America's slump in cattle numbers may be setting the stage for rising beef prices and a "high and volatile" livestock market, an official report has warned.

The four-year decline in America's cattle herd, which this year recorded its lowest July figure since records began in 1973, looks set to continue given the falling numbers of heifers being kept for breeding stock.

The number of heifers with breeders declined by an annual rate of 2.2% last month, faster than the 1.5% drop in the overall cattle and calf inventory.

"The more rapidly declining beef heifer inventories imply that the national beef cow herd will continue the current liquidation phase," the US Department of Agriculture said.

Heifers were instead being sold instead to feedlots, where their proportion of stock has hit a five-year July high.

Long-term 'implications' 

The decline in breeding stocks will create a stock bottleneck, assuming America's fed cattle industry – the world's largest - returns to expansion, the report added.

Competition among beef producers and breeders for stock looked likely lead to "high and volatile" fed cattle prices and falling beef production.

"The general declines in both cow and heifer inventories have implications for beef production over the next several years, possibly into 2012 or beyond," the briefing said.

The USDA last week pegged America's 2010 beef output at 25.1bn pounds, down 735m pounds year on year.

The decline in production will lead to higher prices - as long as domestic demand at least stays stable - and prove a "limiting factor" on exports, the report added.

The report follows a recovery in Chicago feeder cattle prices from a low of 85.45 a pound in December to $101 a pound on Thursday.