The cattle market traded $2.00-$3.00 lower on a live basis this past week. Live trade came at mostly $108.00 and ranged $107.00-$109.00. Dressed trade in Nebraska was mostly $174 to major packers, with regional packers paying $175. The extreme heat has dampened beef demand and at the same time made feedlots more willing sellers.

The choice cutout was down $0.89 at $175.70 Friday night, with the select down $1.17 at $170.11. Beef cutouts broke sharply over the past few days. Both the choice and select cutouts declined more than $6.00 from the highs the previous week as of Friday night.

The sharp discounting did bring more robust spot volume, and sluggish demand because of record breaking heat in the East over the weekend is expected to result in slow fill-in business this week. Packers did cut kills last week. Slaughter was down 15,000 head from the previous week at 651 thsd head. We expect to see slaughter curtailed again next week as well.

Friday's July Cattle on Feed Report was a bearish surprise for 4th quarter market prospects. June placements came in up just over 4% from last year, while the average of estimates going into the report was down 6.5%. Only one analyst surveyed had expected placements to be larger, and he was up less than 2%. Most of the increase came in the 600-700 lb category, which was up nearly 27% from last year.

Calf placements were up 4.5%, with 700-800 lb placements up about 3%. Heavy weight placements were actually down over 9%, which could be supportive to the August contract. Marketings were on the friendly side of the estimates, at 105% of last year compared with the average estimate of 102.8%.

Friday also saw the release of the semi annual Cattle Inventory Report. July 1st inventories of all cattle and calves were down another 1% from last year, at 100 mill head even. The 2011 calf crop is estimated at 35.5 mill head, also at 99% of last year. The beef cow herd continues to liquidate due to poor pasture conditions. The number of beef cows on hand as of July 1st was down 1% or 300 thsd head from last year. Inventories of beef heifers for herd retention were down 5% however, and are indicative of limited production plans going forward. One of the more bullish figures in the report was the number of steers and heifers outside of feedlots. That figure is down over 950 thsd head as of July 1st, and an expected increase in July placements will pull inventories down even further. There will be a day of reckoning ahead for cattle feeders. The industry has pulled more cattle than usual off of grass and into feedlots this summer, and that will tighten supplies this fall that much more.