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Previous issues of the BEEF Cattle letter
Issue # 521
January 17, 2007
Winter + Corn = ??? - Nevil C. Speer, PhD, MBA, Western Kentucky University (reprinted with permission from 1/9/07 CattleNetwork.com)
Out like a lion: that's the story for 2006 as two major storms moved through the heart of cattle country during the last half of December. Winter's onset provided a one-two punch that's left its mark - especially for those forced to deal with the aftermath of one or both blasts of snow, ice and wind. Ranchers and cattle feeders now have the task of pushing snow, thawing pipes, and trudging through snow, ice and mud simply to get feed and water to livestock. Additionally, the storms foster the burden of responding to increased morbidity and taking inventory of deads.
As a result, weather has been the predominant market maker in recent weeks. And now, at least for the short run, winter mandates significant attention on the part of analysts from a fundamental perspective, the storms provide several important influences upon the market. The immediate concern surrounds business logistics and continuity. Can transportation be facilitated for livestock and/or beef products? Fortunately to that effect, December's blasts hit during a period in which feeder sales are essentially nonexistent and processing plans were running on holiday schedules. The most important influence, though, comes if the pattern becomes repetitive. And therein lays the unknowns regarding the extended outlook: sloppy pen conditions may serve to diminish beef production and delay marketings (more later). Moreover, amidst that scenario it's also possible a lower percentage of cattle will cross over into the Choice classification resulting either directly from tough feeding conditions and/or indirectly from increased hospital pulls.
Bad news aside, winter weather does have an upside. Inclement weather typically proves to be price supportive. The storm provided an additional boost at the CME to markets already poised for some upside correction. Prior to the storms, February live cattle had reached a near-term low in mid-December and then began a slow march into positive territory reaching $90. Weather reports, though, boosted the market above $92 and the contract finished January 8 at new contract highs ($93+). Meanwhile, the April contract has moved from $90 to $94+ since mid-December. The turnaround from earlier lows provides some excellent opportunities for renewed risk management.
That push also provided lift to the spot market. Cattle feeders demanded an additional $2-3 as December closed for business. Fed trade was stuck in a trading range - being largely $85-6 for most of December. The storms, though, bounced fed trade up to $87-8. 2007's first week of business was largely wait-and-see: cash trade was thinly tested but USDA reports sales of $87-8, $89 and $90 in Nebraska/Colorado, Kansas and Texas, respectively.
Weather's short run influence is primarily upon the supply side. Amidst that activity it's easy to overlook demand. Drs. Grimes and Plain report (Cattle Outlook: Jan 5, 2007) beef demand to be down 2.4% during the first 11 months of 2006 compared to 2005. That influence has seemingly been manifested in the form of flat wholesale prices the light-Choice cutout has been in a restricted trading range since late-July. In the near-term, limited production will likely prop up cutout values as evidenced by the recent price rally in the wholesale market. More favorably, the authors also note that that demand for live cattle was up 3.9% through November.
Recent weather coupled with forecasts for more-of-the-same invokes the need to review potential winter effects upon the market. That's especially true right now: "what's in store?" is the inherent question for the beginning of any new year. For the most part Mother Nature has been largely cooperative in recent years the beef complex has enjoyed an extended run of mild weather in the High Plains. 2001 marks the last time winter provided a major impact on market fundamentals. Feedyards were forced to endure unrelenting pen conditions through much of the spring sunshine was in short supply, especially in the northern tier, thus pens remained wet and sloppy into April.
Markets are reactive therefore, if storms fail to track through feeding country then late-December's weather surge will largely come and go and market analysts will be back to interpreting information per a business-as-usual basis. On the other hand, continual pounding of winter weather could alter fundamentals and significantly disrupt normal trading patterns during the first several months of 2007. Outlined below are two separate illustrations which provide some historical insight if the latter scenario plays out.
The first graph highlights annual USDA steer carcass weights for the first quarter. Several items are important relative to its interpretation. First, note that carcass weights hold a firm upward trend over time. However, on three separate occasions the trend deviates with logical explanations for each. Initially - 1997: the decline largely induced by an inflated corn market and rising incremental costs of gain. The outcome being feedyard managers forced to be diligent sellers and thus maintaining a lighter, more current inventory. The bookend - 2004: that primarily stems from Canadian trade embargoes. Strong markets and favorable closeouts encouraged advanced marketing feedyards aggressively sold cattle, even if short fed, to take advantage of positive cash flow opportunities. The central decline - 2001: the cause induced by poor feeding conditions. Cattle struggled to perform up to expectations and steer carcass weights subsequently declined 12 lbs versus the previous year.
The second illustration provides a little different insight. It depicts cumulative monthly marketings for February, March and April. Two years emerge as anomalies (prior to 2003): 1997 and 2001. 1997 being the direct result of reduced placements in the last four months of 1996 due to a rapidly escalating corn market. Meanwhile, 2001 stems from unfavorable feeding conditions forcing managers to defer sales into late-spring / early-summer. The combined outcome: 1997 and 2001 February through April weekly beef production trailed the previous year's mark by 12- and 38-million lb, respectively.
How this might play out remains to be seen. However, it's important to recognize that 2007 could be uncharted territory: there exists the potential impact of recurring winter weather within the framework of higher corn prices. In other words, the market could simultaneously experience 1997 and 200. The implications of winter weather being confounded by the corn market beef productions deviations could be even more pronounced than otherwise expected. What's more, 2006's second-half placements, largely biased towards light-weight cattle, are stacked on top of those considerations (light in / light out). Lastly, weather-induced performance declines coupled with cost-shortened feeding regimes could impact availability of Choice product.
