Chicago, 27 January 2011

The U.S. cattle herd, already the smallest since the 1950s, likely shrank even further by the end of last year, threatening to keep supply tight and drive meat costs to record highs in the months to come.

A biennial U.S. Department of Agriculture report on Friday is expected to show the herd fell about 1.5 percent from a year earlier to 92.31 million head, according to a Reuters poll of analyst forecasts.

Beef demand is recovering in the United States as the economy emerges from recession, and overseas demand for imports from the world's biggest producer has picked up as expanding wealth in Asia and Russia allows for more consumption.

Ranchers have rushed to cash in on the boom by moving their herd to feedlots as live cattle futures are their highest ever. Meanwhile drought, high feed prices, financial stress, and aging ranchers have kept the overall herd small.

"A tight beef supply and higher beef prices is all that we can forecast for quite a few years," said Ron Plain, a University of Missouri agriculture economist. "We are not expanding. The beef guys are cutting back pretty fast," said Plain.

BEEF PRICES AT TWO-YEAR HIGH

Wholesale beef prices this week are the highest since 2008 and are set to go higher in part because of the smaller supply and because consumers are eating more at restaurants or buying it at grocery stores.

Also, exports have been strong due to less production in competing producers and growing economies in consuming countries.

Beef is the most expensive of the three major proteins and generally sells better in an improving economy when consumers are more comfortable about their job situations.

"I don't anticipate additional beef coming to market from more cattle until early 2014," said Jim Robb, economist at the Livestock Marketing Information Center. Cattle prices also will be going higher as beef companies fight for supplies to run their plants.

"We will have higher cattle prices this year than last year and higher prices in 2012 than in 2011," said Plain.

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