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Monday, December 25,2006

Storm brings market to a grinding halt

by WLJ
A severe winter storm that spread ice and snow across the southern Plains early last week before moving northward into the central U.S. and Rocky Mountain region, put the lid on any early cash trade last week as transportation was mostly at a standstill on Tuesday and Wednesday. As a result, there was little to no activity to determine a trend, although packers were expected to perhaps raise bids in an attempt to secure cattle close-by last week rather than face production cuts due to a shortage of cattle. What few sales had been reported to USDA as of last Wednesday trended toward the top end of steady at $85.50 live and $135 dressed basis. However, it wasn’t enough volume to call the trend for the week. The storm, however, was expected to lend some support to boxed beef cutout values as retailers scrambled to get product on their shelves in advance of the holiday. Prices for quick-ship products were lending some support to the market and Choice values rose 58 cents to $143.38 in Wednesday’s trade. Select prices were slightly lower at $126.45, down 18 cents from the previous day’s trade. Cow beef cutout prices were sharply higher, gaining $1.16 in last Tuesday’s trade, to $103.23. USDA estimated last Wednesday’s slaughter volume at 119,000 head, 1,000 less than the prior week, but even with the same day in 2005. For the week to date total through last Wednesday, packers had harvested 363,000 head, 5,000 below the prior week and 2,000 fewer than the same week in 2005. Meanwhile, average steer weights at 1,325 lbs. continued their slight downward movement last week, following the seasonal trend. Those numbers were encouraging for the market because despite the strong volume, prices remained stable for both fed cattle and at the wholesale level. The middle meats were seasonally softer last week, however end cuts continued to sustain the markets, and packer margins, as estimated by HedgersEdge.com, remained just below the breakeven point, just $8.55 in the red. Also adding strength to the markets last week was the expectation that the upcoming cattle on feed report, to be issued by USDA on Dec. 22, would be very supportive of a stronger market. Total numbers of cattle on feed were expected to be close to year ago numbers, while November placements were anticipated to be well below 2005 and marketings significantly higher. The average of analyst estimates placed the Dec. 1, 2006, on feed number 1.9 percent above Dec. 1, 2005. Placements in November were expected to be 8.9 percent low 2005. Marketings are expected to be 4.6 percent ahead of November 2005. When coupled with growing expectations that USDA’s Jan. 1 cattle inventory numbers could show a decline or, at most, very small growth, the news added hopes of at least short-term improvement in the markets last week. That sort of bullish thinking helped fuel live cattle contract trade on the Chicago Mercantile Exchange (CME) last Wednesday, which coupled with the storm ravaging the central U.S., spurred contracts higher across the board. December contracts were pushed 57 points higher, to close the day at $87.37. February was up 27 points to $90.35 and April was up 37 points, ending the day at $92.17. According to Virginia Tech commodities marketing agent, Mike Roberts, cash sellers of fed cattle are encouraged to push marketings while avoiding weight and quality discounts on already expensive cattle. “It may be wise to consider protecting a portion of first quarter ’07 and 2nd quarter ’07 marketings as spring prices are expected to plunge into the low 80s. Corn users should consider pricing more near-term corn inputs now,” Roberts said. Feeder cattle Poor weather across much of the central and southern U.S. forced an early end to an already short feeder cattle marketing week last week. The weather hampered shipments to auction markets and demand was light for offered cattle in any event. Despite those factors, however, the buyers last week paid mostly higher prices for cattle on offer. In Belen, NM, in a light test of the feeder cattle market, feeder steers and heifers were $1-3 higher on active trade and good demand. Farther east in Oklahoma City, OK, where ice and blizzard conditions made transportation a difficult endeavor at best, feeder cattle and calves were mostly $2-4 lower on moderate demand at best for all classes, with the best demand for weaned and value added calves and cattle. In Joplin, MO, compared to the prior week, steers under 650 lbs. and heifers under 500 lbs. were steady, while steers over 650 lbs. and heifers over 500 lbs. were called $1-2 lower. Demand was reportedly moderate, with supply moderate to heavy. Market reports said much of the offering was weaned and in medium to thin condition, while yearlings were reported in mostly medium flesh. Conditions north and west of there, however, were much worse with heavy ice followed by heavy snow and blizzard conditions in Colorado, Nebraska, Kansas and parts of Wyoming. In Loup City, NE, light offerings made it difficult to determine a market trend, however, offered cattle appeared to sell mostly steady with the prior week’s sale on moderate demand from a short list of buyers on the seats. Quality was reported to be good, although some calves were said to be carrying some excess flesh. In Mitchell, SD, feeder steers and heifers sold steady to $2 higher, with the best demand on cattle that had been weaned with a full complement of vaccinations. In the Northwest, where weather continues to pose a problem for producers on the coast, prices were generally lower. At Davenport, WA, feeder cattle were called $3-4 lower on a seasonally light run. Farther south, in Oakdale, CA, stocker and feeder cattle were steady with the previous week in a very light test. Steers in the 500 lb. class sold in a wide range of $96-121, while heifers sold in a range of $82-95. Six-weight steers sold between $85 and $94, while heifers in the same class sold from $80 to $93.50. Steers in the 700 lb. class brought $79-84. There was no test for heavy weight heifers. In seasonally light action on CME last Thursday, feeder cattle contracts closed in a narrowly mixed range as traders waited for direction from the grain markets which traded sideways for much of last week. January feeder contracts closed 15 points lower at $98.85. March 2007 feeders were 10 points higher at $96.75, and April contracts were 5 points lower at $98.10. According to Virginia Tech Commodities Marketing Agent Mike Roberts, bearish corn and soybean trade last week contributed to support for feeder cattle. The CME Feeder Cattle Index also added support with the latest data placed at $100.71/cwt., off 10 cents/cwt. “Forecasts for low placements were expected to show up in last Friday’s USDA Cattle on Feed report,” Roberts said. “This, too, was supportive of feeder cattle prices because traders are thinking that supplies may be tighter than expected.” Roberts encouraged cash sellers to push feeder cattle sales. He also advised hedgers to consider protecting a portion of first quarter ’07 and second quarter ’07 marketings. “Corn users should consider pricing more near-term corn inputs now,” said Roberts.

