Private grazing rates across the Western U.S. inched up just 1.4 percent over the past year to $14.70/animal unit month (AUM) as of Jan. 1. That's down sharply from the prior year's 5 percent pace and the smallest annual increase since 2006, according to the latest USDA January Cattle Survey.

More downward pressure on lease rates is expected as the impact of the global economic slump crimps consumer demand for meat and ranchers respond to weakening operating margins by making deeper herd cuts.

“Grazing-rate increases over the past three years were being driven by higher cattle prices,” notes Walt Richburg, national director of J.P. Morgan Farm and Ranch Management in Forth Worth, Texas. He oversees 1.3 million acres of ranchland in Arizona, Colorado, Montana, Texas, Oklahoma, New Mexico and North Dakota.

“Three years ago, a 600-lb. weaned steer would bring $1.20/lb.; now you are getting just 90¢/lb. Cow-calf operators are projected to lose $70/cow,” he adds.

Dry conditions in many parts of the U.S., high feed costs and attractive cull-cow slaughter prices prompted a higher than expected 2 percent cut in the U.S. cattle herd last year to 94.5 million head.

In January, a flood of cull-cow shipments to San Angelo Packing Co., San Angelo, Texas, created a two- to three-day processing backlog, says Vernon Fritze, a cattle buyer for the packer. If dry weather persists over the next 60 days, Fritze predicts another big influx of cows from Texas, Louisiana, Alabama and Mississippi.

The contracting cattle herd means there are 883,600 fewer beef cows and replacement heifers competing for pasture than a year ago. The U.S. beef herd is expected to continue to contract through 2010.