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Thursday, December 20,2007

BLACK INK

by WLJ
August 29, 2005 We live in an era of new ideas and technology that can produce better beef profitably. It’s exciting to try out the cutting edge, but unless you are isolated and independently wealthy, you’ll feel pressure to justify your actions. When you “know” you are right, that pressure is a pain in the neck. Maybe you just need an adjustment. There is risk in making changes to an enterprise based on any new insight, tool or practice. The more you depend on that enterprise for a living, the more risk. The less known about the new application, the more risk. On the other hand, when new ideas debunk myths that stand in the way of profit, financial rewards can be great. In many farm and ranch businesses, there is a generational divide. Those who devoted their life to the business may feel a conservative skepticism toward ideas put forth by younger, inexperienced partners. They may also depend on the farm’s continued financial strength for their retirement security. A senior partner may be less conservative, but still skeptical. Conflicts arise from different ways of trying to achieve the same goals. If decades of experience and intuition without data served your father well, he may question the value of hours you spend on a computer or methodically sorting cows based on data. Your banker can raise a lot of questions, too. But if he is a scientific skeptic, you can convince him with proof. He’s not against progress, if that’s what it is. He just takes a Missouri, “show- me” approach. Any reach toward progress, must recognize its foundation. Maybe the previous manager set up a performance-oriented program and established benchmarks that are hard to beat. Yet, if those records are mainly production-based, there’s work to be done on the bottom line. Maximums often give way to optimum under the light of financial analysis. Differing views come from every age group and orientation along the optimistic-pessimistic line, men or women. A spouse or a junior partner may be holding up your idea of what might be progress, waiting for more information. As long as the skeptics recognize proof when they see it—and you know when to admit they are right—they do the business a great service. They make you think. Say you want to crossbreed the cows to bulls your friend is selling. You will get hybrid vigor so the calves will weigh more; you can point to studies that prove it. If you have to defend the idea, you will develop a structured crossbreeding program, how you will market the calves, where you will get replacement heifers and criteria for bull selection. And why they will return more profit through the years. No matter how much data you bring to bear on it, you must recognize the counter arguments as well. Skeptics aren’t just obstacles to knock down; they are often right. Your partner who spent 40 years developing a purebred herd may have built in some value in predictable quality that your plan will set back. Sometimes the answer lies in a compromise. Try terminal crossbreeding on some cows, and a greater marketing effort to capture more of the potential premiums from existing genetics. Try out-crossing within that breed to achieve some of your goals. Skeptics guard tradition on one hand, and seek science-based advancement on the other. You will find a lot of them at the local auction market; they base a lot on visual experience, but take nothing else at face value. They have heard the auctioneer’s claim that calves entering the sale ring have “had all their shots.” What would it take to convince them the calves are truly worth more? An ear-tag from a recognized health program might do it, or just knowing the owner stakes his reputation on those calves. Seeing is believing, and in the profit-driven world, that means seeing green. Whether you are the resident skeptic or blessed with the need to justify your actions to another, information is the key to that vault. — Steve Suther (“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
August 29, 2005 Just when you think all the ballyhoo about the Canadian border is over, someone has to go and push the “fools button”. The calamity of errors over the Canadian import rule and BSE testing continue; this time it was the Canadian Food Safety Agency that messed up. You would think that with the sensitivity toward BSE and trade with Canada that the agencies would go out of their way to insure accuracy of import and testing standards. Last week, it was discovered that a heiferette over 30 months old went through a processing plant in Wisconsin. Then, to top it off, the load of 35 Canadian fed cattle produced eight pregnant heifers. Apparently, the Canadian CFIA vet had an arthritic arm and palpated the heiferettes with his other arm and consequently missed the pregnant heifers. This vet, and the exporter, were both de-certified as a result of the episode. Verifying age on these cattle through dentition isn’t 100 percent accurate and the idea that we’re going to get them all would be a bit unrealistic. A month or two difference in the age shouldn’t be that big a deal and I would suggest that 99.9 percent would be more realistic. However, putting eight pregnant heifers on a truck destined for a U.S. packing plant is a pretty big mistake and it is unthinkable that a qualified vet could miss these pregnant heiferettes. As I said, 99.9 percent accuracy on age would be good enough for me, but for groups like Public Citizen and R-Calf USA who want to keep the border closed, they would certainly require 100% compliance. Their cause to keep Canadian live cattle out of the country just received a shot in the arm and justification for mandatory country of origin labeling was also bolstered. Now, perhaps add a spaying requirement is next. Unfortunately, the beef from this cow over 30 months old made it into the food supply. The product has been recalled, and although it probably has been consumed, it is unlikely there is any human health risk. The eight pregnant heiferettes were processed and sent down the line also. The fetuses were destroyed, but questions remain about the fetal blood serum which has been banned from import. At this point, the entire episode makes you wonder who is minding the store. The USDA has had their share of problems and everyone needs to take some responsibility that these imported cattle are handled properly. A 30-month animal that was actually 31 months old shouldn’t be that big a concern, but heiferettes will always be in a very suspect age window and should require much closer evaluation. This episode casts a little shadow of doubt on the enforcement of our import rules with Canada. Make no mistake, it is the CFIA that is responsible for this one. USDA is, for the most part, out of the loop. Besides raising questions about older cattle getting into the U.S. beef supply, this situation is sure to raise some eyebrows from our export markets for both the U.S. and Canada. There is still speculation the Japanese market could open this fall. However, the food safety commission said again, last week, they need more information to approve beef trade with the U.S. The folks at USDA say the Japanese have all the information they need. USDA and Secretary Johanns have been very aggressive in their pursuit to resume trade with Japan. USDA recently made a proposal to accept Japanese beef, which is a small gesture but says we’re not concerned about Japanese beef even though they have had several BSE cases. Where USDA seems to be dropping the ball is on the epidemiology report on this Texas cow that was confirmed to have BSE. This episode has caused several countries to halt trade and many are waiting for this report. Sources at USDA told us that the report should be done in a week or so; that comment was made six weeks ago. Apparently, the hold up is that USDA is waiting to test one more animal. They know where it is, but the owner is busy harvesting cantaloupes and said he will round up the cows and let USDA get their cow when he’s done picking the melons. In the meantime, beef export trade is on the back burner and appears to be costing the beef industry a pile of money.– Pete Crow

