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Thursday, December 20,2007

LEGALLY SPEAKING

by WLJ
July 18, 200 An area of concern in IRS audits of farming, livestock and horse activities is the amount of time expended by the taxpayer in the activity. A recurring problem is that taxpayers do not keep contemporaneous time records, but instead “reconstruct” time records in the face of an audit. This can always be a hurdle because it suggests that you did not really conduct the activity in a businesslike manner, but instead simply prepared self-serving records after the fact, and only because the IRS has indicated its intention to conduct an audit. Another problem is that proper records of time should break down the time on a daily, or at least weekly basis, to be credible. The IRS and the Tax Court take the position that if your primary objective is to achieve profitability of your operation, you will demonstrate significant interest in monitoring and documenting the time expended. In judging whether the taxpayer spends sufficient time on the activity, it is relevant to examine the relative importance of the activity compared with the taxpayer’s other activities. The fact that the taxpayer devotes a limited amount of time to the activity can be used as evidence that there is a lack of profit motive. In some cases, the fact that the taxpayer devoted an insufficient amount of time to the farm was a significant element in ruling that the activity was not conducted for profit. For example, in Hambleton v. Commissioner, TC Memo 1982-234, the taxpayer was transferred to Washington, D.C. from New Jersey, where the farm was located, and he was able to work on the farm only weekends, holidays and vacations, which the court found to be insufficient time. In that case, the taxpayer’s activities on the farm during weekends, holidays and vacations, consisted of mending fences, cutting hay and operating cattle breeding. The taxpayer sought advice from local farmers, had soil classification tests performed on the property, and attended cattle meetings in an effort to obtain advice and information concerning cattle breeding. The farm was also used for recreational purposes: the taxpayer had a swimming pool, and maintained five Shetland ponies on the property, which were ridden by the taxpayer’s wife and children. After the taxpayer was transferred to Washington, he employed a farm manager to care for the farm during his absence. The duties of the farm manager consisted of feeding the animals (including the ponies), cleaning their stalls, mowing and harvesting the hay, spreading manure, cutting firewood, keeping trespassers out of the property, repairing fences, cleaning the swimming pool, sweeping the patio area of the house, and general caretaking. The farm produced very little income, primarily from the sale of hay and pasture rental, and generated 8 years of significant losses. There was one profit year. The taxpayer had significant income from other sources, and the court said that the farm losses served to offset substantial amounts of his other income. The court said that the enjoyment of the farm and its recreational aspects were contributing factors in the taxpayer’s decision to visit the property almost every weekend. His enjoyment of the farm environment itself is not inconsistent with a profit motive but, the court said that when viewed together with the economic output on the farm along with the effort expended to commute every weekend, “it appears that the enjoyment of being at the property and attending to it was more important to petitioners than the potential of supplementing their other income by realizing a profit from the farm operation.” The court made much of the fact that the taxpayer was only able to devote time on the weekends and holidays after his job transfer to Washington, D.C. Yet the court acknowledged that the taxpayer “worked diligently at clearing the fields, harvesting hay, and mending fences and buildings.” Moreover, he hired a caretaker to attend to the property during his absence. The court said that “the employment of a experienced farmer would be a factor pointing to a operation engaged in for profit.” However, the caretakers hired by the taxpayer also had outside full-time jobs and had no particular expertise in farming. Thus, the court held that the taxpayer failed show that the time he devoted was consistent with a profit activity. In another case, Pickren v. Commissioner, TC Memo 1981-52, the taxpayer spent only two or three weeks a year working on his new farm, and the court found no bona fide profit objective. In that case, the taxpayer purchased a 240-acre farm which he intended to work on during the summer months. For the first three years in question, he worked on the farm during the summers for a period of only 2-3 weeks. The farm was in poor shape and contained no habitable dwelling. He did such things as repairing fences and clearing land of underbrush. The farm contained mostly timberland. However, the taxpayer did not harvest any timber, nor did he raise or sell any crops, or did he buy any livestock to raise. During his absence, the farm was unattended. No income was earned from the farm. Rather, he claimed various business expenses for repairs, supplies, taxes, land clearing, depreciation, labor, and other items. The court said that the manner in which the taxpayer operated the farm was not indicative of a bona fide intent to make a profit. The main reason for this conclusion was that the taxpayer spent very little time or money in trying to change the condition of the farm. The taxpayer did not indicate that he had any intention or prospects of spending more time on the farm in the future, and he must have known that the amount of time he could devote during the summer would be insufficient to make the farm profitable. Moreover, the taxpayer spent only limited amounts on things that would positively affect the farm’’s conditions--such as repairs, seed, and land clearing. — John Alan Cohan (John Alan Cohan is a lawyer who has served the farming and livestock industry since l98l. He serves clients in all 50 states, and can be reached at: (3l0) 278-0203 or by e-mail at JohnAlanCohan@aol.com.)

