U.S. Cattle Herd Shrinks to 1973 Low Amid Southwest Drought

July 22 (Bloomberg) -- The U.S. cattle inventory on July 1 shrank to the smallest since at least 1973 as producers reduced herds amid a prolonged drought in the Southwest and rising feed costs.

Beef and dairy farmers held 100 million head of cattle as the month began, down 1.1 percent from a year earlier, the U.S. Department of Agriculture said today in a semiannual report. Nine analysts in a Bloomberg News survey forecast a 1.4 percent drop, on average.

“The U.S. cattle herd continues to liquidate due mainly to drought conditions in the southern half of the country,” Troy Vetterkind, the owner of Vetterkind Cattle Brokerage in Chicago, said in an e-mail before the report. “Drought continues to force increased numbers of beef cattle to market, and it has prohibited ranchers from retaining beef heifers to rebuild the cow herd.”

Ranchers may make $100 per cow sold this year, up from an estimated $50 in 2010, Ron Plain, a livestock economist at the University of Missouri in Columbia, said in a telephone interview yesterday. Producers aren’t expanding because of the sluggish economy and short-term cash-flow concerns, he said.

Cash-Flow Focused

“The overall weak economy has caused some cattlemen to feel the need to sell part of their herd to generate cash flow, rather than expanding to take advantage of what looks to be good prices in the future,” Plain said. “People are more short-term focused on cash flow than they are focused on long-term profits.”

Corn prices, which surged 76 percent in the past year, are also discouraging livestock producers from expanding.

The number of young, female beef cattle held for breeding fell to 4.2 million, down 4.5 percent from 4.4 million a year earlier, according to the USDA. Analysts expected a 3.3 percent drop.

Cattle futures for October delivery settled unchanged at $1.154 a pound at 1 p.m. on the Chicago Mercantile Exchange. The price has climbed 22 percent in the past year. Feeder-cattle futures for August settlement gained 1.2 cents, or 0.9 percent, to $1.364 a pound. The most-active contract advanced 19 percent in past 12 months.

The report “just confirms why this market is higher,” Lane Broadbent, a vice president of KIS Futures Inc. in Oklahoma City, said in a telephone interview. The smaller herd size is going to keep pushing prices higher into next year, he said.

‘Selling Off’

“We’re still selling off our cow herd and our heifer retention is even lower” than estimates, Broadbent said. “It still confirms that our cow herd is shrinking.”

Steers for immediate delivery averaged $1.0835 in the first three days of this week, up 16 percent from the same period a year ago, according to USDA data. Wholesale beef has climbed 13 percent in the past 12 months.

The inventory of heifers for milk-cow replacement totaled 4.2 million, up 3.7 percent from 4.05 million at the same time last year, the USDA said. The average analyst estimate was for a 0.6 percent gain.

The 2011 calf crop was estimated at 35.5 million, down 0.5 percent from a year earlier, according to the USDA.

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.