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Thursday, December 20,2007

Mexican cattle linked to drug cartel

by WLJ
The U.S. Department of Treasury (Treasury) Aug. 18 announced that two Mexican cattle companies are among the front businesses for Mexican drug-trafficking cartels. Cattle sold to Texas ranchers by these suspect companies after Aug. 19 could be seized as evidence of a money laundering scheme, agency officials said. Cattle already purchased and owned before the suspect Mexican companies were identified are not going to be impacted by the announcement, Treasury officials said. The department also plans to inform cattle associations and other groups of the action taken against the Mexican companies, officials said. The Treasury also will provide other information, such as the brands used by the cattle companies linked to the drug cartels. For now, buyers are expected to practice due diligence when purchasing cattle. The two Mexican cattle companies named by the Treasury Department are Corrales San Ignacio S.P.R. de R.L. de C.V. and Del Nortes Carnes Finas San Ignacio S.A. de C.V., both of Mexico’s Chihuahua state. A U.S. company in Presidio, TX, Corrales San Ignacio L.L.C., was identified by the Treasury Department as a “mirror” entity, which is an organization that exists on paper to give a foreign company a U.S. outlet. Treasury officials said it was unlikely that company actually has any pens or feed lots. The two suspect cattle companies are linked to the Arriola Marquez group, which is associated with Mexican drug kingpin Joaquin “El Chapo” Guzman. Guzman is a leader of one of the factions fighting for control of Nuevo Laredo and its smuggling routes into Texas. The U.S. cannot seize cartel property outside the country. But once the companies have been identified as having links to drug cartels, federal law prohibits anyone from doing business with them and allows the federal government to take any property of the groups that is “in the possession or control of U.S. persons.” It is not clear how many Mexican cattle owned by companies linked to drug cartels have been sold in Texas. The two cattle companies are part of approximately 30 total companies and individuals that have been linked to the Arriola Marquez and Arellano Felix organizations.

