An Agriculture Department report pegging the nation's cattle herd at 99.5 million head is drawing expressions of shock and amazement from market experts who had expected a much lower number.

"I was shocked," said Charles Levitt, senior livestock market analyst with Shearson Lehman Hutton Inc. in Chicago.Analysts base their projections on previous USDA cattle inventory reports, which are released semi-annually, and on the daily slaughter numbers provided by packing houses.

One explanation for the surprising number could be found in the contention by the USDA that the number of calves born in 1988 was 2 percent higher than the number born in 1987.

But even with the large calf crop, "the numbers are larger than we could possibly have pieced together using any balance-sheet approach," Levitt said. "The only thing I can say at this point is that it appears we have a phantom herd out there."

Thomas Morgan, president of Sterling Research Corp. in Arlington Heights, Ill., said cattle futures traders had been "faked out" by the two previous cattle inventory reports, which had set a pattern of declining cattle numbers that many had expected would continue.

Although futures prices were expected to register an immediate reaction to the report, Morgan said the impact on beef prices would not be felt until late 1989 or early 1990, when the the calves born in the second half of 1988 are ready for slaughter.