Visualize the throughput of the largest beef-packing plant in the country or the annual marketings of the 10 largest feedlots. That's how many cattle (1.544 million) disappeared from the national cattle herd in 2008. That's bullish news for cow-calf operators but bearish for other sectors, notably cattle feeders and packers, some of whom might be forced out of business.

The U.S. now has its smallest herd in 50 years. The 2008 calf crop was the smallest in 57 years. So numbers will tighten into 2010 and might not increase until 2013 at the earliest. Even if they hadn't declined, numerous feedlots were at risk of closure because of years of over-capacity and heavy feeding losses over the past 18 months.

Dozens are said to be for sale, but there are no buyers in the current negative environment. Feedlots for sale don't even have asking prices because of the lack of a market.

Packers face reduced slaughter numbers in both fed and non-fed cattle. Fed-steer and heifer numbers might decline by nearly 2% in 2009 vs. 2008. Slaughter-cow numbers might also decline by 2%, with more dairy but fewer beef and Canadian cows going to slaughter than in 2008.

USDA's annual cattle inventory report confirmed that liquidation of the U.S. beef herd sped up in 2008 after it began in 2007. Moreover, revisions to previous data revealed that cattle numbers declined more in 2007 than USDA earlier reported. So the liquidation of the past two years was deeper than expected.

The other shock in USDA's report was the smaller-than-expected, year-on-year increase in the number of cattle outside feedlots on Jan. 1. Because of many months of lower placements in 2008, analysts expected USDA to report 500,000 to 600,000 more “outside” cattle than a year earlier. But the 2009 total was only 269,000 head above 2008's total.

Faced with losses in 2008 and severe drought in some states, cow-calf operators were in no mood to expand. Of the 10 states with the largest beef-cow herds, only four saw increased heifer retention (Florida was up 3.7%, Missouri 6.6%, Nebraska 6.6% and Texas 5.3%). This decline in retention almost guarantees smaller calf crops for the next two or three years and smaller feeder and fed-cattle supplies the next four years.

Cattle feeders and packers won't be able to rely on Canadian and Mexican cattle imports for more numbers. In fact, these declined 320,000 head in 2008 from 2007 and will be smaller again in 2009, with nearly all the decline coming from Canada. The implementation of mandatory country of origin labeling has already disrupted imports and could not have come at a worse time for those who need cattle to fill pens or shackle space.

Commercial feedlots of 15,000- to 30,000-head capacities are probably most vulnerable unless they are in just the right location (close to a packing plant and/or feeder cattle supplies, ideal climate and drainage for feeding cattle). The biggest issue is whether owners of mid-sized commercial feedlots can afford to own the cattle they feed.

Larger feedlots have taken increasing ownership of cattle as the number of customers decline. These operations are mostly well capitalized and better placed to borrow money and carry the financial load of owning cattle and feed throughout the 150-plus days an animal spends on feed. Some of the largest feedlot operations say they now own 70% of the cattle they feed, vs. 10% a few years ago.

Multi-yard operations have also developed long-term alliances with packers. Some select feeder cattle of a certain specific quality to feed to a desired endpoint for food service or retail beef programs. More and more feedlots will have to seek such linkages if they are to survive the shrinking herd numbers of the next few years.

Steve Kay is editor and publisher of Cattle Buyers Weekly (www.cattlebuyersweekly.com). See his weekly cattle market roundup each Friday afternoon at beefmagazine.com.