-high prices for incoming cattle eroded margins.
   Last month, feedyards on average lost $121 per head on
cattle, which was about steady with losses in November. In
December 2011, the average loss was of $70 per head, according
to the Denver-based Livestock Marketing Information Center.
   Beef packers also fought to maintain market share and plant
efficiencies, with Cargill Inc shutting down its Plainview,
Texas, beef processing facility due to tight supplies.
    Typically, Chicago Mercantile Exchange live cattle futures
traders do not regard the government's semi-annual cattle report
as a "market mover." Instead, they see it as more of an forward
view of cattle production over the next three years.
    On Friday, most-actively traded April live cattle 
closed at 132.175 cents per lb, down 0.600 for the day. 
    However, Plain viewed the calf crop data as "slightly
bullish" for 2013 CME live cattle futures contracts, confirming
traders' long-held beliefs of fewer cattle this year.
    USDA reported the latest calf crop at 34.279 million, down
2.9 percent from a year earlier, and the smallest since 1949.
In July 2012, USDA had predicted that calf crop at 34.5 million
    Fewer calves born last year is a bullish number, said Plain.
    "From a cattlemen's standpoint, they like what they see on
calf prices, they just wish they had more grazing grass for
their cattle," said Plain. 
    Consumers should brace for record high beef prices this year
and in 2014. Not until 2015 are those prices expected to come
down when more cattle become available, analysts said.
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