USDA's semi-annual cattle inventory report for July 2009 revealed a continuation in the herd reduction which began in 2007. This was expected given that feed prices have been high and cattle prices weak in recent months. Slaughter of cull cows was 5.7% higher during July 2008 to June 2009 than the same 12 months one year earlier.

Revisions. USDA raised the 7/1/08 inventory of dairy cows by 1,000 head (1.1%) and lowered the 7/1/08 inventory of beef cows by 1,000 head (0.3%).

Total Inventory. The total number of cattle and calves in the U.S. on July 1, 2009, was 101.8 million head, down 1.5% from 2008 and 2.9% lower than at the cyclical peak in 2006.

Calf Crop. The 2009 calf crop is forecast to be 35.6 million head, down by 1.4% from a year earlier and the smallest calf crop since 1950. The size of the calf crop has declined each year since 1995.

Cow Herd. The inventory report shows that the number of beef cows that have calved (32.2 million) was 1.4% smaller than on the same date last year. The number of dairy cows that have calved (9.2 million head) was down 1.6% from a year ago.

Replacement Heifers. There were 4.5 million beef heifers being held on July 1 to add to the cow herd, 2.2% fewer than July 2008. The number of dairy replacement heifers, 3.9 million head, was unchanged from 12 months earlier. The combined number of replacement heifers is 100,000 smaller than last summer. When added to the inventory of cows that have calved, these data imply the 2010 calf crop should be 1% to 1.5% smaller in size than this year's crop.

Feeder Cattle Supply. At mid-year, the number of steers weighing 500 pounds and over was down 2.0%; the number of 500 pound plus heifers not being held for cow replacements was down 1.3%; and the number of calves weighing less than 500 pounds was down 1.4% from a year ago. On balance, the inventory of feeder cattle was 1.6% smaller than 12 months earlier.

Cattle Slaughter. For the remainder of 2009, fed slaughter is expected to be slightly lower than a year ago. The number of cattle on feed July 1 was down 4.9% in total, with the number on feed in feedlots with one-time capacity of 1,000 head or more down 5.3%. Slaughter of cull dairy cows is expected to be up in the second half of 2009. A modest decline in beef cow slaughter is expected.

Summary. Breeding animal numbers imply 2010 inventory levels will be 1-2% smaller than the 2009 numbers. Lower inventories should mean stronger prices. It appears that 2009 fed cattle prices will average in the mid 80s. High priced corn has held down feeder cattle prices, in recent months. U.S. beef exports are slowly recovering. Through May, exports are 2.6% above year-ago levels. As expected during a worldwide recession, meat demand was soft in the first half of 2009. Demand for slaughter steers and heifers in the January-June 2009 period was down 6.9% compared to a year earlier. There is little economic incentive for cow-calf producers to expand production. Weak beef demand and worries about ethanol-enhanced corn prices may well keep the cattle cycle headed lower.

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

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

                                                                     09 as %
                                     2007        2008        2009    of 2008
                                   --------- 1,000 head ----------

Cattle & Calves                    104,300     103,300     101,800      98.5

Cows & Heifers that Have Calved     42,300      42,000      41,400      98.6
    Beef Cows                       33,150      32,650      32,200      98.6
    Milk Cows                        9,150       9,350       9,200      98.4

Heifers 500 Lbs. & Over             16,500      16,300      16,100      98.8
    For Beef Cow Replacement         4,700       4,600       4,500      97.8
    For Milk Cow Replacement         3,900       3,900       3,900     100.0
    Other Heifers                    7,900       7,800       7,700      98.7

Steers 500 Lbs. & Over              14,900      14,700      14,400      98.0
Bulls 500 Lbs. & Over                2,100       2,100       2,100     100.0
Calves Under 500 Lbs.               28,500      28,200      27,800      98.6

Calf Crop                           36,759      36,113      35,600      98.6

Cattle on Feed                      12,700      12,200      11,600      95.1

Actual federally inspected cattle slaughter and prices for 2008 and the first half of 2009 along with our forecasts of slaughter levels and prices in the second half of 2009 and 2010 are given in the table below.

          Federally Inspected Slaughter     Nebraska  --Oklahoma City--
          Steers&    Beef      Dairy        Slaughter 750-800# 500-550#
          Heifers    Cows      Cows         Steers    --Feeder Steers--
Quarter   —------thousand head-------       --------dollars/cwt--------
Q1 08      6514.0    817.7     665.1        89.59       99.88    121.75
Q2 08      7265.7    901.8     594.7        92.83      106.60    122.19
Q3 08      6982.6    908.8     658.2        98.45      110.81    122.85
Q4 08      6277.5    940.9     673.3        88.22       94.62    105.22
2008      27040.0   3569.3    2591.2        92.27      102.98    118.00

Q1 09      6159.0    782.0     762.0        80.98       92.83    110.03
Q2 09      6866.0    770.0     683.0        84.53       98.63    116.09
Q3 09*     6800.0    850.0     750.0        83-86      99-102   105-110
Q4 09*     6350.0    910.0     730.0        87-91      97-101   103-108
2009*     26175.0   3312.0    2925.0        84-85       97-99   109-111

Q1 10*     6000.0    780.0     710.0        87-91      96-101   112-117
Q2 10*     6900.0    780.0     600.0        88-92      97-102   112-117
Q3 10*     6700.0    850.0     670.0        85-90      99-104   110-115
Q4 10*     6150.0    920.0     670.0        88-93     100-105   107-112
2010*     25750.0   3330.0    2650.0        87-91      98-103   110-115
* forecast

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