On July 22 the USDA released the mid-year July 1 cattle inventory report.

While it was close to expectations, it still is important to interpret, and the interpretation is fairly straight forward, the U.S. cattle inventory continues to shrink, and the pace may pick up.

All cattle and calves on July 1 was 100 million head, down 1.1 percent from the previous year.

Beef cows at 31.4 million head were down 1.1 percent, milk cows at 9.2 million head were up 0.5 percent. So the total cow and beef cow herd continues to decrease, how about next year?

Beef heifers kept for replacements were down 4.5 percent, and dairy heifers kept for replacements were 3.7 percent higher than last year.

The bottom line is the cow herd is likely to keep shrinking and perhaps at a faster rate. And put on top of that the continued high rate of cow slaughter as the drought continues in the southern plains and the report probably already overstates cow numbers.

The 2011 calf crop as of July 1, and it usually grows a bit by Jan. 1, was down over a half percent. This past winter was much better for calving than the previous winter.

Total supplies of feeders outside of the feedlot on July 1 were down 2.5 percent. Part of the decrease is due to fewer animals being available, and in part due to a higher percent already being in the feedlots.

The USDA also released the July 1 Cattle-on-Feed Report on July 22. The report was a bit bearish short-term in the sense more cattle were put on feed than expected.

Total on feed was up 4 percent versus the 2.5 percent expectation. This was due to June placements being up 4 percent versus the expectation of down 6.5 percent.

The drought appears to have forced more on feed sooner than expected. Due to a lot of the placements being light weights, the big placement number probably does not mean a big wave of cattle all coming at once down the road.

On a positive note, marketings in June were up 5 percent, 2 percent more than trade expectations.

When it comes to pricing advice, we have a potential new player or perhaps a return of an old player in the market.

If the markets felt confidence that the world economy will keep growing, even at a the rate it has been, my advice would be consider pricing more/some future production if the futures get back towards their previous high.

And while I will still make that statement, there is a new twist, if the world economy, including the U.S falters, the odds become lower that we will return to previous highs.