The U.S. cattle supply is shrinking as a result of high feed costs and serious financial losses in the feedlot sector, the latest USDA Cattle On Feed report confirms.

On-feed numbers on Oct. 1 were down 3% from the same time last year, and that's a pretty big drop, says John Nalivka, owner of Sterling Marketing, a Vale, OR, economic consulting firm for the red meat industry.

Placements of cattle into feedlots declined drastically in September, dropping 465,000 head or 19% from September 2011, and were the lowest September placements since the reporting series began in 1996.

Marketing of fed cattle was also down, 12% below a year ago and the second lowest since the series began in 1996.

High feed prices, a smaller calf crop and excess capacity in feedlots have all contributed to large losses in feeding cattle for slaughter, according to market watchers.

Feedlots lost some money in December 2011, but have been losing money steadily since April. The worst losses ever seen came in mid-July, when feeders were losing as much as $270/head. With the cash price on Choice fed steers at $127/cwt. and feeders' breakeven at $131/cwt., current losses are closer to $56/head, Nalivka says.

Feedlot losses are expected to continue, due to high corn prices and excess capacity in feedlots competing for feeder cattle and keeping that price high. Feeder cattle weighing 700-800 lbs. are selling in the mid $140s/cwt., he says.

Packers are also losing money, currently about $45/head, and have been losing money steadily since August, after suffering losses from Sept. 2011 through mid-April. Further reduction in cattle slaughter, cutting plant utilization, will harm packers further, he says.

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