USDA's semi-annual cattle inventory report for July 2007 revealed a reversal in the herd expansion which began in 2004. Cattle prices have been strong in recent months. The most likely cause of the inventory downturn is the drought that plagued much of cattle country in 2006. Slaughter of cull cows was 15% higher during July 2006 to June 2007 than the same months one year earlier.

Total Inventory. The total number of cattle and calves in the U.S. on July 1, 2007, was 104.8 million head, down 0.4% from 2006 but 0.6% larger than in 2004.

Calf Crop. The 2007 calf crop is forecast to be 37.4 million head, down by 0.4% from a year earlier and the smallest calf crop since 1951. The size of the calf crop declined each year from 1995 to 2004. Both the 2005 and 2006 calf crops were slightly larger than in 2004.

Cow Herd. The inventory report shows that the number of beef cows that have calved (33.35 million) was 0.3% smaller than on the same date last year. The number of dairy cows that have calved (9.15 million head) was unchanged from a year ago.

Replacement Heifers. There were 4.7 million beef heifers being held on July 1 to add to the cow herd, 6% fewer than July 2006. The number of dairy replacement heifers, 3.9 million head, was up 2.6% from 12 months earlier. The combined number of replacement heifers is 200,000 smaller than last summer. When added to the inventory of cows that have calved, these data indicate the 2008 calf crop should be similar in size to this year's production.

Feeder Cattle Supply. At mid-year, the number of steers weighing 500 pounds and over was down 0.7%; the number of 500 pound plus heifers not being held for cow replacements was up 2.6%, and the number of calves weighing less than 500 pounds was down 0.7% from a year ago. On balance, the inventory of feeder cattle was virtually unchanged compared to 12 months earlier.

Cattle Slaughter. For the remainder of 2007, fed slaughter is expected to be slightly lower than a year ago. The total number of cattle on feed July 1 was down 1.6% in total, with the number on feed in feedlots with 1,000 head or more one time capacity down 1.2%. Slaughter of cull cows is expected to be down sharply in the second half of 2007. The central U.S., i.e. Texas and north, which was hit hard by the dry weather in 2006, has generally received ample rainfall this year. Dry weather has developed in the Southeast and persists in the West.

Summary. This report shows the cyclical growth in the cattle herd that was expected following the inventory low in 2004 has not developed. Dry weather, short pastures and high feed prices are the likely causes of this year's inventory decline. Breeding animal numbers imply 2008 inventory levels will be little changed from current numbers. Low inventories mean strong prices. It appears that 2007 fed cattle prices will be a new record. High priced corn has held down feeder cattle prices, but 2007 calf prices are expected to rank among the four highest years ever. U.S. beef exports are steadily recovering. Through May, exports are nearly 16% above year-ago levels. Domestic beef, pork and turkey demand were all slightly higher in the first half of 2007. Demand for slaughter steers and heifers in the January-June 2007 period was up 3.5% compared to a year earlier. There is ample economic incentive for cow-calf producers to expand production, given adequate rainfall. However, short forage supplies and worries about ethanol-enhanced corn prices may well prevent the cattle cycle from following its typical path.

The data from USDA's July cattle inventory report is in the table below.

             Inventory of Cattle and Calves, July 1, 2005-2007

                                                                     07 as %
                                     2005        2006        2007    of 2006
                                   --------- 1,000 head ----------

Cattle & Calves                    104,200     105,200     104,800      99.6

Cows & Heifers that Have Calved     42,500      42,600      42,500      99.8
    Beef Cows                       33,450      33,450      33,350      99.7
    Milk Cows                        9,050       9,150       9,150     100.0

Heifers 500 Lbs. & Over             16,200      16,600      16,600     100.0
    For Beef Cow Replacement         5,000       5,000       4,700      94.0
    For Milk Cow Replacement         3,700       3,800       3,900     102.6
    Other Heifers                    7,500       7,800       8,000     102.6

Steers 500 Lbs. & Over              14,500      15,000      14,900      99.3
Bulls 500 Lbs. & Over                2,100       2,100       2,100     100.0
Calves Under 500 Lbs.               28,900      28,900      28,700      99.3

Calf Crop                           37,575      37,567      37,400      99.6

Cattle on Feed                      12,000      12,500      12,300      98.4

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