Cattle feeders closed out some profitable pens during May and into June, with good performance, lower cost of gain and cattle purchased at manageable breakevens. The black ink was a short-term event, however, and most pens will struggle to break even over the next few months as weak demand continues to pressure beef and fed-cattle prices.

Feedyard inventories are down, and steer and heifer slaughter has run below year-ago levels most of the summer, but aggressive dairy slaughter and abundant competing meats make the supply picture challenging, according to USDA’s June 17 Livestock, Dairy and Poultry Outlook report.

The June Cattle on Feed report, meanwhile, shows that supplies of finished cattle will remain tight. Cattle and calves on feed totaled 10.4 million head on June 1, a 4 percent drop from June 1, 2008, and the lowest inventory for the date in a decade. Placements into feedlots during May totaled 1.64 million, which is 14 percent below the year-earlier figure. Improved pasture conditions in many parts of the country have built demand for grass cattle, which likely limited feedyard placements this spring. The spring rally in corn prices drove breakevens higher on cattle going on feed, further discouraging feeders from placing cattle during May. Since then, corn prices have backed off as the supply picture improves.

The USDA’s June 22 Crop Progress report rated 70 percent of the crop in the top 18 corn-producing states as good or excellent. Just 7 percent of the crop across those states falls in the poor or very-poor categories. The national figures generally fell within a few percentage points of the ratings from one year earlier, with some exceptions. In Texas, 36 percent of the crop was rated poor or very poor, with 29 percent rated good or excellent.

Marketings of fed cattle during May were down 9 percent from a year ago. Feedyards sold more cattle than they placed though, with marketings totaling 1.95 million head. Continued short supplies of finished cattle suggest that prices could strengthen during the second half of this year, especially if economic trends and beef demand begin to improve.

The trade picture is mixed, as beef exports lag in some markets and surge in others. U.S. beef exports to Mexico, for example, dropped more than 20 percent during the first four months of 2009 compared with last year, as the recession and an unfavorable exchange rate dampen demand. In contrast, exports to Japan, where the yen has maintained strength against the U.S. dollar, increased about 25 percent in both volume and value during the same period.

Overall, USDA’s outlook report projects that U.S. beef exports will decline 8 percent during 2009. The report also notes that the dollar has weakened somewhat in recent months, which could help boost international demand, and the agency expects beef exports to increase about 9 percent during 2010.

University of Missouri economists Glenn Grimes and Ron Plain note that while retail Choice beef prices in May were up 1.5 percent from April and 2.2 percent from May 2008, processors and retailers were the only profitable sectors. Fed-cattle prices in May were 2.3 percent below April and 9.1 percent below May 2008. Packer margins for January through June were down 2.8 percent, while processor and retailer margins were up 11.8 percent from last year.