A negative day for risk assets, plus concerns over consumers baulking at high beef prices, undermined cattle futures despite the US herd shrinking more than had been thought to its lowest since 1952.

Live cattle – animals fattened for slaughter - for February delivery eased 0.6% to 123.95 cents a pound in Chicago, while the better-traded April contract fell 0.5% to 127.80 cents a pound.

The declines came despite what was perceived as bullish US Department of Agriculture data revealing that the US cattle herd declined by 2.1% to 90.8m head as of the start of the year, a drop 500,000 head bigger than analysts had forecast.

Beef cattle dropped even faster, by 3.1%, the largest loss since 1986, and driven by the southern US drought which forced leading ranching states such as Texas to liquidate herds to avoid huge feed bills. Indeed, better-watered Nebraska replaced parched Kansas as the second-ranked cattle state.

The data could be "looked at as a little positive", Paul Georgy at Illinois-based broker Allendale said, while Commerzbank said that the statistics implied that cattle prices "are likely to remain high for the foreseeable future".

'Slow domestic demand'

However, sentiment for commodities in general eased amid dismay at the failure by Greece yet to seal a deal with creditors which will avoid a default, with some investors also citing disappointment at China's reluctance to relax monetary policy despite signs of a slowing economy.

And some investors cited the disincentive by packers to buy given a long period of negative margins forced by cattle prices which have already set record highs this year, and a reluctance by consumers to accept knock-on rises in beef prices.

"Slow domestic demand continues to plague the market," broker US Commodities said noting that meat packers, such as Tyson Foods and the US operations of Brazil's JBS, are running at a loss of $95 per head of cattle processed.

'Opposite of bearish' 

Nonetheless, US Commodities also said the report was "positive" for prices longer term, flagging that the data highlighted a 4% drop in cattle outside feedlots, which "will lead to a lower slaughter" ahead.

"While some may see the early signs of heifer retention as bearish for 2012 prices the opposite is most likely true," Purdue University economist Chris Hurt said.

"This is because the retention of heifers reduces slaughter supplies and beef supplies. If heifer retention continues to grow in 2012 and 2013, beef supplies will not increase until 2015."

Allendale's Paul Georgy said: "The message from this report is that beef production for the next year will tighten even more than previously thought.

"Expansion has started and will slow the decline in beef production set for 2013."