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Thursday, December 20,2007

Hay mold a growing concern

by WLJ
— Negative impacts on calves cited. — Additional waste weighs financially. Forage and ruminant nutritionists are urging producers to be careful when it comes to buying their fall and winter hay and other harvested forages due to concerns that mold is more prevalent this year than the past several years. First and second cutting hay from the central and northern Plains, Intermountain West and Northwest are of the most concern because of the abnormally-heavy rains that inundated those areas during spring and very early summer. “A lot of early hay was already down when it got rained on,” said Kurt Leffler, hay specialist with LMO Agriculture, Inc., Decatur, MO. “Even with allowing it to dry several days, chances are the air was still damp enough to threaten hay quality and safety at baling time.” He also said the wetter-than-normal spring helped pre-harvest mold levels which usually accumulate on the under side of leaves where the sun can’t do its job of killing or minimizing mold colonies. Leffler said it appears that in several areas of Missouri, Kansas and Colorado, mold may have impacted 8-10 percent of the first and second cutting hay harvests, with some producers reporting 20-25 percent spoilage. Usually, Leffler said, mold rates are well under five percent, at two to three percent. “In one case, it was so bad a whole 4,000-bale stack went up in flames because the hay was wet, got overly hot, and spontaneously combusted. The odor was very bad, indicating the hay was also very moldy,” Leffler explained. Hay mold isn’t considered very toxic to mature open cows or bulls, particularly in very small levels. However, it is a concern when mold is fed to bred cows with calves on them or to the calves themselves. “The biggest problem with moldy hay is that calves can turn sickly from eating it directly or by drinking the milk from their mothers that have eaten the hay,” said Rick Turnbull, ruminant specialist with Wichita-based, HiPlains Livestock LLC. “Scours, lost appetite, reduced weight gains and lethargy are the most common impacts to young cattle.” Turnbull added that while palatability might not seem to be an issue with a lot of hay that shows just slight incidence to mold, the issue of hay waste becomes a financial burden in the case of heavy mold presence. “I’ve seen where heavy mold in hay can result in 30-50 percent of hay being wasted—that means not being eaten and being trampled on or used as bedding,” he said. “While prices are a lot cheaper than they have been the past few years, that waste still adds up and that’s a lot of extra money that needs to be shelled this winter for feed resources.” Moldy hay is most easily caught by smelling bales or loaves of hay. A rancid or mildewy smell is a good indicator that hay is at least somewhat moldy and should be avoided, or in the case of feeding older, unbred animals, bought at a reduced price, Turnbull said. If bales are also hot to the touch they should be avoided, because moisture has been trapped within the hay and is not only moldy but is rotting all the way through. — Steven D. Vetter, WLJ Editor © Crow Publications - Any reprint of WLJ stories, except for personal use,  without permission, written consent and appropriate attribution is prohibited. ©1996-2005 Crow Publications. All rights reserved.

