The U.S. cattle herd has shrunk to levels not seen since 1958, a harbinger of higher beef prices.


The biannual inventory report released by the USDA puts the nation's herd at 92.582 million head as of Jan. 1. The supply of cattle in the U.S. has been falling steadily as feed costs rise, available pasture land shrinks and robust prices for young cattle provide a strong incentive for producers to cash out.


Live cattle futures earlier this month hit record levels, and Friday's report is likely to provide more fodder for the market over the long term. Retail beef prices have been following futures higher, with the USDA earlier this week forecasting a 2.5% to 3.5% jump in retail beef prices in 2011.


Prices for young cattle, known as "feeders" in the industry, also hit record highs recently, and analysts say such robust prices are helping to drive the ongoing declines in the U.S. herd. The immediate cash price for feeder cattle is too tempting to pass up, so producers opt to sell rather than keep young females for breeding, which can take two years before producing returns. Yet prices aren't likely to pull back until more young cattle are marked for breeding instead of being sold to feedlot operators to be fattened for beef.