Friday's USDA Cattle on Feed Report indicates beef production is headed lower. The number of cattle and calves in feedlots this month was 4% below a year ago and placements of cattle into feedlots in May was down 12%.  There are several possible reasons for the decrease according to USDA livestock analyst Shayle Shagam.

"One of which is we are likely looking at a smaller number of cattle outside of feedlots so the supplies in general are getting tighter," Shagam says. "Also you've had good grass in a number of areas in the U.S. Given current corn prices, given current feed prices, there's probably a move towards keeping cattle on grass longer to bring them into feedlots at heavier weights to offset some of the costs of feeding for a longer period of time."

Shagam expects strong steer prices this year in the low $90 a hundredweight range before increasing in 2009 as beef production will likely be reduced.