USDA's Cattle Inventory report was in alignment with expectations. The two big numbers everyone tends to look at for a long-term view are the total number of beef cows, which was down 1% compared to a year ago at 32.6 million head, and the beef replacement heifer number, which was down 4%.

The important short-term number was the calf crop, which was down just slightly from last year at 37.4 million head. The result is there will be a smaller supply available in the short term and the industry is continuing to contract. That means supplies will remain tight for the foreseeable future.

As has been the case for several years now, any expansion about to occur has been short-circuited by widespread drought in a particular region of the country. This year, the hardest hit area was the Southeast.

Many prognosticators now contend the industry experienced its cyclical high for inventory in 2007 and we're now heading to new all-time lows driven by a dramatically higher corn basis. The supply side of the equation is almost universally positive. The demand side has been surprisingly strong given the weakening of the economy and large total meat supplies.

The $100 question seems to be: At what price level will margins be sufficient to trigger expansion and can we reach those levels without reducing numbers further?