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Thursday, December 20,2007

Plains ranch lands at historical highs

by WLJ
The eastern Plains region of the U.S. is very rich in both farms and ranches, and brokers and realtors both say the current market for those entities is nearing or has exceeded historical highs. In addition, sources said the large majority of these properties that have been sold are being kept as agricultural operations, either in part or in their entirety. “The land market throughout the western Cornbelt and eastern Plains is very strong with most areas seeing land values at historical highs or setting new highs,” said Monty Meusch, head real estate broker with Farmers National, Omaha, NE. “Demand is being pushed by area farmers and ranchers wanting to expand their current operations, investors seeking to place cash in real estate for diversity, safety and income and IRS 1031 tax deferred exchange buyers who have sold land for development and now must re-invest the sale proceeds or pay capital gains tax.” According to Meusch, 60-70 percent of agricultural real estate for sale is currently being bought by active farm and ranch families. “We still have a good interest from active producers who are insuring their future by expanding,” he said. As far as “nonresident” buyers are concerned, Meusch said, “a majority of them already own land and are very comfortable in growing their holdings for a number of reasons.” Most realtors in the region indicated that anywhere between 25-40 percent of buyers have been 1031 purchasers, who need to purchase land in order to avoid paying capital gains taxes. Price ranges for ranch land in the region vary widely, even within states. In Kansas, Flint Hills grassland has been primarily selling within a range of $650-1,100 per acre, while pasture land in the western part of the state sells between $200-450 per acre. According to Meusch, the upper end of the range is hit when land has more water resources and adequate-or-better fencing. As a whole, Nebraska’s land values aren’t as high as the upper end of Kansas ranch land, but are very comparable to western Kansas prices. In the Sand Hills of Nebraska, ranch land has been selling between $250-525 per acre. In north-central Nebraska, values have reached historical highs between $500-750 per acre. John Childears, broker at Agri Affiliates, North Platte, NE, still indicated that prices are the highest he has ever seen in his 30 years of brokering farm and ranch land. “We are looking at ranchers spending $3,500-4,000 per cow unit right now, and that is just for the land itself,” he said. According to Meusch and Childears, demand for grassland in north-central Nebraska far exceeds availability, and that most available tracts are only “small acreages.” Childears added that the 1031 demand for ranches in the Sand Hills is around 40 percent and that a lot of that money is coming from previous owner/operators of ranches from other areas of the country. “We’re seeing a lot of Colorado mountain and Wyoming ranchers who sold their property over the past few years and are coming out here with that money and reinvesting it in other ranch properties,” Childears said. “We are also seeing a similar trend from farmers or ranchers from the Corn Belt that sold smaller properties for a lot of money and are coming out here and buying much more land than they had before.” In terms of outside investors, Childears said there have been some buyers that have come in and bought ranches and converted them into recreational properties, but the percentage is still very small. “What we have seen is that some of these investors start out with the hunting and fishing aspect of the ranch, and then start to lease out the ranch to ranchers on the off-season,” Childears said. “It’s the opposite of ranchers who raise their livestock, primarily, and then lease out their property for hunting, fishing or other recreational activities as a secondary business.” Childears said that situation is generally seen on ranches located on or near the Platte or Niobrara rivers that run along the Sand Hills. In the Dakotas, sources reiterated that the market for ranches and pasture land are very close to historical highs and that demand is exceeding availability. South Dakota has the stronger land values than its neighbor to the north, but most ranch brokers have said that range and pasture land in both states is bringing over $200 per acre. The average price for pasture in South Dakota is around $250, while North Dakota averages around $205. According to ag realtors licensed in either state, most buyers of pasture, range or a “balanced ranch” are existing livestock operators who are expanding their operations from neighboring states to the immediate south or east. Several sources indicated that 1031 money is also very prevalent in the real estate market in the Dakotas, and that most of it is going to purchase vast expanses of land in the central Plains, or mountain areas of the country. “I would say if it wasn’t for a lot of the 1031 buyers and those that are into recreational activities, this ranch market wouldn’t be one-third of what it is now,” said Bryce Nelson, Bryce Nelson Real Estate, Rapid City, SD. Nelson added that he sees animal unit values even higher than what they are in Nebraska and parts of Kansas. “We have a lot of 30 to 40 acre-per-cow areas in the Dakotas, and the cheapest we have sold ranch land has been $250 per acre,” he said. “I have sold a couple of properties this year where the value is well over $10,000 per animal unit.” In the eastern half of Colorado, pasture and rangeland values are still trying to recover after being hit by drought during the late 1990s and first few years of the 21st Century. However, those values are also said to be getting close to averaging $200 per acre now, compared to $140-175 per acre in 2002. “Drought eliminated a lot of pasture, and cows and stocker cattle were hard to come by the past five or six years,” said Daylynn Lindstadt, ranch realtor near Rocky Ford, CO. “A lot of that land became available down here over that time, but demand was very sporadic due to no livestock being able to graze it. Now we have revived interest from cow/calf or stocker operators and the (land) market is seeing phenomenal improvement.” The eastern Colorado market is expected to improve even more and could see a peak sometime next year, particularly if cattle herd expansion continues, he said. — Steven D. Vetter, WLJ Editor © Crow Publications - Any reprint of WLJ stories, except for personal use,  without permission, written consent and appropriate attribution is prohibited. ©1996-2005 Crow Publications. All rights reserved.

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Thursday, December 20,2007

TB confirmed in Minnesota herd

by WLJ
For the first time in 34 years, bovine tuberculosis has been confirmed in a Minnesota cattle herd, and will result in approximately 900 cattle being euthanized in the northern region of the state. Last week the Minnesota Board of Animal Health said a five-year-old cow that was slaughtered Feb. 28 was found to have “suspicious internal lesions,” by a federal meat processing inspector. Laboratory tests confirmed the cow had TB. The animal was traced back to a herd in Roseau County, which is on the border with Canada. USDA bought a portion of the herd for further testing. Of the animals slaughtered, 18 cases of the disease were confirmed. Last Tuesday, USDA declared the herd infected and the started the process for destroying it. USDA will pay the owner a salvage value for all the animals. The name of the producer was not release. “Our surveillance system worked. The disease was detected," said Dr. Bill Hartmann, a veterinarian and executive director for Minnesota’s livestock board. "Now we'll focus on tracing any animals that left the herd in the last seven years as well as determining a possible source of infection.” The state will only lose its TB-free designation only if another infected animal is found within the next year, and if that animal was not related to the current investigation. The board said it was very unlikely that TB would get into the supply of milk or beef because inspectors watch for it. Also, cooking kills the bacteria. Because the disease is capable of jumping from cattle to deer, the Minnesota Department of Natural Resources announced it will test for the bacteria in deer killed in Roseau County during the fall hunting season. — WLJ © Crow Publications - Any reprint of WLJ stories, except for personal use,  without permission, written consent and appropriate attribution is prohibited. ©1996-2005 Crow Publications. All rights reserved.

