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OSU Extension - Fairfield County

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OSU Extension BEEF Team

BEEF Cattle questions may be directed to the OSU Extension BEEF Team through Stephen Boyles or Stan Smith, Editor

You may subscribe to this weekly BEEF Cattle letter by sending a blank e-mail to beef-cattle-on@ag.osu.edu

Previous issues of the BEEF Cattle letter

Issue # 589

May 28, 2008

Ohio's CRP Acres Open for Haying and/or Grazing After July 15 - Stan Smith, PA, Fairfield County OSU Extension

Yesterday (5/27/08) Agriculture Secretary Ed Schafer announced that USDA has authorized Conservation Reserve Program (CRP) acreage be made available for haying and/or grazing after the primary nesting season ends for grass-nesting birds. In Ohio, this means these acres may become feed for livestock after July 15 and until November 10, 2008.

According to the USDA press release, this action has been taken to provide additional feed and forage to livestock producers due to the significant increases in the values of most field crops which have in turn created competition for acres. The release goes on to say more than 24 million acres of land enrolled in CRP will be eligible for this feed use program. USDA estimates this program will make available up to 18 million tons of forage worth $1.2 billion.

The CRP lands deemed the most environmentally-sensitive will not be eligible, and acres which are eligible will be subject to a site inspection to ensure compliance with a modified conservation plan which must be obtained from NRCS or a Technical Service Provider (TSP). No rental payment reduction will be assessed on contracts being utilized for this use, however, a $75 fee will be charged to process the required contract modification through the Farm Service Agency (FSA). In addition, participants agree to:

* Re-establish at their cost any CRP cover destroyed.

* Limit haying to one cutting.

* Not hay and graze the same acreage.

* If haying, leave at least 50% of each field unhayed.

* If grazing, leave at least 25% of each field ungrazed, or graze all of the CRP acreage at no more than 75% of the stocking rate as determined under the modified conservation plan for the field.

For Ohio cattlemen with CRP acres planted to cool season grasses, forages harvested under the guidelines of this program can most likely be utilized similar to other low protein, high lignin feeds we worked with during last year's drought. As described in Francis Fluharty's article Protein and Energy Supplementation of Crop Residues for Breeding Cattle published last fall in this publication, low quality forages become 30% more digestible when processed or ground, and must be supplemented with appropriate amounts of protein. Distillers grains may be an excellent protein source for balancing the cool season, high lignin forages which result. Review the article from last August entitled Distillers Grains With Solubles by Steve Boyles or the fact sheet Distillers Grains for more information on utilizing distillers.

Ohio cattlemen with CRP acres planted to warm season grasses may have less feed quality issues than those with the cool season grasses. Review Bob Hendershot's July of 2008 Ohio BEEF Cattle letter article entitled Potential of CRP Warm Season Grasses for Hay for more detail on utilizing warm season forages planted on CRP acres.

Signup for the opportunity to hay or graze CRP acres under this new program begins June 2 at local FSA offices and is only available for 2008. All haying or grazing on the enrolled acres must be completed no later than November 10, 2008. Additional details including the Secretary's announcement press release, a fact sheet, and maps indicating the primary nesting dates for all states are available at http://www.fsa.usda.gov/conservation. Contact your local FSA office for assistance regarding enrollment in this program.

USDA Plan For CRP Acres Well-Intentioned, But Wrong Solution For Cattlemen

Washington, D.C. (May 27, 2008) - The National Cattlemen's Beef Association (NCBA) opposes the plan announced today by the U.S. Department of Agriculture to open certain Conservation Reserve Program (CRP) acres to haying and grazing.

Agriculture Secretary Ed Schafer announced that USDA has authorized certain acres enrolled in CRP to be available for hay and forage after the primary nesting season ends for grass-nesting birds. USDA estimates more than 24 million acres of land will be eligible, and that the program will make available up to 18 million tons of forage worth about $1.2 billion.