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Thursday, December 20,2007

Plaintiffs must pay Tyson’s trial costs

by WLJ
The three judge panel unanimously supported a district court decision, ordering the plaintiffs — five individuals and one corporation — to pay Tyson Fresh Meats more than $70,000 in expenses related to the trial held last year in Montgomery, Alabama. Last week the appeals court affirmed Judge Lyle Strom’s decision to reverse a jury verdict against Tyson Fresh Meats, a subsidiary of Tyson Foods, Inc. They found Tyson did not violate the law through its supply agreements with independent cattle producers and has legitimate business reasons for entering into such agreements. In the subsequent ruling on trial costs, the appeals court rejected the plaintiffs’ argument that the case was “close” and that they should be exempt from paying Tyson’s expenses. The appeals court wrote “this case was not a close and difficult one” and noted the plaintiffs “lost every aspect ...” The court found that “witnesses for both parties agreed Tyson had a number of competitive justifications” for using marketing agreements. “The legal issues were not particularly novel or difficult. Although it took a long time to try, the case was not especially complicated.”

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Thursday, December 20,2007

Texas TB testing reaches halfway mark

by WLJ
“We’ve completed the dairy herd testing and have passed the halfway point for testing purebred and seed stock herds. More than 750 of these have been tested since late April when herds were randomly selected for the disease surveillance. We plan to complete the remainder of the testing of the randomly selected herds before the end of the year. Volunteers still are welcome to have their purebred or seed stock herds tested,” said Dr. Dee Ellis, who heads up field operations for the Texas Animal Health Commission, the state’s livestock and poultry regulatory agency. “Accredited private veterinarians who are TB-certified conduct the testing on a fee-basis reimbursement, which covers the cost of the test, so ranchers do not have out-of-pocket expenses,” Ellis said. “Regaining TB-free status is a time-consuming and expensive endeavor, but after fighting this disease since l917, the U.S. cannot allow this disease to regain a foothold,” said Ellis. Tuberculosis (TB) is caused by the Mycobacterium bovis bacteria and is a major concern to the U.S. cattle industry. This contagious, infectious and communicable disease can affect not only cattle, but bison, deer, elk, goats and other animal species and humans. “We’ve worked closely with the cattle industry to develop and follow this five-point plan in order to ensure all TB infection has been detected. Fortunately, we have been able to work with the USDA funding through TB cooperative agreements to assist with program funding. We anticipate completing this last leg of the TB plan—the targeted herd testing—by the end of the year, so we can reapply for TB free status,” Ellis stated. Dr. Ellis said testing dairies, purebred and seed stock herds so far has resulted in finding and depopulating only one infected herd, a dairy, in 2003. “We cannot tell by looking if a herd is infected, so we have selected herds for testing based on statistics and science. We targeted all dairies and about 2,400 purebred or seed stock herds for testing because, in the past two decades, TB has been detected in 15 Texas dairies and six purebred cattle herds in nine counties, including El Paso, Karnes, Comanche, Pecos, Uvalde, Fayette, Culberson, Grayson, Zavala and Hamilton counties.” Only Texas and Michigan currently do not have the coveted TB-free status. Texas earned TB- free status in 2000, with the exception of dairies in the El Paso Milk Shed, which have been purchased by the USDA and are being depopulated. In 2002, Texas lost its status after two TB- infected cattle herds were detected. Michigan, he explained, is coping with cattle TB infection in wildlife, and officials examine hunter-killed deer and require yearly TB tests on cattle herds in affected areas. California, which lost TB-free status in 2003, tested nearly a million cattle in a three-county dairy area prior to regaining free status in April 2005, said Ellis. New Mexico regained TB-free status in July 2005, with the exception of Roosevelt and Curry Counties along the state’s eastern border, where testing still is being conducted.

