A rebound in US cattle herd looks some "three-to-four years" away after a bigger-than-expected drop - fuelled by drought and elevated grain costs - in animal numbers to the lowest since records began.

The US cattle herd "looks like getting smaller for another two years", FCStone livestock analyst Adam Stout said.

"We are probably not looking at growth for another three or four years," with the potential for further delay if there is no easing in the drought largely responsible for the current decline in the herd by 2.2m head to 97.8m head over the past year.

The figure was the lowest for July since 1973, when the US Department of Agriculture began collating records.

"Whatever it takes, we need a little rain," Mr Stout told Agrimoney.com.

Feedlot losses

The forecast reflected the length of time it takes to turn herd liquidation around, especially when high feed, grain and fodder costs are cutting livestock producers' margins - at a time when drought has left US pasture is in historically poor condition.

USDA analyst Rachel Johnson last week noted that "cattle feeders who had been hoping for positive margins later this year and in 2013 have also begun to adjust their expectations by paying less for feeder cattle to offset anticipated higher feed prices.

"Projected margins for fed cattle marketed in July are in excess of -$200 per head, based on $117 per hundredweight fed cattle prices."

Feedlots took on some 1.66m cattle in June, down 1.8% year on year, and below analysts' forecasts, separate USDA data showed.

'No help on the way'

The poor prospects for US herd rebuilding were reflected in break-out statistics showing a 1.9% drop in dairy replacement heifers, year on year, and a 2.9% decline in beef cows.

"There is no help on the way" for reviving US cattle numbers, a report from Paragon Economics and Steiner Consulting said.

"All classes of young, non-breeding cattle showed numbers lower than expected."

The forecast for the calf crop was at 34.5m head, down 2.3% year on year, "the smallest since 1942".

'Long-term bullish'

US Commodities said that the weak inventories were "long-term bullish" for prices, in lowering further the level to which herds shrink before better conditions prompt ranchers to restock, stoking competition with feedlots and packers for animals.

However, the broker added that "short-term the [herd] liquidation, with the drought, is a concern", while FCStone's Mr Stout flagged the impact on trading on Monday of a "big outside market day", with fears for the eurozone prompting a flight to assets deemed less risky.

Feeder cattle for August stood 0.1% lower at 136.925 cents a pound in midday deals in Chicago, where August live cattle, those fattened for slaughter, were 0.3% higher at 118.325 cents a pound.

The best-traded October live cattle contract was 0.2% higher at 123.350 cents a pound.