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Monday, December 18,2006

Feds dip

by WLJ
Fed cattle trade began earlier than normal last week in the northern Plains and sales trended $1-2 lower in most states despite a slight improvement in the boxed beef. In Texas and Kansas, fed cattle traded hands at $84-85.50. In Nebraska, feds traded at $133.50-135 dressed basis and $84-85 live basis last week. There was some early week trade last Tuesday, but packers quickly backed away from bids upon news of the immigration raids at Swift & Co. Once it was determined that the raids would have little lasting impact, offers were renewed and full-fledged trade resumed last Thursday in most areas, although volume was still relatively light. Boxed beef cutout values were improved last Thursday as a result of strong post-holiday purchases from retailers who are predicting improved demand at the retail level. However, some seasonal weakness in the rib and loin complex was tempering price increases for cutout values. Most retailers are booking value cuts to fill meat cases after the holidays so the more expensive middle meats are, for the time being, losing ground to some of the lower priced end meats. In last Thursday’s trade, Choice moved up $1.45 to $144.12 and Select was 12 cents higher at $125.47. Slaughter volume last week was down slightly as a result of the decreased production at the four Swift & Co. Beef plants which were raided early on Tuesday. Production was halted completely for several hours by federal officials and when it finally resumed late Tuesday, it was at greatly reduced chain speeds. There were nearly 1,300 employees detained and the result was a dip in harvest for the week. Although Swift officials said the decline would be short-lived, it was expected to continue to impact the harvest volume for at least a week. Jim Robb, director of the Livestock Marketing Information Center, said that near-term, he doesn’t expect much impact to prices for the fed cattle market. However, he said last Tuesday if the federal government widens the scope of its investigation or decides to raid other large-scale packing plants, the effects could be wide ranging and severe for the industry. Last Thursday, the slaughter volume was 118,000 head, 6,000 below the previous Thursday and 10,000 fewer than the same day in 2005. For the week to date as of last Thursday, packers had harvested 486,000 head. That number was 17,000 head below the previous week and 13,000 fewer than the same week in 2005. Most of the difference in volume last week came on Tuesday, when packers harvested only 118,000 head, which was below the prior Tuesday. The good news last week was delivered by Jim Gill, market director for Texas Cattle Feeders Association, during their annual meeting. In his outlook session, Gill said producers, feeders and consumers could look forward to 2007 prices remaining steady with those this year. Retail prices were slightly lower in 2006 than in 2005, he said, and consumers should also expect steady prices in the year ahead. “Fed cattle prices during 2006 averaged near $86 per cwt. with a range from $78 to $98 during the year,” Gill said. “Fed cattle prices were pressured by record-setting slaughter weights combined with higher-than-expected cow slaughter due to the extended drought. Slaughter weights in 2007 will likely trend lower in response to higher feed costs.” According to Gill, those higher feed costs will be driven by high corn costs as ethanol demand continues to fuel the grain complex. “Since mid-September, corn prices have increased more than $1.10 per bushel on the futures market,” Gill said. The increase is driving cost of gain higher in feed yards, Gill said, and if any winter weather develops in the next several months, cost