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Thursday, December 20,2007

Market provides hedging opportunity

by WLJ
July 23, 2007 Fed cattle trade was expected to move lower in most regions last week, although with the exception of a few scattered trades in the north at prices $2 lower than the previous week. Most trade was expected to wait until the release of last Friday’s cattle on feed and cattle inventory reports. Prices in the south, in particular, which were still $4-5 apart last Thursday, appeared to indicate late trade was likely. By mid-day last Thursday, there had been a few sales reported in Nebraska at $140, however, most feedlot showlists were still priced at $142-145 live basis, steady with prior week prices. The action on the Chicago Mercantile Exchange (CME) last week was lower in the live cattle pit Thursday in anticipation of lower cash trade. That said, the futures market was still trading at a premium, in some cases a significant one, to the cash market. Deferred months last week offered an excellent hedging opportunity for cattle feeders with cattle for the October through December fed market. “Current futures prices are even more optimistic than market fundamentals, scaling into hedging programs or contracting for slaughter steers and heifers to be sold in October through December looks like sound business management,” said Jim Robb, director of Livestock Marketing Information Center. Last Thursday, the market gave up some of the premium, however, prices for deferred months were still positive. August dropped 55 cents to $90.82. October contracts shed 82 points and December fell 62 points to close at $96.45 and $98.40 respectively. However, weakness was expected to be short lived ahead of USDA’s release of the two cattle inventory reports, which were expected to be supportive of the markets. In particular, the inventory report was expected to show that herd-building, typical for this point in the cattle cycle, has not occurred. This year’s calf crop was trimmed by sub-freezing temperatures during calving season. In addition, heifer retention has been hurt by drought in the southeast and calf prices which are making it attractive for producers to sell females into feedlots. The result will likely be a mid-year inventory report which shows near zero herd growth. Such a number will support both the live cattle and feeder calf markets which are already anticipating tight supplies ahead. On the other hand, beef movement out of packing plant cold storage has been mediocre for weeks and last week was no exception. Export products are providing support for the cutout values, while domestic demand lags. Last Thursday during early trade, the Choice boxed beef price dropped $1.16, to $142.36, while Select gained 19 cents to trade at $136.74. Movement was reportedly moderate with 115 loads of Choice cuts, 68 loads of Select cuts, 30 loads of trim and 39 loads of ground product heading for retail markets. Slaughter for the week through last Thursday remained robust with 504,000 head harvested, up from 497,000 head the previous week and 495,000 during the same period last year, showing that feedlots are doing a good job of remaining current and perhaps even pulling cattle forward. Meanwhile, the cow markets also remain strong. Last Thursday, cow beef cutout value shed 74 cents to trade at $114.76, while the 90 percent lean sold at $140.42 and the 50 percent trim remained near steady at $53.79. Continued strength in the cow beef market has supported the cull prices being paid in auction markets at the mid-$50 range for much of the year and prices are expected to remain strong into fall culling as consumer demand remains high for relatively inexpensive cow beef-derived products like ground beef. Feeder cattle Heavy feeder and yearling prices were the story of the week last week following strong video market sales on both Western Video and Superior. Prices for 900 lb. class cattle in the neighborhood of $1.10 were common at both sales. Light calves for nearby delivery, however, were discounted by buyers who aren’t ready to place them in feedlots. Relatively inexpensive grass is available in many parts of the country and buyers and sellers, alike, are taking advantage of the resource. Fall deliveries of calves also sold well with weaned calves in the 500-600 lb. range selling well, particularly at the Superior sale held in Steamboat Springs, CO. The prices paid for calves bodes well for producers who have consigned cattle to one of several upcoming video sales. Futures prices also indicate a solid market for feeder cattle through the end of the year. Last Thursday’s session on CME ended in mixed territory, with August and September contracts adding five points each to close at $115.45 and $116.47 respectively. October feeders were unchanged at $116.72 and November added 22 points, also ending at $116.47. Virginia Tech commodity marketing agent Mike Roberts encouraged feeder cattle buyers to lock in some price protection by hedging feeder purchases soon. Falling corn prices, which were spurred by improved moisture last week, continue to be subject to weather issues and will be for the next several weeks. The downward trend has allowed feeders to lock in supplies at what look to be good prices. With the wild fluctuations created by the weather market, it may also be wise to lock in near-term grain supplies at this time, according to Roberts. In auction market trade last week, the few reported sales with enough volume to call a trend were mostly higher as a result of the market fundamentals, including available grass and growing availability to stored forage. In El Reno, OK, last week, feeder steers were called steady to $1 higher, while heifer mates sold steady. Steer and heifer calves were steady to $2 higher in a light test on moderate to good demand. In West Plains, MO, last week, steers and heifers sold steady to $2 higher, with yearlings mostly $2 higher. Supply was called moderate and quality was reportedly down from previous weeks’ sales. Demand was also good as a result of good grass conditions, considering the time of year. However, demand was best for yearlings and weaned calves with at least one round of respiratory vaccinations, a trend which will become increasingly important as weaning time approaches. Farther north in Hub City, SD, compared to the prior week’s sale, feeder steers and heifers sold $2-4 higher on good demand in all classes. Offerings were made up mostly of load lots of feeders in larger consignments. On the West Coast, in Davenport, WA, no trend was available as a result of the light run for the week, however, trade was active with good demand for offered lots. Meanwhile, at Western Stockman’s Market in Famoso, CA, demand was called excellent for a good run of stocker cattle, with the best demand on the greener quality kind in the 500-600 lb. range. Feeder demand was called good, with a big string of Mexican steers sold to out-of-state buyers at excellent prices.