NCBA supports managed haying and grazing of CRP acres during times of a shortage for hay and livestock forage due to drought or other emergency conditions, but only with a corresponding reduction in CRP payments. While the difficult conditions facing many cattle producers could certainly qualify as an emergency, USDA's plan does not require a payment reduction in areas where these additional uses will be allowed. Without such a reduction, livestock producers raising or obtaining their hay and forage from non-CRP land are placed at an unfair disadvantage.

"Cattlemen appreciate the fact that USDA recognizes the hard times we are facing in the livestock industry, and wants to provide some relief through this CRP plan," says Colin Woodall, NCBA executive director of legislative affairs. "But this is just the wrong solution. Any CRP relief plan must maintain a level playing field for all farmers and ranchers, and put land back into production in a meaningful way."

In addition to the competitive disadvantages created under USDA's plan, Woodall says it also fails to provide any significant, long-term relief for the nation's dwindling supply of agricultural land and feed sources.

Livestock producers cannot use this land for any haying or grazing until the primary nesting season ends, and then they have to be finished with any forage use by November 10," Woodall said. "In most cases that's a very limited window of opportunity, and it does not provide the kind of significant relief this industry needs. It's a nice gesture by USDA, but unfortunately it doesn't amount to much more than that."

"NCBA policy favors conservation programs that make every effort to keep agricultural land in production," says Woodall. "To do that, USDA needs to do more than just tweak CRP around the edges. The cattle industry is facing historic economic difficulty as a result of the federal government's competing policy goals. Tremendous pressure is being placed on our rapidly shrinking supply of agricultural land, and today's action just temporarily sidesteps the problem."

Same…But Different - Nevil Speer, PhD, MBA, Western Kentucky University (reprinted with permission on 5/11/08 from CattleNetwork.com)

There's hope on the horizon; after muddling through March, the spot market benefited from a late-April/early-May jumpstart. All the while, the deferred contracts also established some attractive premiums which help improve the outlook for summer providing both packers and feeders walked some near-term optimism: the June and August live cattle contracts have gained $6-7 during the past month with the August contract crossing $100 on May 9. On the cash side, feedyards were able to gain back some ground from March's tough slugging after fed steers skidded to $86. April sales bounced back to $90+; May business opened with transactions of $92-3 and $94 during the first two trading periods (Thursday/Friday) of the month, respectively. Meanwhile, processor gross margins have hovered around $170 during the past six weeks with sizeable volume (6-week weekly slaughter and beef production is running nearly 5% and 7% ahead of last year's pace, respectively).

The lift has sourced from several key components. First, the wholesale market is finally experiencing some life. The Choice cutout posted a weekly low of $138 in early-April but surged to nearly $155 just three weeks later and has since held those gains. Cattle feeders managed to capture some of that prosperity along the way. Second, recent news surrounding export markets, namely developments on the Korean front, have provided overall buoyancy to general sentiment among traders. Third, the cattle-on-feed report was interpreted as primarily bullish by market participants with placements 11% behind last year's levels.

So where's the downside? Consumers continue to be pressed with various worries. University of Michigan's Consumer Sentiment plunged to 62.6 in April (compared to 69.5 in March). The report also noted that inflation and unemployment spell uncertainty on the consumer front and is weighing on individual purchasing decisions. Meanwhile, despite the landmark breakthrough with S. Korea there's lots of work remaining. The beef agreement has sparked deeper-seeded political debate in the country requiring some heavy lifting ahead to capture significant export value. Lastly, as mentioned, the August live cattle contract represents a considerable premium; cattle feeders need to keep marketing in the face of current losses to keep feedyards current and take advantage of that premium in coming months.

The ethanol industry has been under the gun in recent weeks. There's ever-increasing attention upon the influence of renewable fuel on food costs and shortages attributable to ethanol's dramatic growth in recent years. What's more, ethanol output is projected to grow by nearly 2.5 billion gallons during 2008 (a 25% increase) and will cross the 10 billion gallon threshold at some point during the year. All told, annual production capacity is forecast to exceed 12 billion gallons by 2010 -a seven-fold increase versus just ten years earlier. Clearly, that's been a favorable trend for corn growers. Renewable fuel mandates require long-term commitment to corn utilization in the United States, thereby altering demand fundamentals. 2008's production increase mandates the need for an additional 800-million-to-one-billion bushels. And therein lays the rub.

