With supplies of market-ready cattle continuing to tighten, we keep expecting to see fed-cattle prices move upward, but several factors have intervened to stall any rally. Chief among these is demand, with lower domestic and international consumer spending pressuring beef prices. Other factors include growing supplies of competing meats, and to some extent, a high rate of dairy cow slaughter that has pressured the value of beef trimmings.

Beef slaughter dropped considerably last week, with USDA reporting a total of 562,000 head compared with 655,000 during the same week last year, a reduction of 14.2 percent. Wholesale beef traded flat to slightly down, with the weekly average Choice cutout losing about $0.70 per hundredweight compared with the previous week. Fed steers, averaging about $82 per hundredweight, were down about a dollar, or 1 percent, from the prior week and more than 15 percent lower than one year ago.

Our Sterling Beef Profit Tracker index shows that for the week ending Sept. 4, feeding margins declined more than $34 per head to average a negative $18.95. Packer margins during the same week declined by $14 per head, averaging $24.41 below breakeven.

According to the Texas Cattle Feeders Association, a decline in the value of beef trimmings has had an effect on the entire beef complex as it struggles toward higher prices. As of Sept. 9, the value of 90 percent lean beef trimmings averaged $127.61 per hundredweight, a 27 percent decline from one year ago. Fifty-percent lean trimmings averaged $57.52 per hundredweight, a 38 percent year-to-year decline. Through most of the current economic downturn, beef trimmings have been a bright spot as consumers turn to economical alternatives in their meat purchases.

TCFA notes that 42 percent lean pork trimmings, which food manufacturers can substitute for beef in prepared products, are trading at $27 per hundredweight, a 51 percent decline from one year ago. At the same time, dairy slaughter is running 10 percent higher than last year, dramatically increasing production of lean-beef trimmings.

The outlook for cattle prices this week is mixed, with traders watching the stock market, beef prices and the cash cattle trade as they look for direction. Upside potential continues to look good as supplies of finished cattle will be tight and demand should be increasing seasonally, especially as the overall economic picture improves.