Livestock market analysts point to the expected trend of declining U.S. meat supplies this year, and
 USDA's monthly Cattle on Feed Report has further confirmed those expectations.

"We should see a meaningful contraction in U.S. cattle slaughter, at least through the second quarter," say Steve Meyer, Paragon Economics, and Len Steiner, Steiner Consulting Group, in the CME Group's Daily Livestock Report.

The concensus is that the futures market will take the report's numbers as a positive trend.

According to USDA's report, there were 11.234 million head of cattle on feed as of Jan. 1. That's 7.1 percent less than a year earlier, and 3.4 percent less than the five-year average.

Feedlot operators placed fewer cattle on feed in December and shipped more to market than analysts were expecting. The analysts were looking for about a 1 percent decline in cattle placed on feed during December compared to the previous year; USDA reported that number at a 3.2 percent decline. In all, 1.647 million head were placed on feed.

Analysts were looking for feedlot operators to market nearly the same number of cattle in December as they did in 2007, but USDA reported a 2 percent increase in cattle marketings.

Some analysts say the report shows that feedlot operators are being cautious about placing cattle on feed given the economic uncertainty and weakeness in consumer beef demand.

"The bottom line in the report is that U.S. beef supplies will continue to decline in 2009," say Meyer and Steiner, "that does not necessarily mean sharply higher beef prices." The two analysts believe the U.S. economic woes and Congress' wrangling over the government's stimulus package could overshadow supply fundamentals in the livestock futures market.

To view USDA's Cattle on Feed Report, click here.

 Source: USDA