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Thursday, December 20,2007

Beef Talk

by WLJ
July 25, 2005  At times we become so focused on issues that we simply miss activities (and sometimes new rules) being advanced in the beef industry. The National Animal Identification System (NAIS) has captured much of our attention. Prior to the NAIS, country-of-origin labeling (COOL), North American Free Trade Agreement (NAFTA) and a multitude of other marketing or health-related issues provided spirited coffee shop talk. Most of these issues impact the producer and may lead to the modification of the producer’s associated business and management practices. A new issue sleeping in the shadows for many cow/calf producers is waste management. Often perceived as simply a feedlot problem, many cow/calf producers have skimmed the information, setting the material aside for a rainy day. The information eventually gets lost in the stack. After reviewing much of the information, the Dickinson Research Extension Center (DREC) is applying for a permit from the North Dakota Department of Health for animal feeding. The DREC does affect the environment. We have animals confined for periods more than 45 days during the year and some of these cow/calf lots do not sustain normal forage or crop growth throughout the year. Bridget Johnson and Ron Wiederholt, area livestock nutrient management specialists for the North Dakota State University Extension Service, developed an assessment tool to help producers get a handle on what impact their livestock operation might have on their local environment. More than likely, most livestock producers, particularly cow/calf producers, are animal-feeding operations as previously defined. Let that be repeated: Most cow/calf producers are animal-feeding operations as defined by the regulations in their respective states. In large operations, those with more than 1,000 beef cattle, for example, size alone makes the operation a large, concentrated animal-feeding operation (CAFO). However, most producers will fit into either a medium or small animal-feeding operation (AFO) and may or may not need to modify the operation. It is important for producers to become knowledgeable about animal-feeding operations and ask for an assessment of their operation. Along with university systems, most livestock or producer organizations, such as the North Dakota Stockmen’s Association, have information and people to help determine to what extent a beef operation impacts the environment. Medium or small animal-feeding operations, even those with one cow, may need a permit if the operation has a potential impact on the waters of the state. Like NAIS and COOL, the train is on the tracks and more than likely, as cow/calf producers, we are not the engineer. The regulations are still a year or two away, but there is no need to be caught short. For the center, like many operations, the early settlers located cattle in protected draws and coulees making winter feeding somewhat more pleasant and calf survival was enhanced. However, for now, many of the winter safe havens are simply conduits within a larger system of water drainage that ultimately affect the major water sources within the state. As a result, the center is moving cattle around, changing winter-feeding operations, keeping cattle on crop aftermath for longer periods and pulling cattle into more constructed windbreak systems in more exposed landscapes. These management changes create new challenges, including workload, more extensive feeding needs and greater calf death loss. These challenges have all pointed to more questions, but at least for now, the term “animal feeding operation” is taking on a new meaning. Make sure you read the fine print. May you find all your NAIS-approved ear tags. — Kris Ringwall (Kris Ringwall is a North Dakota State University Extension beef specialist, director of the NDSU Dickinson Research Center and executive director of the North Dakota Beef Cattle Improvement Association. He can be contacted at 701/ 483-2045.)