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Thursday, December 20,2007

Labor day meat sales create cautious market

by WLJ
September 4, 2006 Again, fed cattle markets were slow to develop last week. Packers were reluctant buyers looking into the Labor Day weekend, the last big grilling holiday for summer. Labor Day is a pivotal point for market direction and strong meat sales are often required for the market to advance into positive territory during the following weeks. Packers are at break-even levels and will be trying to get some positive margin back into the picture. Packers were bidding $86 for cattle and feeders were looking for $90 as of last Thursday. The boxed beef markets were significantly softer last week, down $5 on the Choice cutout at $145, which is considered a market threshold. Ironically, packers are keeping processing lines moving rapidly, slaughtering 384,000 head midway through last week. This was 3,000 head more than the week before. The last major fed trade was Friday, two weeks ago, trading at $87-88 live and $138 dressed. As of Thursday, it looked as if trade would continue the same pattern and any significant trade wasn’t expected to take place until Friday at $88. Slaughter volume, too, remained strong and had some perplexities going into the Labor Day weekend. Most recently, slaughter data shows that kill numbers are up 3.9 percent from a year ago. Much of that additional slaughter is from increased cow slaughter. In addition, data shows beef production up 6.1 percent. Futures markets remain strong with a large cash discount. Across the board, on the Chicago Mercantile Exchange, (CME) last Thursday, contracts were down with the exception of August. August contracts traded at $90.40, which was up 53 points from last Wednesday’s trade. October and December contracts dropped five points. October settled at $92.83 last Thursday and December closed at $92.85. Market watchers have been waiting for the spread to correct itself, which was expected last week, but wasn’t very dramatic. Andy Gottschalk at HedgersEdge.com said the squeeze on August cattle continues and should provide plenty of fireworks this week as the contract expires. The squeeze on August has the “tail wagging the dog and it appears the dog likes it that way.” Gottschalk also said that the basis between the cash market and the October board is the second largest in history, currently at $4.80. He said the large commodity funds have invested heavily in cattle keeping this basis wide. “If the funds become bearish, it could get ugly and they don’t pay attention to the fundamentals of the cattle industry.” Packers held what some called distressed meat sales last week, which essentially go unreported on the cutout. This would indicate that packers are forced to move product before it spoils. The cold storage index showed that supplies were significantly larger. It was also mentioned that packers were attempting to price November product to wholesale buyers at substantially higher prices—$165 based on the cutout. There were no takers, sources said.   The Choice/Select spread has narrowed quite a bit over the past few weeks. Now at $10, the volume of Choice product hasn’t expanded at all since the spread was at $22. The grading report has been fairly steady, showing the industry is producing only 50 percent Choice product, leaving packers to search for enough Choice product to fill demand, which continues to grow. However, as prices continue to climb, retail buyers may begin to look for values in the Select product rather than continuing to pay higher prices for Choice cuts. The choice cutout was at $145.61 and Select at $135.44.   Feeder cattle Most auction markets across the country last week reported higher prices for feeder cattle. Renewed rainfall and reports that the corn crop yields are less drought stressed than anticipated added optimism at auction markets last week. Rain in the southern Plains has improved the grazing picture slightly as well as hopes that there is more on the horizon. Also helping support higher prices was the continued strong fed cattle market. As a result, most classes of feeder cattle moved $1-3 higher with some instances as much as $10 higher than the previous week on lightweight steers and heifers. On the CME, last Thursday’s feeder cattle contract trade was lower across the board despite firm fundamentals early last week providing support and a spillover effect from the live cattle contract trade. According to Virginia Tech commodities marketing agent Mike Roberts, live cattle prices, tight feeder supplies, and firm cash feeders lent support to the market last week. Feeder supplies outside feedlots remain tight amid improving grazing conditions in the southern Plains due to rain. The CME Feeder Cattle Index for Aug. 25 was placed at $117.02/cwt., up 82 cents per cwt., its highest level since Nov. 28, 2005. Last Thursday, the August contract went off the board at $116.90, just 15 points lower than the prior day. September feeders shed 47 points to close at $116.37 and October feeders were down 65 points, closing at $116.50. November contracts posted the day’s largest drop, losing 80 points to close the session at $116.32. In Oklahoma City, OK, last week, feeder steers and heifers sold $1-2 higher. Steer and heifer calves were generally steady although buyers were being very selective for kind and flesh condition. Demand moderate to good, especially good for thin fleshed steer calves. A cool front pushed through the state over the prior weekend lowering temperatures some 20 degrees and much of the state saw from one-half to seven inches of much-needed rain. Maybe a little late for the hay crop, but definitely beneficial to ground that will soon be planted in wheat. In West Plains, MO, steers and heifers sold $2-3 higher last week, with the majority of 350- 450-lb. heifers $2-4 higher. The exception was 700-lb. class steers, which were no better than steady, yet several unweaned bull calves sold steady to $3 lower. Supply was called moderate to heavy on good demand. Good rains had been hampering movement of cattle, but according to reports from West Plains, several producers took advantage of a break in the weather last week to use stockyard facilities to begin the weaning process of their calves, while others elected to use the new buyers’ labor and blade to steer their bull calves. In Dodge City, KS, last Wednesday, feeder steers from 300-600 lbs. were $2-5 higher, with those 600-900 lbs. selling $3-4 higher on a light test. Heifers 350-600 lbs. were called steady to $5 higher, and those 600-900 lbs., $2-3 higher on a light test. In Philip, SD, where producers struggling through the severe drought finally received some beneficial rain last week, steer and heifer calves sold steady to firm. Feeder steers and heifers were called steady to $2 higher. Buyer demand was best for load lots of calves, and moderate on part loads. Out west in Famoso, CA, last week, stocker cattle were called $2-3 higher and feeders were steady on a good quality run of cattle. Stockers met with excellent demand, especially the greener kinds in the 500- 600-lb. range. Feeder cattle were also highly sought after, particularly the 650- 800-lb. steers and heifers.