of gain could go higher yet. For 2007, Gill issued quarterly price outlook for fed cattle. In the first quarter of next year, he expects fed cattle to trade in a range of $78 to $86. Second quarter prices should trade in the $82-86 range. In the third quarter, Gill predicts a range of $84-90 and fourth quarter predictions are for $86-95 fed trade next year. Feeder cattle For the past several months, feeder cattle prices have felt the negative effects of the increased prices in grain. However, last week, the cash feeder cattle prices were higher, which was mostly a result of the decrease in corn prices The Chicago Mercantile Exchange feeder cattle index increased to $101, up nearly $1 from the prior week. The December crop corn contract on the Chicago Board of Trade settled last Thursday at $3.58 per bushel, down from $3.90 the previous week. Additionally, March corn futures declined to $3.71 per bushel. The good news is that feeder cattle prices are expected to increase in the upcoming year. In addition to his comments on fed cattle, Gill said supplies will continue to tighten over the next several years as ranchers retain heifers. “The cow herd expansion that started several years ago has slowed or even stopped this year due to the drought,” he said. Despite last week’s increase in feeder cattle prices in most areas, West Coast feeder calf prices remained soft simply because of basis concerns due to transportation costs. In Davenport, WA, feeder cattle were steady to $2 lower and most of the decline was on 500 lb. heifers. Feeder steers between 500 and 600 lbs. averaged $94 to $99, while their heifer mates averaged $81.50 to $85.50. Steers in the 600 to 700 lb. range sold for $93.50 to $97 while the heifers at the same weight brought $80 to $85.75. The demand in the northern plains was high this week, particularly for calves that had been vaccinated. In Jamestown, ND, feeder steers and heifers under 600 lbs. sold $1 to $2 lower than last week. Steers and heifers over 600 lbs. were mostly steady as the large fall runs have come to an end. Steers between 400 and 600 lbs. averaged between $101 and $124 while their heifer mates called between $95 and $126. In Huron, SD, steers sold steady to $4 higher and heifers sold steady to $1 higher. Again, the best demand was for cattle that had been weaned with a full complement of shots. Demand was good and there was an active market. Ogallala, NE, was able boast a $3-7 increase on steers and heifers compared to last week and the trends were active on all weights of cattle. Five- to six-weight steers averaged $110 to $119 while heifers averaged $99 to $105. In Salina, KS, 400 to 600 lb. steers were $2 to $3 higher while 600 to 750 lb. steers were called $1 to $2 lower than the previous week. However, some of the greener 600 to 750 lb. steers were $3 higher than the previous week. The feeder heifer market decreased some as 550-700 lb. heifers were sold at prices that were $1 to $2 lower. Demand in Salina for feeder cattle was good and trade was active. In Oklahoma City, OK, feeder cattle were $1 to $3 higher with broad demand. The best action was on cattle that will finish in April. Steer and heifer calves that were under 500 lbs. were steady to $2 higher. Calves over 500 lbs. were steady to firm. The weather probably was a factor as it was much improved from the last couple of weeks. Large lots of calves that were tagged as value added, certified as preconditioned, vaccinated and weaned at least 45 days, and/or age and source verified, brought a significant premium. In Graham, TX, steers under 500 lbs. were $3 to $5 lower and over 500 lbs. were steady to $2 lower. Feeder heifers under 500 lbs. were steady to firm but larger heifers were $1 to $2 lower in comparison to the previous week.