What's the bottom-line? First, closeouts could prove challenging despite higher prices stemming from declining production breakevens could escalate rapidly. Furthermore, making good decisions regarding replacement purchases becomes very difficult in the face of higher costs and poor performance that moving target makes breakevens a guessing game.
Second, regional basis could widen and become highly variable. The impact becomes very important for those committed to grid marketing depending upon how the marketing base price is determined. Lastly, increased volatility from week to week becomes increasingly likely. All factors which underscore the importance of vigilant risk management.
Poor Temperament Adversely Affected Performance & Profit - Dr. Rick Rasby, Professor of Animal Science, Animal Science, University of Nebraska - Lincoln, Lincoln, NE
Mississippi State Univ. researchers used a total of 210 feeder cattle consigned by 19 producers in a "Farm to Feedlot" program to evaluate the effect of temperament on performance, carcass characteristics, and net profit. Temperament was scored on a 1 to 5 scale (1=nonaggressive, docile 5=very aggressive, excitable). Three measurements were used: pen score, chute score, and exit velocity. Measurements were taken on the day of shipment to the feedlot. Following is a summary of results.
Exit velocity and pen scores were highly correlated. As pen scores increased, so did exit velocity.
Breed of sire had a significant effect on all three temperament measurements and on feedlot performance and carcass traits.
As pen score and exit velocity increased, treatments costs and number of days treated increased, while avg. daily gain and final body wt. decreased.
As pen score increased, net profit per head tended to decline:
These results are in agreement with similar research conducted at Iowa State, Texas A & M, and elsewhere (Vann et al. 2006. ASAS Southern Section Mtg., Orlando, FL).
Improving Beef Quality
Local cattlemen are invited to compete in an Beef Taste Test Challenge comparing their farm-raised steaks at a meeting January 24, 2007 at the Collinsville Community center at 7 PM. The meeting for southwest Ohio cattlemen will also focus on How to improve carcass quality.
Christy Johnson, Director of Supply Development with Certified Angus Beef, will discuss steps in improving your carcass. Cattlemen's steaks will be prepared by the staff from the Hamilton Texas Roadhouse Restaurant. Judging will evaluate quality grade and taste. A Cattlemen's News Update will be provided by Jim Campbell from the Ohio Cattlemen's Assn.
Cattlemen who want their steaks to compete in the Steak Taste Challenge need to contact Bev Roe, Ohio Cattlemen's Director. For meal reservations contact, Beverly Roe at 513-726-6540, PedroAngus@aol.com. The meeting Directions from I - 70:
Exit # 10 (Eaton). South 24 miles on Route 127. At the intersection of Route 127 and Route 73 West, turn east/left on Huston Road. Make a sharp turn north/east 1/2 block to the Community Center. You can see the community center, playground equipment and fire station from Route 127. Address: 5313 Huston Rd., Colllinsville, OH 45004.
EDITOR's NOTE: This Beef Taste Test Challenge is just one of the topics for the current OCA District meetings. Visit the OSU Beef Team web calendar for a complete listing of these and other meetings.
Forage Focus: The Case for Forage Legumes - Dr. Don Ball, Dept. of Agronomy and Soils, Auburn University, Auburn, AL
Legumes have long been viewed as special and beneficial pasture plants, but there is justifiably heightened interest in them at present, thus the reasons for growing them deserve renewed emphasis.
Nitrogen Fixation: When in association with the proper type of bacteria, most legumes can obtain nitrogen from the atmosphere and "fix" it in nodules on the roots. Nitrogen fixation/acre/year by a stand of annual legume(s), white clover or red clover, and alfalfa often is within the ranges of 50 to 150, 75 to 200, and 150 to 200, respectively.
Forage quality: As compared to grasses, legumes are usually higher in crude protein, digestibility, and minerals and vitamins. The result is better performance of grazing animals in terms of higher gains, milk production, and reproductive rates.
Distribution of Growth: Introducing legumes into grass pastures often extends the grazing season. Red clover is especially likely to provide additional summer production when grown with cool season perennial grasses. Several legumes can extend the grazing season when grown with annual grasses.
Forage Yield: Yield per acre from a grass/legume mixture is often higher than from grass alone, especially if little or no nitrogen fertilizer is applied.
Crop Rotation Benefits: Legumes provide N for succeeding crops, improve soil tilth, and may create root channels that benefit subsequent crops.
Reduced Animal Toxicities: Growing legumes with toxic endophyte tall fescue can reduce fescue toxicity symptoms and improve animal performance. Legumes also contain more magnesium (Mg) than grasses and thus can reduce the likelihood of grass tetany, the underlying cause of which is Mg deficiency.
Environmental Acceptability: Legumes provide slow release nitrogen, which is more environmentally friendly than commercial nitrogen. They also furnish pollen and nectar for bees, tend to increase populations of beneficial predatory insects, and are a preferred food of many wild animals.
Profit: Forage legumes have the potential of simultaneously improving animal performance and lowering costs. Keys to success with successfully introducing and using legumes include selecting the proper legume for a particular site and situation, providing soil amendments as needed, and providing management that minimizes grass competition.
Visit the OSU Beef Team calendar of meetings and upcoming events
BEEF Cattle is a weekly publication of Ohio State University Extension in Fairfield County and the OSU Beef Team. Contributors include members of the Beef Team and other beef cattle specialists and economists from across the U.S.
All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status. Keith L. Smith, Associate Vice President for Ag. Admin. and Director, OSU Extension. TDD No. 800-589-8292 (Ohio only) or 614-292-1868
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