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Thursday, December 20,2007

Black Ink

by WLJ
July 25, 2005  No doubt about it, the grill is hot. From the smallest hibachi to the titanic gas rotisserie models, Americans love to fire them up. Summertime sizzles, of course, but some folks even cook steaks under the stars in December. Flashlight and coat are optional, but flavor is a must. Any time of year, beef is king of the grill, with burgers and steaks dominating demand. Maybe it’s because of the nutrient density; the top source for protein, vitamin B12 and zinc, beef is also the third leading source of iron—and a whole lot easier to grill than cereal and grains. As producers, you know how good beef is for you. But you still like to hear people say good things about it, from the aroma to the taste, nutrition and satisfaction. Maybe you’re an expert in preparing home-grown cuts for guests, but the people who increased their demand for beef 25% over the last six years probably have less skill. Grilling is a casual task often reserved for men, the only time some of them cook unless you count reheating coffee in a microwave. A few are super patio chefs who know how to seal in the flavor with a hot fire and manage to achieve any desired degree of doneness with almost any quality beef. The rest fall short of ideal skills, but all want ideal results. We used to put more effort into “educating” consumers. It didn’t work so well, because those who cared enough or had time to learn already knew. The beef industry had to change to reach most consumers. That meant producing beef that is harder to mess up, even when the cook gets distracted by conversation or a ball game. A little education does work. Category-guided meat cases now sort offerings into those suitable for the backyard venue and those requiring more time-consuming methods. That keeps the least knowledgeable consumer from buying a package of round steaks to slap on the grill. But there is still a wide range of quality, especially among retailers who think their customers only care about price. In today’s economy, any beef represents more investment than less flavorful protein alternatives. But the beef industry is not well served by putting inconsistent, low quality grade cuts up against pork and poultry in a price war. The way to gain another 25% in consumer demand over the next six years is to deliver a great eating experience as often as possible, so people don’t waste their money and disappoint guests on that special occasion. The cattle markets know this. It is why value-based pricing offers a premium for beef with at least a small degree of marbling—the intramuscular flecks of fat in a beef cut that makes it taste good. To a large extent, the more marbling a steak has, the more goof proof it is on the grill, too. When only poorly marbled cuts are available, the average Joe tries to grill beef once in a while, but the kitchen boss will be afraid to rely on him and his average beef for the big moments. If you’ve had many backyard hamburgers of unknown quality cooked by nonprofessional chefs, you know steaks aren’t the only beef items that can use a little more moisture sealed in by higher marbling. When we can help turn Joe into somebody whose family and friends consider an ideal chef, we win more consumer demand for beef. That’s why the cattle you produce should finish and yield beef that delivers satisfaction as often as possible, even for the charcoal challenged. Get fired up to produce above-average beef that works for the average customer. That’s where the money is today, and where demand tomorrow will add more profit to your business. Next time in Black Ink, we’ll consider skeptics. Questions? Call toll-free at 877-241-0717 or e- mail steve@certifiedangusbeef.com. ("Black ink" is a cattle management column written by Steve Suther, industry information director for Certified Angus Beef. The column is not designed for strictly Angus producers, and does not necessarily represent the views or opinions of WLJ or its editorial staff.)

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Thursday, December 20,2007

Comments

by WLJ
July 25, 2005 It was a big surprise when U.S. District Court Judge Richard Cebull vacated the July 27 hearing regarding R-CALF’s lawsuit requesting a permanent injunction on live cattle trade from Canada. He said this decision was because the Ninth Circuit Court of Appeals had not yet filed their opinion outlining the reasons behind the reversal of his prior decision to grant a temporary injunction that kept the border closed. By the looks of things, it appears this entire episode may be over. It would seem that going any further on this R-CALF v. USDA case would just be an exercise in futility since this thing would more than likely go back to the appellate court if Cebull made the wrong decision—to close the border again. This may be a graceful way out for Cebull. My guess is this judge just got handcuffed. The three-judge panel at the Ninth Circuit determined that USDA did follow proper protocol in developing their import rule, and that nothing in their rule was “arbitrary” and/or “capricious” as R-CALF claimed, even though it took the agency two times to get the rule right. When it comes to herd health and human health, the debate seems a bit senseless for two reasons. One, we’ve been importing Canadian beef from cattle under 30 months of age for nearly two years, which neutralizes the human health issue. Then, the confirmation of the first domestic BSE case pretty much shoots the herd health issue out of the water—whether you like it or not, it did happen and, remember, BSE is not contagious. Now the question many are asking is, “What’s R-CALF going to do now?” Knowing that this next hearing was going to be an uphill battle, R-CALF may want to save their legal funds for another more winnable battle. Nearly everything that R-CALF does goes back to mandatory country-of-origin labeling (mCOOL). R-CALF, in their post-decision press release, said the decision by the Ninth Circuit makes mCOOL all that much more important so that consumers know where their beef comes from. They remain confident that USDA’s final rule was not justified, and that USDA did not provide sufficient justification for overturning a longstanding policy that protected both the U.S. cattle herd and U.S. consumers from the introduction of BSE. USDA’s final rule is based merely on a reinterpretation of existing science that has been around for years. USDA is motivated by political considerations of wanting to resume trade with Canada. I’ve been told that the Ninth Circuit Court of Appeals’ hearing on the issue was strictly business and the judges were swift and deliberate in their questioning. It wouldn’t seem that this court concerned themselves with political consideration, unlike Cebull. Meanwhile, packers are indeed shopping for cattle in Canada and it appears that trade is going to move at a fairly quick pace, even though the word is there aren’t many cattle to send. The second business day after the announcement, there were three loads of cattle that moved across the border—one load that crossed in New York, going to a Cargill plant, and two loads that crossed in Idaho, destined for Tyson’s Pasco, WA, plant. USDA sources have told us that the infrastructure is in place and the importers have to notify the proper border crossing that they are coming, which is part of the Bio-Terrorism Act. The shipment must include the health papers and the cattle are to be permanently marked with a “CAN” brand and transported in sealed trucks. Since Canadian beef has been crossing for some time, and the boxed beef cutout has already reflected that supply, it would appear that cattle markets may not experience that much pressure. Fed cattle were down $1, to $79, but the current fundamentals support that move. Feeder cattle have been more resilient that originally thought. The difference between Canadian fed cattle prices and U.S. prices has narrowed over the past several weeks, to about an $11 differential. Last January, the difference was about $25. Normally, there is about a $5-7 basis between the two markets, roughly the price of a truck ride. Trucking appears to be one of the issues that could regulate movement as there are few trucks available to haul cattle to the U.S. I have to suggest that the border is open for good to cattle under 30 months of age. The slaughter cow segment will go under a separate USDA rule at a later date. You can call it politics, big business or whatever you want, but the fact is that Canadian beef has been in the U.S. for some time, and now the cattle producing that same beef are on their way, and fed cattle are $80 without any help from Canada. — PETE CROW