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Monday, December 11,2006

Senate fails to pass ag appropriations

by WLJ
— Drought aid delayed until at least early 2007. The U.S. Senate last Tuesday failed to pass the Fiscal Year 2007 Agriculture Appropriations budget. Instead, it passed a continuing resolution to fund agriculture needs at current levels until February 2007. The amendment, which required 60 votes to pass, failed by a vote of 57-37. Several spending bills have been delayed as the current Republican Congress prepares to hand over the reins to Democrats in January of next year. Several senators, particularly those from ag states, vowed to continue the fight to secure disaster aid for producers even after repeated threats from the White House to veto the bill if it passes without spending cuts in other agriculture programs. The White House Office of Management and Budget last Tuesday issued a “Statement of Administration Policy” on the bill. “The Administration strongly opposes the Senate’s agricultural assistance proposal, the cost of which could exceed $4 billion,” the statement said. “If the president is presented with a bill that includes this agricultural assistance proposal, the president’s senior advisors would recommend that he veto the bill.” Several producer groups expressed their disapproval with the veto threat last week, including the American Farm Bureau Federation (AFBF). “The American Farm Bureau is disappointed that the Senate failed to pass the disaster assistance bill for America’s farmers and ranchers. Agricultural producers in many parts of the country faced difficult times this year due to various natural disasters. Farm Bureau will continue to look for opportunities during the 110th Congress to pass this important legislation,” said AFBF President Bob Stallman. Several senators said the measure will be a top priority when congressional members return to Washington, D.C., next month. “Disaster assistance must be the top priority when Congress reconvenes in January,” said Sen. Chuck Hagel, R-NE. Sen. Mike Enzi, R-WY, said following the vote that farmers and ranchers are facing their own, new version of the Dust Bowl, which Americans endured during the early part of the last century. “The effects of this years-long drought are not as sudden or dramatic as a hurricane or a raging flood, but there are people suffering and losing their livelihoods in the West and they should get the same consideration and assistance those affected by other types of disasters in other parts of the country have received,” Enzi said. “I agree our budget and appropriations system is in need of major overhaul, but that was not a choice with this amendment. The question was do you support drought aid for Westerners or not? I do. This is emergency funding for an agricultural emergency and it’s included in an ag appropriations bill, which is appropriate. This amendment increases the aid currently in the bill and helps cover more 2006 losses, which is most pertinent for Wyoming.” The disaster assistance amendment, sponsored by Kent Conrad, D-ND, if passed, would cover crop losses in both the 2005 and 2006 production years for producers who lost at least 35 percent of a specific crop; provide funds to cattle producers in disaster counties for increased feed expenses; provide funds for the Emergency Conservation Program; and provide for additional personnel for the Farm Service Agency county offices to implement the disaster assistance program. — John Robinson, WLJ Editor  

