Chicago - A devastating drought, record feed costs and intensifying competition with cash crops for land are accelerating a five-year decline in the U.S. cattle herd, which is forecast to be the smallest in six decades as of Jan. 1.
The U.S. Department of Agriculture's bi-annual cattle inventory report on Friday, expected to show a 1.4 percent drop in cattle numbers from a year ago, may give cattle futures, already record high, another boost; drive meat prices to new highs and roil packers like Tyson Foods Inc.
Analysts polled by Reuters expect the data to show the U.S. cattle herd at 91.26 million head, the smallest since 1952 and down from 92.58 million a year earlier.
While monthly data showing a sharp decline in the number of cattle heading to feedlots has already put a spotlight on diminishing supplies in the near term, Friday's figures should highlight how a shrinking inventory of beef cows may keep beef and cattle supplies tight for months if not years to come -- even as beef exports boom.
"This report (on Friday) is expected to confirm what people have been thinking about," says Jim Robb, an economist at the Livestock Marketing Information Center in Denver. He said wholesale beef prices will set record highs in 2012 and 2013.
The drought in the southern Plains, that stretched through nearly all of last year, has been a primary driver in ranchers liquidating their herds. It also has them selling their calves to auction barns and feedlots soon after being weaned off milk.
The loss of pasture, which the calves feed on until they are big enough to enter feedlots where they will be fattened on a diet of corn, has been compounded by the tripling of hay prices to more than $100 a bale in Texas.
"Hay is very short in Texas and it's the staple feed here. We basically have to import hay," said James Gray, general manager of the Graham Land and Cattle Co., a feedyard in south-central Texas that can hold up to 30,000 head of cattle.
Gray said cattle are in such short supply in his area that he has been getting calls from buyers at Tyson Foods and the U.S. operations of Brazil-based meatpacker JBS -- the world's largest meat processor -- from 500 miles to the north in Amarillo and Plainview, Texas.
"The big packers like Tyson and JBS are scrambling to obtain supply lines and are forging new relationships," he said of these companies reaching out to him to be cultivated as a source of cattle for their processing operations.