The fed cattle market lost ground in May. Choice slaughter cattle in the Amarillo area moved down $4/cwt., ending the month in the $69/cwt. range. Feeder cattle and calves also weakened but not as much. Medium frame, 600- to 700-lb. feeders fell almost $3/cwt. by mid-month but recovered some the final week of May. For May, the average price will be around $87/cwt. Heavyweight feeders are becoming difficult to locate so prices are hard to get in the feedlot areas.

The May 25th USDA Outlook and Situation report had these key comments:

* Cattle inventories will likely decline through 2000 but a bottom is likely in 2001, and a rise is possible by 2002.

* Beef production in 2001 will likely be down 4-5% from 2000's near record level.

* Retail Choice beef prices are on a record setting pace but the supply of higher grading beef has been very tight. As beef supplies begin to decline cyclically, fed cattle will be managed so a greater proportion will be pulled into the higher grading categories.

* Fed cattle prices are expected to average in the low to mid $70s/cwt. in 2001, the highest since the early 1990s. They could go higher if the economy and consumer confidence remain at their current strength.

* Prices for Choice beef at retail reached a record $3.05/lb. in April. As supplies of such beef increases in late spring and summer, prices will decline modestly.

Cattle and calves on feed for slaughter in feedlots with capacities of 1,000 head or more totaled 2.66 million on May 1. That's up 9% from a year ago and above March and April levels. It's also the highest on-feed figure in the seven major historical feeding states in six years.

Fed cattle marketings in April were 1.87 million head, 4% below 1999 and 1% under 1998. The April figure was also the lowest since 1995 in the seven major feeding states.

Placements of feeder cattle and calves into feedlots in April were 1.69 million head, slightly below 1999 and the second month of lower than year-ago figures. April placements of cattle and calves weighing less than 600 lbs. totaled 299,000 head; 600-699 lbs. totaled 307,000 head; 700-799 lbs. totaled 568,000 head; and those 800 lbs. and greater totaled 511,000 head.

Several factors could turn this summer unpleasant for cattlemen. While record-high beef retail prices are encouraging, not all this so-called "stronger demand" is showing up at the ranch level.

For example, even though retail beef prices are up 10% and moving higher, the packer/wholesaler margin is also up 28%. Meanwhile, Choice steer prices are only up about 9% and weakening. If margins continue to widen, farm prices will feel even more pressure from the marketing system.

While some rains have come to the South, more are needed. The West may already be beyond help. Such conditions impact cattlemen in many ways. They can alter marketing plans and timing, influence calf weights at selling, greatly increase the cost of feeding and holding animals, and frequently change the long-range plans of breeding herd ranchers.

Feedlots are back into a low- or non-profit position again, which will dampen the incentive to buy high-priced calves. As long as feeder supplies remain tight, ranchers and stocker operators are in good shape. But, that could change fast if the drought or other factors force any adjustments.