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Monday, December 11,2006

Fed cattle trade lower, feeder markets mixed

by WLJ
Fed cattle trade was at a standstill last week. Beef sales have been slower than expected and packers are holding more unnecessary inventory than they would like. The boxed beef cutout values have been falling and support is expected to develop at the $140 level, which we’re just $2 away from. Packers are still in negative margin even though it has improved greatly since two weeks ago, but they are still losing $12.25 a head. Fed cattle trade was expected to develop at the $86 level late Thursday or Friday. Feeders were asking for $87 live and $138 dressed, while packers were trying to take the market below $85, a serious support level. On the Chicago Mercantile Exchange (CME), live cattle futures were relatively steady last week with the December live cattle contract trading at $86.65 last Thursday, and April at $90.85. Beef markets have been weaker even though the Choice cutout was stronger by 30 cents at $142.99. The Choice/Select spread is starting to grow again, reaching $17.21 last Thursday. The Select cutout was trading at $125.78, down 61 cents. Trade volume was moderate to light until last Wednesday when volume picked up on the Select product and ground beef. The 90 percent lean was at $130, 50 percent lean trim was $35.40, and the cow beef cutout ended last Thursday at $101.65, down 29 cents from the day prior. Slaughter levels were starting to grow again last week despite packer losses and threats of cuts in production, mostly because of a lack of cold storage space. Slaughter for the week ending Dec. 1 was at 636,000 head and through last Thursday, packers were already 8,000 head over the prior week's pace, meaning it was possible to reach 645,000 head. All the industry discussion in recent weeks is around the corn market and ethanol. However, James Mintert at Kansas State University said that the price increase has had little impact on carcass weights. “Opposing forces will pull weights in different directions during 2007. Improvements in genetics and technology will stimulate an increase in weights. But a sharp increase in feed costs will encourage feeders to market cattle at lighter weights,” Mintert said. “The last time these two forces really opposed each other was in 1996. An examination of what took place that year might shed some light on what’s likely to happen during 2007.” According to Mintert, corn prices at Omaha, NE, in early 1996 traded at $3.41 per bushel, about 26 percent higher than in mid-August 1995. “By early July, corn prices were trading at over $5 per bushel, or about 50 percent higher than in early January. Despite the run-up in corn prices during fall 1995, federally inspected dressed cattle weights at the beginning of 1996 averaged 2 percent heavier than a year earlier. But high feed costs began to take a toll on weights as the year progressed. By April 1996, weights were consistently averaging below the prior year, a trend which continued the rest of the year,” he said. “At first, the year-to-year declines in weight were modest, averaging less than 1 percent. However, as the year progressed, the impact of high feed costs on cattle management strategies became more pronounced. The result was weights falling 1 percent, 1.8 percent and 3.4 percent below a year earlier during the second, third, and fourth quarters of 1996, respectively.” Mintert said a couple of possible implications stand out for the year ahead. “First, it takes awhile for rising feed costs to impact dressed weights. The fact that weights this fall have not fallen below a year earlier doesn’t mean it won’t happen this winter or spring,” Mintert said. “Second, it’s apparent the relatively large reductions in weights that occurred in late 1996 were motivated by the dramatic run-up in corn prices that took place in late spring and summer of that year. It remains to be seen whether corn prices in 2007 will climb to levels last seen during the summer of 1996. During 1996, dressed cattle weights fell 2.3 percent below the trend “forecast” for 1996. But part of that decline relative to the trend was motivated by the extraordinary corn price increase that took place during the spring and summer of 1996. As a result, weights during 2007 are expected to wind up near their trend level of about 770 pounds, which implies a decline from 2006’s record level of about 1 percent. However, if corn prices increase dramatically during 2007, as they did in 1996, look for an even larger year-to-year decline in weights.” Feeder cattle Some early week sell off in the corn market last week allowed feeder cattle to regain lost ground in the marketplace. There is some speculation that corn prices could