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Thursday, December 20,2007

Canadian cattle reenter U.S.

by WLJ
injunction hearing vacated July 25, 2005 Canadian cattle started reentering the U.S. last Monday, four days after the Ninth Circuit Court of Appeals overturned an injunction restricting those animals from crossing the U.S. border. A possible interruption of that movement was averted last week after a federal district court judge temporarily vacated the hearing that was scheduled on a permanent injunction request against Canadian cattle and beef. Judge Richard Cebull, Billings, MT, last Wednesday delayed indefinitely a hearing on the suit that would bar USDA from allowing Canadian cattle and beef imports. In his written order, Cebull said he was awaiting the final opinion from the Ninth Circuit Court concerning the overturning of a previously approved temporary injunction against Canadian cattle. “It is hereby ordered that oral arguments set before this Court on July 27, 2005, is Vacated until further order of the Court. After receipt of the Court of Appeals’ Opinion, this court will determine whether further hearings are necessary,” Cebull’s announcement said. Cebull ordered the vacate order without a motion from either side of the R-CALF United Stockgrowers v. USDA, Animal and Plant Health Inspection Service and USDA Secretary Mike Johanns lawsuit. The appellate court said on July 14 that it would release its final order on the decision to overturn the preliminary injunction in “an expeditious manner,” and “in due process.” The final order was not yet announced as of press time last Thursday. Attendees at the July 14 hearing in Seattle, WA, told WLJ that the three-judge panel appeared concerned that Cebull didn’t give USDA “just deference,” and that the injunction was possibly granted because of a difference in philosophy between the judge and USDA’s final import rule. The appellate court overturned a preliminary injunction that Cebull granted R-CALF. The cattle producer group sought to bar Canadian cattle from entering the U.S., saying they were a potential threat to the U.S. cattle herd because Canada had three cases of bovine spongiform encephalopathy show up in native-born cattle. In addition, a fourth cow of Canadian origin was confirmed with the disease in Washington state in December of 2003. USDA was ready to reopen the border to Canadian fed and feeder cattle March 7, however, Cebull granted the injunction March 2. Both sides of the lawsuit said they were awaiting the Ninth Circuit order and that they would not respond to the court’s decision until the final reasons for the decision were known. Cattle crossing USDA officials said three loads of Canadian fed cattle crossed the border—one at Niagara Falls, NY, and two others through the Port of Entry at Eastport, ID—Monday, July 18, which was the first day live cattle imports from north of the border were allowed. As of press time last Thursday, those were the only reports of cattle crossing from Canada. “Right now the number is 115 animals have entered the United States,” said Ed Curlett, spokesman for USDA’s Animal and Plant Health Inspection Service (APHIS), last Wednesday. “All came Monday (July 18). Thirty-five through Niagara Falls and 80 through Eastport.” The first load that crossed through Niagara Falls was bought by Cargill, for processing at its Wyalusing, PA, plant. The other two loads that day were bought by Tyson for its Pasco, WA, facility. Overall volume of cattle coming in was considered small, compared to how many could start entering the U.S. later this year, particularly during the fourth quarter. The influx of cattle was very slow due to extra rules in place for them. Officials with USDA’s Animal and Plant Health Inspection Service (APHIS) reiterated that Canadian feeder and fed cattle need to be identified by both an official Canadian eartag and a “CAN” brand on the right hip. In addition, Canadian feedlots need to be certified by the Canadian Food Inspection Agency (CFIA) for shipping only cattle that are 30 months of age or younger that are accompanied by the appropriate paperwork. That paperwork has to include the destination name, address, contact person, and all information regarding the cattle being transported, including lot size, tag numbers, age verification and where cattle are being shipped from. A statement saying the cattle have been kept in Canada the 60 days prior to date of shipment to the U.S. must also be signed. In the case of Canadian feeder cattle, they must be shipped directly to a USDA-certified feedlot who agrees that those cattle will remain at that feedlot until being shipped off for slaughter at the age of 30 months or under. The feedlot must also agree to ship all Canadian cattle for slaughter separate from U.S. cattle. “Canadian bovines must be moved as a group of Canadian bovines to the slaughter establishment,” the final APHIS rule says. “U.S. and Canadian bovines cannot be shipped in the same vehicle to slaughter.” The small volume of cattle entering from Canada last week was said to be the result of CFIA and USDA still certifying feedlots and packing plants for acceptance of Canadian cattle. In addition, CFIA sources said that a lot of the fed cattle for immediate slaughter were not yet “CAN” branded. Feedlots were wanting to wait a few days after that process to ship their cattle due to excessive stress and weight loss. Extra stress can be responsible for an increase of “dark cutters,” which are docked significantly by processors. — Steven D. Vetter, WLJ Editor © Crow Publications - Any reprint of WLJ stories, except for personal use,  without permission, written consent and appropriate attribution is prohibited. ©1996-2005 Crow Publications. All rights reserved.  

