Although production costs continue to limit opportunities for profits in cattle feeding, the market shows signs of significant improvement. Continued growth in U.S. beef exports and the prospect of tighter fed-cattle supplies have driven cash and futures prices higher, and the trend should continue through this year and into 2009.

By late May, fed-cattle prices averaged near $95 per hundredweight, rebounding from lows in the mid-$80s earlier this spring. The futures market, fueled in part by speculation of export growth, suggested prices nearing $108 this fall and as high as $110 during the first quarter of next year

According to the U.S. Meat Export Federation, U.S. beef exports during the first quarter of 2008 increased 37 percent over the same period last year. Export tonnage of beef variety meats increased 19 percent, and total value of exports improved 40 percent to $682.7 million.

Mexico and Canada remain our top two markets for beef exports, with shipments to Mexico, at 214.6 million pounds during the first quarter, up 21 percent from last year. Canada imported 71.5 million pounds during the first quarter of 2008, a 64 percent increase over the same period last year. Exports to Japan, currently our third largest export market, increased 23 percent in volume and 33 percent in value compared with the first quarter of 2007.

Export growth should continue, particularly as South Korea opens its borders to U.S. beef. According to USDA reports, export sales during the week of May 12 reached a weekly record of 1,129 loads, compared with 513 loads the previous week and 338 for the same week one year earlier. A report from the Texas Cattle Feeders Association notes that the figure represents sales, rather than actual shipments, and that buyers appear to be purchasing well ahead of shipping as they anticipate higher demand. TCFA says analysts initially assumed the jump in purchases was related to the expected re-opening of the Korean market. Further analysis, however, indicated those sales were primarily intended for Mexico and Canada, and the Korean market had not yet begun to influence export orders.

Wholesale beef prices have continued to strength-en in response to domestic and international demand, with the Choice cutout aver-aging around $156 per hundredweight through May after dropping below $140 during March and April.

Supplies of market-ready cattle, meanwhile, are likely to tighten through the rest of this year and into 2009. U.S. feedyard inventories as of May 1 stood at 11.1 million head, down 1 percent from the same date in 2007, and inventories are likely to continue to decline relative to a year ago. Placements into feedyards during April, at 1.5 million head, were 2 percent below those of April 2007. Feedyards marketed more cattle than they placed during April, shipping 2 million head, which was 11 percent more than the April 2007 total. Higher cattle prices coupled with expensive cost of gain have prompted aggressive marketing, keeping feedyards current in their inventories and suggesting shorter supplies later this year.

High input prices continue to pressure feeding margins, with breakeven prices remaining near $100, and a sluggish economy threatens to reduce consumer demand. But the fed-cattle price outlook suggests feedyards should begin seeing profits on cattle marketed during the second half of this year.