be facing a correction close to the end of the year, which would certainly help the feeder cattle markets which have been most heavily influenced by the grains since early fall when corn prices began to skyrocket to 10-year highs. The impact of the corn market can be seen by looking at prices this year compared to last year, or even late summer, when they parted with fed cattle prices which they had been tracing for several months. “The market value of fed cattle has dropped by 6 percent between early September and mid-November. Kansas feeder cattle prices have slipped by 15 percent in the same period,” said Shane Ellis, economist with Iowa State University. “The cash corn price has steadily increased during the same period, up 58 percent from early September. The effects of corn price on the feeder market are painfully obvious.” Ellis said the degree of impact corn prices will have on feedlot bottom lines and short-term profitability depends largely on how much stored and contract corn is on hand. He also said access to alternative feeds will play a role in profit margins in the near term. “Feed costs are likely to continue increasing before we see prices taper off,” Ellis said. He calculated feedlots which are paying $110 per cwt. for feeder cattle and $3.25 per bushel of corn will need $88-90 fed cattle prices next summer to break even. In last Thursday’s trade on the CME, feeder cattle contracts rose between 60 and 110 points. January feeders were up 77 points, closing at $99.85, and March and April were both up 85 points, to close at $99.40 and $99.95 respectively. In auction markets across the Rocky Mountains and Plains states, the mood was much improved last week and the better weather also helped to boost prices into mixed territory despite light offerings in most markets. The majority of calves have been sold and yearlings remain in very short supply in all markets. The improved weather, particularly in the central and southern Plains, helped to boost offerings in those areas and the weaned calves on offer met with good demand. In the south, at the market in Clovis, NM, last Wednesday, compared to the previous week, feeder steers under 600 lbs. and heifers under 500 lbs. sold $3-5 higher, with heavier weights reported to be steady. Meanwhile, in Abilene, TX, compared to the previous week, feeder steers under 500 lbs. were called steady to $2 higher, cattle over 500 lbs. were $1-2 lower. Feeder heifers under 500 lbs. were called $2-4 lower, and those over 500 lbs. were $1-3 lower. In El Reno, OK, last week feeder steers and heifers were mostly steady except over 800 lbs., which traded firm to $2 higher than the prior week. Steer and heifer calves sold firm, except weaned steers under 500 lbs. and weaned heifers under 550 lbs. which got a good boost $5 to, in some instances, $10 higher than the previous week’s heavily storm-influenced market. Demand was called good for all classes, with several strings of long time weaned calves which saw considerable bidding activity. In the central region at Joplin, MO, compared to the prior sale which was also affected by the storm, steers under 550 lbs. were mostly $2-5 lower and heifers under 500 lbs. were $1-3 lower. Steers over 550 lbs. and heifers over 500 lbs. were called steady on moderate demand and light supply as a result of continued icy conditions on rural and secondary roads in the area. In Dodge City, KS, steers and heifers 300-700 lbs. were steady to firm in a very limited supply. Heavy steers from 700-1,075 lbs. were called $2-3 higher, while heavy heifers from 700-900 lbs. were $1-2 higher. At the sale in Loup City, NE, last week, feeder calves under 700 lbs. trended steady to $2 lower. There was reportedly not much comparison for calves and yearlings over 700 lbs. because of the shortage of heavy calves in recent weeks, but bidding was reported to be very competitive. Cattle quality was called average to good, with moderate to good demand. Farther north, where receipts in most markets were seasonally light, in Torrington, WY, steer and heifer calves traded unevenly steady, with not enough yearlings on offer for market test. Demand was reportedly moderate to good on offered lots. In Billings, MT, compared to the prior Monday, steer and heifer calves were rather steady in a light test. Demand was moderate on limited offerings. In Davenport, WA, last week, feeder cattle were steady to $4 higher, with the most advance on weights under 500 lbs. Trade was active with good demand. In Madras, OR, steers and heifers in the 500-600 lb. class were steady while 600-700 lb. steers were $4-5 higher and heifers were $2-3 higher. Heavier weights were mostly steady with the exception of 700-800 lb. heifers, which were as much as $5 higher than the previous week.