That scenario made anticipation of USDA's May 9 supply/demand report more widespread than ever. Balance sheet estimates are critical for the market; the report helped remove some (heavy emphasis on "some") uncertainty for analysts going into the summer. Year-over-year carryover is pegged to dwindle to 763 million bushels and stocks/carryover ratio shrinking to 5.9%. Several key observations from the agency's report that are tough to reconcile: 1) total feed usage (5.3 bil bu) was forecast to decline 850 million bushels versus the previous marketing year, and 2) yield estimates were pegged at 153.9 bu/acre. The feed usage number represents a 14% decline versus last year and is smaller than the final assessment for '06/'07; in other words, production and/or replacement will have to decline 14% in the coming year - a dubious proposition. Meanwhile, despite ongoing concerns about this year's planting season corn yield projections beat last year's number by 2.8 bu/acre. Yield estimates will likely experience adjustment as summer progresses. As such, the report portrays a confident scenario by USDA.

Still, this year's production will fall short of total usage. That spells anxiety for the market. The unknown's still hover over the market including: 1) next year's supply - a function of this summer's production (weather will be key); 2) the level of inventory users choose to carry; and 3) export opportunities. Convergence of those factors makes 08/09 wide open. But what price will be necessary to facilitate a sufficient inventory buffer? That's a difficult question to answer especially considering increasing long-term and large-scale commitment to usage. Clearly, it's not possible to grow 14-15 million bushels year-after-year; simultaneously, the market won't allow zero carryover. But if neither of those factors are really in play, then who might reduce their corn utilization?

That question remains to be answered but thus far it doesn't appear to be the feedlot sector. Conventional wisdom says that several key outcomes would occur as corn prices rise: feeder steer prices would be bid lower, feedyards would slow down throughput, and/or, days on feed would decline.

The first item is fairly obvious and feedyard operators have responded in a systematic manner as illustrated in the example below from an April comparison between 2007 and 2008.

The point being that feedyard operators haven't really shifted purchasing strategies. They've pressed on and simply adjusted accordingly. That's nothing new. Replacement cattle are being priced to keep inventory moving; there's been no hiccups in the system. And that inherently leads into the next two factors outlined above: throughput and days on feed.

There continues to be discussion among many analysts about how the beef sector will respond to rising corn prices. Most notably, feedyards will either: 1) begin to slow down the production chain (fewer placements) and/or, 2) change placement tactics (shift to heavier placement weights). Three illustrations below provide some insight into those assumptions.

The first graph highlights 6-month cumulative placements since 2003; the patterns follow a distinct seasonal trend typically peaking during the fall run. Note that 2007's peak was somewhat delayed but actually exceeds year-ago levels. The second illustration depicts placement composition on a monthly basis - there's been no uptrend in placements of yearling cattle (those weighing greater than 700 lb). Lastly, the 3^rd graph represents steer carcass weights; 2008 is off to a whopping start! In fact, through April steer carcasses have averaged 830 lb - 10 lb, 8 lb and 26 lb (WOW!) ahead of 2007, 2006 and 2005, respectively. Weights have come down in recent weeks but it's the overall trend that's really important.

So much for conventional wisdom...

Clearly, the beef sector's tactics are shifting; many feedyards are increasingly utilizing distiller's grains when possible. Additionally, the industry is becoming more efficient in all facets of production. Bottom-line, though, while some things change, others remain the same: the feeding sector isn't altering its overall strategy in the face of higher grain prices - throughput remains the primary financial driver for feedyard managers.

Coming full circle back to the original question of where corn utilization might be reduced: the fundamental principle of throughput and economies of scale is replicated across all large, committed users of corn (including ethanol producers). As such, there's no short-term relief in terms of corn usage and/or pressure from the demand side. That business environment is bidding up an already high-stakes game to determine who gets access to corn. We're in uncharted territory - hang on tight!

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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