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Thursday, December 20,2007

Market Advisor

by WLJ
July 25, 2005 The Chicago Mercantile Exchange (CME) has modified the way it computes its feeder cattle index. The change will affect the August 2005 feeder cattle futures contracts and all subsequent contracts. Two specific changes were made to the index calculations. First, USDA medium- and large- frame Number 1 and 2 steers have been added to the previous category of medium-and large-frame No.1 steers. Second, the weight range for feeder steers has been expanded to 650 to 849 pounds, from 700 to 849 pounds. The changes were made to increase the total number of price observations available to compute the index. The addition of the 1 and 2 steer category likely will have a downward impact on the index because No. 2 steers usually sell lower than the No. 1 category. However, the addition of 650- to 699-pound steers will tend to have an upward effect on the index because those steers typically sell for more than their heavier weight counterparts. The CME feeder cattle index is important. Instead of actual delivery to settle an open contract, all open contracts after the termination of trading on the last Thursday of the contract month are settled using the index price for that day. The index is a proxy for the cash market. The index and the closing futures price at contract maturity can be expected to be equal or within a few cents per hundredweight (cwt.) of each other. The feeder cattle index is based on all feeder cattle auctions, direct trades, video sales and Internet sale transactions within the 12-state region of Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and Wyoming for which prices are reported by federal and state market reporters. The seven-day index is calculated Monday through Friday. The change actually was implemented during the first week in June. The new categories were added on June l and by June 7, the index included all observations from the new categories. An important question for producers who may be contemplating using CME futures or options, or the new Livestock Risk Protection insurance, is how the changes will affect the basis for feeder cattle to be sold in the future. Basis is the difference between a local cash market price and the index. I did a quick comparison of the daily observations for the old index with what the new index would have been for 2001 through 2004. The new index averaged 24 cents per cwt higher for that four-year period. The relatively small difference could be expected because of the downward and upward price impacts that were added to the index. Feeder cattle futures contracts are available for January, March, April, May, August, September, October and November, so those average monthly differences also were calculated. The new index averaged 68 cents per cwt higher for January, 73 cents for March, 67 cents for April and 15 cents for May. However, the new index averaged 11 cents per cwt lower than the old index in August, 3 cents in September, 29 cents in October and 6 cents in November. In December, the new index moved back above the old by 15 cents per cwt. Feeder cattle hedgers may see the basis decline about 70 cents per cwt. in January, March and April, with negligible changes likely in other contract months. The quality and geographic location of an individual producer’s feeder cattle still will be more important in estimating the expected basis level than the small differences between the two indexes. For example, the average basis for 700- to 849-pound, medium- and large-frame No. 1 feeder cattle sold at the six markets reported in North Dakota historically has been very close to par (cash = index) at contract maturity. However, the range in cash prices has averaged about $8 per cwt., with higher priced cattle selling $4 per cwt above (plus $4 basis) the index and lower priced cattle bringing $4 per cwt below (minus $4 basis). The challenge for producers is to know how their feeder cattle sell compared with others when they are marketed. Granted, that can be difficult due to the many factors that affect the market prices of feeder cattle. — Tim Petry, Livestock Marketing Economist, North Dakota State University Extension Service

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© Crow Publications - Any reprint of WLJ stories, except for personal use, without permission, written consent and appropriate attribution is prohibited. 2008 Crow Publications. All rights reserved.