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Thursday, December 20,2007

Montana Angus Association hosts tour

by WLJ
September 4, 2006 The Northern Montana Angus Association welcomes you to the Big Sky Country of Northern Montana for three fun filled days where you will tour some of Montana’s finest Angus Herd operations. This annual event of combined association and membership activities will kick off on September 20, 2006 with a golf scramble tournament that will start at 9:30 am and is being hosted by Universal Semen Sales of Great Falls, MT. Tour Registration will begin at 2:00 pm at this year’s headquarters, the Best Western Heritage Inn in Great Fall, MT. Other Wednesday activities will include a social with meal and entertainment, plus a CAB presentation starting at 5:00 pm. Thursday’s activities will feature the bus tour with the breakfast stop going to Harrison Land and Livestock of Belt, MT. Other producers displaying livestock at this stop will include Saddle Butte Ranch, Harrer’s Lost Lake Ranch, Alpine Meadows and Windy Ridge Angus. Prior to going to the lunch stop at the Montana State Fair Grounds the tour will visit the Lewis & Clark Interpretive Center in Great Falls. The lunch stop will have cattle being displayed by 7 Bar Heart Conservancy, Granger Angus and Malek/Konen Angus operations. Thursday afternoon the tour will visit the Broken O Ranch near Augusta, MT and will offer displays by Big Coulee Angus, Birdtail Ranch Angus, Brooks Angus, Skogen’s GK Angus Ranch, Tom McInerney Angus and Van Der Hagen Angus. Following this stop the buses will travel to Ox Bow Ranch near Wolf Creek, MT for the supper stop. Display presentations will be made by Ox Bow Ranch, McDonough Angus Ranch and Novotny/Assman L & C. The start of the second day of touring will involve traveling to Shelby, MT where Flesch Angus will be hosting the breakfast stop. Additional breeder displays will be provided by Bobcat Angus, Enneberg Angus Ranch, Hawks Angus and Turner Angus. Friday afternoon activities will start with Connelly Angus hosting the lunch stop at their Valier, MT, operation; also on display on this stop will be cattle from Rice Angus. Apex Angus will be the next Friday destination of the tour. The last stop of the tour will be hosted by Diamond D Angus near Valier, MT and will include the supper stop and a drawing for a custom made saddle. The tour registration fee is $75.00 andincludes buses, meals and entertainment. For details contact Don & Wendy Connelly at 406/279-3569, connelly@3rivers.net or view Tour details at www.mtangus.org.

