A big drop in end meat prices was more than offset by gains on the middle meats. Conversely, the weekly Select cutout dropped substantially, coming in at $184.47 last week - a weekly decline of $2.46. A gain in rib prices was not enough to offset substantial declines in the end meats.

At $12.15, the Choice/Select spread is as wide as it has been since the first week of the year. There is nothing unusual about a widening CH/SE spread at this time of year.

The percentage of Choice cattle in the slaughter mix has been declining since early March - very much in line with normal seasonal patterns - and has now been consistently below year-ago levels for about the last month.

Add to this the fact that demand for Choice meat appears to be strong and should arguably be stronger than we are accustomed to given the effect of Wal-Mart making a determined and well-publicized shift toward more Choice product. With these facts in mind, a bit wider than normal CH/SE spread is not really surprising.

The question of immediate interest is whether last week's downshift in Select prices portends a more general decline in beef prices. A number of competing factors are in play that will ultimately make that determination.

First, beef demand appears to remain strong, particularly on high-end product: the aforementioned strength on end meats and Choice product is evidence of that. Second, beef supplies will likely continue to tighten over the course of the summer.

Year-to-date beef production is down by over 2.12 percent. USDA forecasts show production declining even more moving into the third quarter of the year. With tighter supplies, prices will be well supported even if demand just treads water.

However, other factors in the market are less supportive. Competing meat production is increasing.

Pork production is expected to be up by 2.7 percent for the second quarter. Recently, the weekly year-over-year increase in pork production has been more like 5 percent. The export market has provided a home for much of this pork, but higher production could be a real challenge for pork prices this summer.

As for poultry, weekly broiler production currently remains about 5 percent below year-ago levels; however, the pace of production appears to be picking up.

Egg sets and chick placements are still running below year-ago levels, but the gap has narrowed substantially in recent weeks as integrators do not appear inclined to repeat last year's much-sharper-than-normal summer reductions, despite weaker broiler part prices over the past month or so.

Also looming on the horizon is the potential for Mexico to implement large anti-dumping duties on US leg quarters. (We've seen the Russian and Chinese versions of that movie before, and it doesn't have a happy ending.)

The bottom line is that competing meat prices are likely to slip relative to beef prices, making it more difficult to maintain beef prices at current levels.

Of course, outside markets will also play a role in determining where beef prices go from here.

The U.S. economy continues to muddle through a weak recovery.

The pace of recovery seems unlikely to improve as important questions about the U.S. fiscal environment (namely, the future of the Bush-era tax cuts and the fate of the "mandatory" spending cuts that were part of last year's debt ceiling agreement) will probably remain unanswered until after the election this fall.

The European soap opera will be an ongoing source of uncertainty for the macro economy – unless it suddenly ends very badly, in which case it will be a certain source of trouble.

Considering the beef market in the context outlined above, the recent performance of beef (retail and wholesale) and cattle prices has been pretty remarkable. Tight supplies and resilient consumer demand can overcome a lot of other negative factors.

Still, further improvement from current levels – especially at this time of year – would be a remarkable feat. I guess if it was easy to get past a $2 cutout, we'd have done it already.  

The Markets
Last week, fed cattle added about a dollar to the prior week's price in most locations – a little better than that in Nebraska, where prices were called $1 to $2 higher.

Last week's calf prices were kind of a mixed bag. Compared to two weeks earlier (due to the Memorial Day holiday) OKC prices were called steady to $2 higher on most classes. Prices at Joplin, Missouri, were called $1 to $5 lower on calves; steady to $3 higher on yearlings. In the national summary report from USDA, yearling prices were noted to be mostly steady with some up to $2 higher.

Calf prices were mixed: from $5 lower to $5 higher. Dry weather continues to creep across a larger and larger swath of the country, with obvious implications for the movement of calves, and potentially cows, if it continues.

And speaking of dry weather, corn did its best to get into a full-blown weather market last week.

Positive outside (i.e., equities) market action in the latter half of last week undoubtedly helped corn's cause, but an increasingly important feature in the corn market is growing concern over dry conditions in the Midwest. Last week, the nearby corn contract added almost 50 cents from the previous Friday's close.  

—From Livestock Marketing Information Center's In the Cattle Markets