Producers are well aware of what’s happened with cattle and beef prices over the past year. Now even the national consumer media has taken notice as USA Today ran an article this week documenting the decline in U.S. beef herds and resulting inflation in beef prices.

As we reported last week, the 2012 January 1 Cattle report from USDA shows U.S. beef herds at their lowest number since 1952. Producers have begun retaining more heifers for breeding, which eventually should turn the trend around. But removal of those females from feeder-cattle supplies will mean U.S. beef production will shrink even more before it begins to grow.

The USA Today article notes that USDA projects retail beef prices, currently at record levels, will increase by another 4 to 5 percent this year. The article quotes Drovers/CattleNetwork’s economic consultant John Nalivka of Sterling Marketing, saying beef prices could rise even faster, as much as 10 percent this year. Nalivka also notes that as cattle prices have climbed to record highs, packers have absorbed significant losses as wholesale beef prices have not kept pace. Retailers also have resisted passing all of their higher beef costs on to consumers.

Even so, retail prices for Choice beef and all fresh beef set new records in December according to USDA’s report on meat price spreads last week. The report lists the average retail price of Choice beef for December at $5.02 per pound, up from $5.00 in November. For the fourth month in a row, the Choice price set a new nominal high.

The role of beef exports in higher U.S. cattle and beef prices is well documented, but domestic demand also has held up surprisingly well. University of Missouri economist Ron Plain, PhD, reports that based on preliminary data, , beef demand was up 4 percent in December and up 1 percent for all of 2011. Beef demand was down in 2008, 2009 and 2010, largely due to the economic downturn.

Continued inflation in retail beef prices, however, eventually could threaten domestic and international demand for U.S. beef, resulting in lost market share to other proteins or other beef exporters. To address these threats, Drovers/CattleNetwork will this week launch, an in initiative intended to supply producers with tools and information to cost-effectively expand their herds.

Fortunately, last-week’s Cattle report shows a slight shift in the long-term liquidation trend for U.S. beef-cow numbers, with the number of replacement heifers up by 1 percent over one year ago. The increase suggests producers in areas with adequate moisture have begun responding to market signals to expand their herds or sell replacement heifers, which have gained considerable value recently.

A state-by-state listing of beef replacement heifer numbers in the report reflects regional differences in precipitation and forage supplies during 2011. Oklahoma replacement heifers are down by 15 percent and the Texas figure is down by 10 percent.  In contrast, beef replacement heifers are up by 29 percent in Colorado, 17 percent in Iowa, 18 percent in Nebraska, 14 percent in South Dakota and 18 percent in Wyoming.

If weather conditions allow it, the trend toward more heifer retention is likely to continue and accelerate over the next few years. Until significant numbers of those additional heifers produce calves, and those calves reach market weights, calf and feeder numbers will remain tight. Prices for all classes of cattle are likely to continue upward, as will retail beef prices. The next couple years will be interesting times in the U.S. beef business.