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Thursday, December 20,2007

BEEF TALK

by WLJ
September 5, 2005 So much of the discussion today in the beef business concerns itself with the application of an eartag followed by the systematic ability to track the movement of the animal. To avoid confusion, other uses of the tag are deliberately not discussed or simply ignored. Eartags are the seeds of numbers that evolve into data. Data trends are what managers look for. In fact, there are large organizations that do nothing but manage data. Hidden within the depths of most data sets is an answer to a question. The answer may not be very profound; however, day-to-day operations of most businesses are made cost effective by continually going through data. The often overlooked numbers are mined by people who have an uncanny ability to take the numbers apart and put them back together in a better order, with more meaning. Most of us can remember, perhaps with a frown, the hours spent learning addition, subtraction, multiplication and division tables followed by algebra, geometry, trigonometry and maybe even calculus. These early times prepared us for the heavy task of understanding the world around us through numbers. For fine-tuning, statistical courses have been added to the schedule, starting with the conversion of simple averages to means and placing with the mean a measure of variation around the numbers. Of course, by this time, the numbers are no longer numbers, but are now data. The data takes on a life of its own and regression equations began to ooze from the newly created pot based on an understanding of probability and mathematics. All of this, in essence, now runs the world. For most beef producers, the concept of managerial manipulation really comes in two forms. The first is a more “seat of the pants” approach. The current situation is evaluated and a logical solution or enhancement is pursued. The second approach is to measure the variables needed, return to the office and calculate a solution or enhancement. Most operations are actually somewhere between these two scenarios. These two extreme examples, however, make the point easier. The answer to the question, “What approach works the best?” really lies in the numbers or lack of numbers, whatever the case. “Seat of the pants” or best-guess approaches are usually considered right because there was no measurable data or numbers going into the decision. Since there is no measurable data or numbers to evaluate the decision, the decision is subjectively evaluated based solely on one’s opinion. In the number-based approach, not only is the decision itself based on numbers, but the ability to evaluate the outcome also is based on numbers. Accuracy now legitimately can be part of the conversation. The numbers show us that an opinion is not always right. People making decisions want to know managerial facts, not opinions. Managerial gut feelings remain important, but there is a huge difference between a production change made based on opinion versus a decision based on well- organized and analyzed data followed by a pinch of opinion. A change may be in the wind, but the wind has been blowing a long time. Standing and watching a group of calves grazing across the pasture is still a managerial privilege, but the ultimate outcome of the operation may well be hidden in the numbers, and the conversion of those numbers to data is a managerial expectation. May you find all your NAIS-approved eartags —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

