USDA’s semi-annual cattle inventory report for January 2010 showed a continuation of the herd reduction which began during 2007. The smaller inventory was expected since feed prices have been high and feeder cattle prices weak in recent years. However, the reduction reported by USDA is smaller than that predicted in the pre-release trade estimates. Slaughter of cull cows in 2009 was 0.3% lower than in 2008, but 8.2% higher than in 2007.

Revisions. USDA raised the 1/1/09 inventory of beef cows by 41,000 head (0.13%) and increased the 2009 inventory of beef replacement heifers by 5,000 head (0.09%). They lowered their estimate of January 2009 heifers not being kept for breeding by 15,000 (0.16%).

Total Inventory. The total number of cattle and calves in the U.S. on January 1, 2010, was 93.7 million head, down 0.9% from 2009 and 3.0% lower than at the cyclical peak in 2007.

Calf Crop. The 2009 calf crop is estimated to be 35.8 million head, down by 0.9% 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 (31.4 million) was 1.1% smaller than on the same date last year. The number of dairy cows that have calved (9.1 million head) was down 2.7% from a year ago.

Replacement Heifers. There were 5.4 million beef heifers being held on January 1 to add to the cow herd, 2.7% fewer than January 2009. The number of dairy replacement heifers, 4.5 million head, was up 2.4% from 12 months earlier. Given the shaky financial condition of most dairy producers, an increase in the number of cows being milked would not be a welcome development. The combined number of replacement heifers is 11,000 larger than last winter. When added to the inventory of cows that have calved, these data imply the 2010 calf crop should be 1.1% smaller in size than the 2009 calf crop.

Feeder Cattle Supply. At the start of 2010, 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 up 0.8%; and the number of calves weighing less than 500 pounds was unchanged from a year ago. On balance, the inventory of feeder cattle was 0.6% smaller than 12 months earlier.

Cattle Slaughter. During 2010, fed cattle slaughter is expected to be slightly lower than a year ago. The number of cattle on feed January 1 was down 1.5% in total, with the number in feedlots with one-time capacity of 1,000 head or more down 2.0%. Slaughter of cull dairy cows is expected to be down in 2010. A modest increase in beef cow slaughter is expected.

Summary. The cattle herd is smaller than last year. Lower inventories should mean stronger prices. I expect that 2010 fed cattle prices will average in the upper $80s. High priced corn has held down feeder cattle prices, in recent years, but prices this year should be higher than in 2009. U.S. beef exports are slowly recovering. Through November, exports were 3% below year-ago levels. As expected during a worldwide recession, meat demand was soft in 2009. Demand for slaughter steers and heifers in the 2009 period was down 7.5% compared to a year earlier. Weak beef demand and worries about higher corn prices should keep the cattle inventory cycle headed lower.

             Inventory of Cattle and Calves, January 1, 2008-2010

                                                                     10 as %
                                     2008        2009        2010    of 2009
                                   --------- 1,000 head ----------

Cattle & Calves                     96,035      94,521      93,701      99.1

Cows & Heifers that Have Calved     41,692      41,045      40,456      98.6
    Beef Cows                       32,435      31,712      31,376      98.9
    Milk Cows                        9,257       9,333       9,081      97.3

Heifers 500 Lbs. & Over             19,854      19,576      19,666     100.5
    For Beef Cow Replacement         5,647       5,531       5,436      98.3
      Expected to Calve in 2010      3,414       3,367       3,385     100.5
    For Milk Cow Replacement         4,415       4,410       4,516     102.4
      Expected to calve in 2010      2,923       2,909       2,941     101.1
    Other Heifers                    9,793       9,635       9,714     100.8

Steers 500 Lbs. & Over              17,163      16,769      16,440      98.0
Bulls 500 Lbs. & Over                2,207       2,184       2,190     100.3
Calves Under 500 Lbs.               15,118      14,948      14,949     100.0

Calf Crop                           36,113      36,153      35,819      99.1

Cattle on Feed                      14,000      13,856      13,642      98.5

Actual federally inspected cattle slaughter and prices for 2008 and 2009 along with my forecast of slaughter levels and prices in 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      27039.8   3569.2    2591.3        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      6704.0    818.0     704.0        82.78       99.40    107.78
Q4 09      6323.0    954.0     667.0        82.43       93.67    109.31
2009      26052.0   3324.0    2816.0        82.68       96.13    110.80

Q1 10*     6330.0    810.0     700.0        83-87       96-100   110-120
Q2 10*     6550.0    850.0     600.0        86-91       96-104   112-122
Q3 10*     6690.0    900.0     650.0        87-92      101-109   105-115
Q4 10*     6310.0    940.0     650.0        89-94      104-112   107-117
2010*     25880.0   3500.0    2600.0        87-91       99-106   108-118
* forecast

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