CME live-cattle futures were on the defensive on Wednesday with the nearby August contract down 98 points and all other contracts posting declines from the previous day. Live-cattle futures have been struggling to find some direction for some time. Feedlot inventories are tight but demand remains lackluster. Also weighing on cattle prices is the steady decline in grain prices and a more bearish outlook for feed costs in the short to medium term.

The U.S. corn crop may be behind in terms of its maturity but overall conditions are quite good and above year-ago levels. The latest USDA report showed that 70% of the current corn crop is in Good or Excellent condition, compared to 60% for the comparable week a year ago.

As for beef demand, it remains a popular, but also a bit depressing topic. Even the Wall Street Journal lamented/rejoiced at the emergence of high-value cuts at retail, pointing out that USDA Prime beef was showing up at Costco and other retail establishments.

But is it really “prime time for steak lovers,” as the article suggests? After all, what a steak lover should really appreciate is not just a cheap steak at the retail counter today but rather a steady supply of high-quality steaks for years to come. With current beef prices and negative returns, that future supply will likely keep getting smaller and smaller. So much for prime time.

Another factor negatively impacting demand and the outlook for the beef market this fall is the poor performance of U.S. beef exports in late June and early July. The USDA weekly export sales report provides a more up-to-date view on this topic although the data this year has not matched quite well with the monthly numbers reported by the Economic Research Service. According to the latest update, U.S. exports of fresh or frozen beef cuts for the week ending July 16 were 8,400 metric tons (mt) on a shipped weight basis, some 23% lower than a year ago.

In part this is due to very disappointing sales to South Korea. Exports to that market boomed last fall as Korean authorities finally opened the way for U.S. beef shipments to that market.

But after a three-month surge, averaging about 3,000 mt/week, beef shipments to that market have declined; for the week ending July 16, they were just 500 mt. That U.S. beef exports remained generally flat despite a notably lower U.S. dollar in the second quarter also is disappointing.

Mexico remains the largest market for U.S. beef and shipments for the week ending July 16 were just 2,800 mt, some 43% lower than a year ago. In the last six weeks, beef exports to Mexico have been on average 28% lower than a year ago.
-- CME Group Daily Livestock Report