COMMENTS

by WLJ
September 5, 2005 It is absolutely amazing the punishment mother nature can dish out. This last hurricane, Katrina, wiped out an entire socio-economic system and it certainly won’t stop there. The economic system in that region has come to a screeching halt and it has been suggested that it will have a negative impact on the entire U.S. economy to the tune of one-and-a-half percent. Much of that impact is to be felt through higher oil and gas prices. The energy industry has become a very complicated business and the effects this one storm has had, in just a few days, on energy production and processing are enough to gag a horse. A couple weeks ago we talked about $3 diesel and $3.10 per loaded mile trucking rates. Over the next few weeks that might suddenly look cheap. The last I heard, there were seven oil platforms either sunk or adrift in the Gulf. The amazing thing is these rigs weigh in at 12,000 tons—they would be hard to lose. Katrina may have been the mother of all storms. I saw the damage that hurricane Ivan caused in the Florida Panhandle last spring and that was devastating enough. The damage from this storm looks 10 times worse. Our prayers go out to those people in need, and we’ll send a few bucks as well. As a direct result of the storm, crude oil futures were on a run last week, above $70 a barrel until the Bush Administration decided to open up oil reserves, which brought crude futures down ever so slightly to $68.85. Gasoline futures were a much different story. Last Wednesday, NYMEX gasoline futures were at $2.57; a week earlier they were around $1.90. I’m one of those who believes in the virtues of supply and demand, which is very real, but I remember learning in a college marketing class that the two biggest motivators for the human-being are fear and greed. We, as consumers, fear higher prices and oil traders are bidding up futures markets because of greed. Sometimes we talk about the speculators in the cattle markets and the idea that they shouldn’t be there unless they can deliver a load of cattle. Today it looks like the oil speculators are on a feeding frenzy with gasoline futures. I guarantee you that family fortunes have been made over the past month on oil futures. My friend, Andy Gottschalk, said that the speculators have put $15 on crude oil prices, and it looks much worse for gasoline and diesel. Ironically, disasters like this make all the issues that we debate in this cattle industry look pretty small. I guess some times we need to have things put in perspective to realize just how good we have it. These oil prices are absolutely an indirect burden on the cattle and beef industries. Trucking is a major issue and as I’ve discussed in earlier columns, the ultra rapid increase in energy prices takes billions away from consumer spending. The estimate at the first of the year was $135 billion. Since the first of August, Gottschalk has updated his estimates to be just more than $155 billion and $50 billion has come since the middle of July. When beef costs are twice that of pork and six times the price of chicken, it will suffer some impact. Consumers will make alternative lower cost choices. Perhaps it will simply be a shift from the restaurant to home and beef tonnage will stay respectable. But keep in mind over half of the modern day family meals are consumed away from home. The Texas Cattle Feeders Association announced late last week that they are donating $25,000 to the Cattlemen’s Katrina Fund. To make a donation, send a tax-deductible check made out to “Cattlemen’s Katrina Fund” to TCFA, 5501 I-40 West, Amarillo, TX 79106. For information, contact TCFA at 806/358-3681 or by email at info@tcfa.org. With the losses many have realized from this disaster, it really makes fuel prices pale in comparison. But, now we have to move on and ship the cattle, cut the corn and get it to markets so people can eat. Be thankful that farm fuel doesn’t have the taxes that road fuel does. It seems like a good time to place a moratorium on fuel taxes. — PETE CROW  

