While two consecutive years of drought conditions have forced liquidation in the beef herd, high feed costs, and unfavorable milk prices, have also increased slaughter numbers for dairy cows.

A December report from the USDA’s Economic Research Service shows this year’s dairy cow slaughter totals are much higher than 2011.

The 2012 beef cow slaughter totals have been above typical rates during normal weather patterns and above the seasonal average, but lower overall for the year. Total cow slaughter has been down from matching stages a year earlier with dairy cow slaughter unable to make up for lower rates from beef cows.

Commercial heifer slaughter was also lower through the first nine months of 2012, down about half a million head in that time. The lower heifer slaughter is not a sign of producers retaining animals for breeding as the NASS estimates a lower calf crop in 2012 than the previous year. As the report shows, this implies a significant reduction in heifers available for retention as replacements during 2013.

The significantly reduced pool of heifers available for replacements has implications for January 1 cow inventories for the next several years. In addition, increased heifer retention for breeding will reduce the supply of feeder heifers available for placement on feed, resulting in fewer cattle on feed and marketed from feedlots.

Cattle producers culled herds to avoid high feed costs brought on by the worst drought since 1956. Commercial cow slaughter in the fourth-quarter of 2011 was the highest since 1996. Since 1996, January 1 cow inventories have been higher year-over-year in only 2 years (2005 and 2006). Fourth-quarter 2012 cow slaughter to date is about even with fourth-quarter slaughter in 2011.

Limited supplies helped cow prices reached record highs in May. Although prices have declined about $10 over the past six months, they remain $10-$12 above the same periods a year earlier. Lower cattle supplies and consumer demand for ground beef help support cow and bull prices in the last quarter of 2012. Low inventories are also the reason cattle prices are expected to remain higher until 2014 or 2015.