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Monday, December 11,2006

Beef rejection may impact talks

by WLJ
—Third shipment rejected last week. South Korea said on Dec. 1 it will destroy or return a second shipment of U.S. beef after bone fragments were found in violation of a bilateral agreement that allowed imports of U.S. beef to resume. Kang Mun-il, a director general at the National Veterinary Research and Quarantine Service affiliated with the Ministry of Agriculture and Forestry, said, “Three bone pieces were found in the second shipment of U.S. beef.” South Korea, once the world’s third-largest buyer of U.S. beef, has agreed to import only boneless meat from the U.S., ending a three-year ban after an outbreak of bovine spongiform encephalopathy (BSE). Last month, South Korea found a bone fragment in the first shipment from Arkansas City, KS-based Creekstone Farms. The first nine-ton shipment of U.S. meat will also be either destroyed or returned. The Korean government has said that consumers there are particularly concerned about BSE, however, in the U.S., many speculate that the rejection of beef because of minute amounts of bone is nothing more than a protectionist measure to prevent more shipments of beef into the country. USDA and individual packing plants intending to ship to the country asked the South Korean government to inspect boxes individually, but the ministry has no plan to do so, Kang said. A third shipment of U.S. beef, which had arrived in South Korea on Dec. 1, was also found to contain bone fragments. In all there were reportedly 7 chips found in the third shipment, ranging in size from 3 to 10 millimeters. All three packing plants which have shipped beef containing the bone fragments to Korea have been decertified by the country and will not be allowed to send further shipments. The decertification is largely technical, since most packers refuse to ship beef to the country under such difficult trading conditions. After the first U.S. beef shipment was rejected, U.S. Agriculture Secretary Mike Johanns accused the South Korean government of “inventing a reason to reject the meat.” “The market isn’t even close to opening,” Johanns said when the rejection of the shipment was originally announced. Some industry sources in the U.S., in off-the-record comments, have speculated about possible sabotage of the shipments and USDA officials last week asked South Korea to surrender the fragments of bone so they could be analyzed and traced. At the very least the rejections show the market is not a safe bet for exporters, a fact reiterated by Johanns after the third rejection last week. “I am very disappointed in the decision by South Korea to reject all three U.S. beef shipments sent since South Korean leaders announced on Sept. 11, 2006 that their border is open to U.S. beef. The rejection of the third shipment clearly illustrates that South Korean officials are determined to find an excuse to reject all beef products from the United States,” he said. “There is absolutely no food safety issue with any one of these shipments. I find it difficult to accept that bone fragments the size of one half of a grain of rice were found through visual inspection of ten metric tons of beef, as is South Korea’s claim regarding the third shipment, despite the fact that it went through unusually rigorous inspection by the U.S. exporter before it was shipped. I can only conclude that these actions are designed to restrict beef trade.” Johanns said he would work with the U.S. Trade Representative to resolve the issue, since it appears that the market will not readliy accept shipments of U.S. beef despite pledges to the contrary. “Today, South Korean officials have sent the message that their market is not commercially viable for U.S. beef. South Korea is attempting to claim its border is open to U.S. beef while refusing to allow trade to take place. This is unacceptable and certainly not the way trading partners should work with one another,” Johanns said. “It is our intention to work with the U.S. Trade Representative to examine all options available to the U.S. to legitimately open the South Korean market to U.S. beef. Our objective is to implement a trade agreement for beef that reflects science-based international guidelines and facilitates real trade.” The rejections are expected to be an issue for South Korean and U.S. trade negotiators who are scheduled to hold a fifth round of free trade agreement (FTA) talks next week at the Big Sky Resort in Montana. However, National Cattlemen’s Beef Association (NCBA) President Mike John, in a letter to President George Bush, said there was no support among cattle producers for an FTA with South Korea, given the current trade problems. The letter to Bush expresses NCBA’s frustration with the continued delay tactics being used by South Korea to block imports of U.S. beef. “U.S. cattle producers have been extremely patient for almost three years now, but South Korea continues to find baseless excuses to block U.S. beef from access to their market. These protectionist actions are extremely destructive, especially in light of talks regarding a U.S.—South Korea Free Trade Agreement,” John said. “We cannot support agreements with nations who concoct their own trade rules and ignore internationally recognized trade standards. After their continued, unscientific ban on our products we hoped to see a light at the end of the tunnel earlier this year with their promise to accept our boneless beef.” John said the current rejections of product serve to illustrate that South Korean officials were not bargaining in good faith when they agreed to open the borders earlier this year. In the letter’s conclusion, he sought Bush’s personal attention to the trade dispute. Aside from the beef issue, South Korea and the U.S. are facing a tough showdown in the Montana round with sensitive trade items such as other farm goods, automobiles and medicine on the agenda. Both sides want to wrap up the talks by the end of March next year before Bush loses his trade promotion authority, which requires a simple yes-or-no vote by Congress with no amendments. Following the rejection of the beef shipment, South Korea’s Trade Minister Kim Hyun-jong told lawmakers that the fifth round may not be easy because of the rejection of the first shipment of U.S. beef. Asked if any settlements will be made in sensitive areas, Kim said it will be very difficult because there were too many sensitive items. Total two-way trade between South Korea and the U.S. totaled more than $72 billion last year, so the potential for the talks to be derailed because of the beef issue could be extremely costly to consumers in both countries if the Korean government continues to drag its feet in allowing beef shipments to resume with fewer restrictions. — John Robinson, WLJ Editor  