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Thursday, December 20,2007

Feds down on beef projections

by WLJ
— Energy prices curtail restaurant demand. Early optimism for a steady to $1 stronger fed cattle market was eroded last week when trade occurred Thursday at prices mostly $2-3 lower dressed, $1 lower live. Packing plants were starting to see profitable margins decrease and projections for late summer and fall beef demand decline as rising energy prices start to take a toll on consumer demand. By Thursday, Nebraska cattle feeders had traded approximately 55,000 head at $127-128 dressed, while Kansas feedlots had traded 30,000 head at mostly $81-81.50 live. Texas cattle feeders were still holding out for $82 at press time, however, packers were holding steady, offering $81 live. Last Thursday, the packer margin index was positive $2-3 per head, in comparison with $15 per head profit the prior week. According to analysts, that deterioration was related to an increase in fuel prices and lackluster beef demand in the restaurant sector. “It’s our estimation that about 40 percent of all beef middle meats are consumed away from the house,” said Jim Robb, chief analyst at the Livestock Marketing Information Center. “Most of that consumption is at mid-range priced restaurants that dot themselves along interstates.” Robb said that recent spikes in fuel prices are really starting to weigh on peoples’ travel habits and the slowdown in travel numbers will impact beef demand pretty profoundly if high fuel prices prevail. Reed Marquotte, M&Z Livestock Analytics, said energy costs are also beginning to weigh on feedlot and packer profit margins. “Transportation and cold storage costs are both escalating at a very rapid pace due to gas and oil prices skyrocketing,” he said. “We didn’t see much of a rally in (boxed) beef prices through the week, and that resulted in packers pulling the reins back on both the volume of their cattle purchases and the price paid for those cattle.” After rallying about $3 through Wednesday, boxed beef prices saw a $1.50 turnaround on Thursday. Choice boxed beef was selling for $134.62 per cwt, while Select was at $124.70. Trade volume was moderate last week, which analysts felt was disappointing, citing the lack of forward post-holiday buying as a reason for concern. Packers were in need of fewer cattle last week due to a short kill week coming up because of the Monday holiday. As a result, 115-120,000 fewer cattle are needed by packers to fill their demand for the week. Slaughter volume last week was steady with the previous week, at 486,000 head through packing houses last Monday through Thursday. For the week ending Aug. 27, 661,000 head of cattle were processed, steady with the previous week, and about 40,000 head higher than needed to meet current level of beef demand. “Last week’s kill certainly curtailed any need for extra cattle this week or next, particularly if Labor Day beef movement is as low as some projections indicate,” said Marquotte. Heavier finishing weights of cattle also continue to reduce the number of cattle needed by packers, analysts said. For the week ending Aug. 27, the average live weight of all cattle processed was 1,266 pounds, three pounds heavier than the week prior. The average carcass hanging weight was 780 pounds, two pounds heavier than two weeks ago and 15-20 pounds heavier than the same week last year. Feeder markets Solid was the best word to describe feeder markets last week. Despite dwindling margins and optimism in the fed market, and in the face of stories of devastation from the south, buyers were purchasing feeder calves at prices generally above the prior week throughout the west. With few exceptions, analysts noted that demand was good for loads of uniform thin to moderate flesh cattle. Quality appears to be improving as larger lots start heading for the sale barns. Grazing prospects throu-ghout winter wheat country appear to be very good and stockers are sourcing cattle now. However, the good grazing conditions are also allowing producers to keep cattle on pastures longer, resulting in supply shortage, particularly in the northern-tier where demand has been strong on rising prices for the past several weeks. Corn prices also helped strengthen the feeder cattle market last week, as cash corn, last Thursday, was between $2.05-2.10 per bushel, or $3.65-3.80 per cwt. Prices were down from beginning of the month range of $2.25 per bushel or $4-plus per cwt, which added support last week. Prices in the southern tier continue to rise as supplies hold steady and dry conditions ease. In Oklahoma, markets for feeder steers and heifers were $1-3 higher on solid demand and stronger attendance at sales. Because of the long, dry stretch of weather during mid-summer, cattle are arriving at the sale in good feeding condition, noted as slightly thin to moderate flesh. In Joplin, MO, prices for steers were $2-4 higher for mid-weight steers and $3-5 higher for heifers with some lots selling as much as $8 higher. At other markets across the southern tier, prices were noted to be at least firm and steady. Most sales noted prices $1 or more higher. Supplies across the north are still moderate at best, however, some good volumes are just starting to be seen at steady to slightly higher prices. Continued good weather is allowing cattle producers the opportunity to graze longer; the result is a slow trickle of calves into the markets which is keeping prices higher for producers. As long as supplies don’t overwhelm the northern markets, feeder prices should stay solid. Working against producers will be continuing feedlot losses. Analysts are still predicting short-term supplies in September will continue to exceed demand, meaning lower prices for the fed market. Feeder losses will weigh on the feeder market as supplies start to increase toward their annual peak. Also, transportation costs, which are rising out of control, are going to affect every segment of the beef industry and create a great deal of uncertainty as every sector of the economy tightens its belt to absorb the impact. Analysts last week said fuel costs can also trigger a radical spike in fertilizer costs, particularly ammonia and other liquid nitrogen-based compounds. Robb said because those chemicals are used greatly in southern pasture grazing situations, some stocker operators may have to pay less for calves and lighter feeder animals late this year. “There’s a direct correlation between fuel prices and these fertilizer costs, and that correlation is about one to one, meaning that the jump seen in gas and oil prices is what can be expected from a fertilizer standpoint,” said Robb. He also said, however, that producers who have poultry waste available can help themselves out from a cost standpoint. Chicken manure is as rich in nitrogen as many liquid fertilizers and is much more cost effective. “If application of chicken waste becomes more prevalent, maybe the calf market won’t soften up as much as we think,” he said.

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