Drought in 2006 put cattle herd expansion on hold. The total cattle inventory nudged up slightly to 97.0 million head on January, up from 96.7 million head last year. The 2006 inventory was revised downward by 400,000 head from the previously published 97.1 million head estimate. Most importantly, the total cow herd declined slightly to 42.0 million head, down from 42.1 million last year. The 2006 calf crop was essentially unchanged from the 2005 level at 37.6 million head. As a result, the total cattle supply won't increase significantly in 2007. The lack of herd expansion is positive for the cattle market outlook. Beef production may decline slightly this year, boosting fed cattle prices above last year's $86 average. However, soaring corn prices have dulled the outlook for feeder cattle and calves despite the lack of herd expansion.