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Monday, December 4,2006

Storm has little effect on market

by WLJ
Fed cattle trade was very light early last week, with only one reported purchase in Kansas at $85.50. Analysts were calling for prices to be in the area of $86, which would be $1-2 lower than the prior week in the live cattle market and in a range of $135 to $137 in the beef, when trade finally developed in earnest. The market was called lower last week despite a widespread snow storm across Colorado southward into the Texas panhandle, which did little to move cattle early or boost prices. Much of the downtrend in prices can be attributed to packer losses, which have been growing. HedgersEdge.com estimated packer margins at negative $35.85 per head last Thursday. Many analysts were expecting a bounce in cutout values following the Thanksgiving holiday as consumers turned to beef products after tiring of turkey. However, weak retail sales movement last week had caused Choice cutout values to decline to $140.24 on Thursday, while Select traded at $126.74. The slide in packer margins caused some plants to cut kill levels last week. Thursday’s harvest volume was estimated at 127,000 head. There was no kill the prior Thursday because of the holiday, however, the harvest was 1,000 more than in the same day in 2005. There were reports that packer cutbacks would continue through the week in an effort to regain lost margins, however, the jump in harvest from Wednesday’s tally of 119,000 head indicated the cutbacks were short-lived. For the week through last Thursday, harvest totaled 498,000 head, up from 385,000 for the same period during the prior holiday-shortened week. Some futures traders, based on contract trade on the Chicago Mercantile Exchange (CME), don’t expect a market recovery any time soon. Last week, a few bearish traders adjusted their positions on the live cattle market, calling for trade in the $80-81 range in the near-term. “I think the Chicago traders are looking back at last year’s unraveling of the market and expecting the same this year,” said Jim Robb, director of the Livestock Marketing Information Center. “If they think the same thing is going to happen this year, I think they’re nuts.” Robb said he expects the market to trade mostly sideways for the rest of 2006 and into the first quarter of 2007. “Without severe weather, we aren’t going back to $90 feds, but I think trade will be mostly steady looking ahead. A lot of things would have to go wrong in the market for cattle to trade down to the $80-81 level,” Robb said. “However, sometimes the more bearish the futures market gets, the better it is for the cash fed cattle market.” On the CME, live cattle contracts last Thursday were mostly higher. The December contract gained 50 points to close at $85.70 and February was up 70, to $89.10. April contracts moved 67 points higher to end the day’s session at $90.30. Deferred contracts moved slightly higher, making up for sharp losses the prior day when up front contracts dropped more than $1. Record high carcass weights have begun to decline seasonally and the cold weather last week was expected to hasten the drop, which could also help to boost prices as a result of the production decline. Robb said the cold front, which at mid-week stretched from Alberta, Canada, well south into Texas, would prevent any excess weight being put on cattle and could help movement out of feedlots, both of which could create positive effects for the market. The beef market has also been helped by a decline in the volume of beef imported from other beef producing nations. According to USDA’s Foreign Agriculture Service (FAS), the value of cattle and calf imports is estimated at $1.6 billion, up from the August number of $1.3 billion, due to higher U.S. feeder cattle prices and increased imports from Canada and Mexico. On the meat side however, imports of fresh beef and veal during 2007 are forecast at 1.1 million metric tons, unchanged from the August estimate. The value of those imports is predicted to total $3.6 billion, up from the August forecast of $3.3 billion. During the current year, according to FAS statistics, imports of beef from Canada equaled 242,856 metric tons, down 20.6 percent from a year ago, while imports of beef from Australia totaled 241,129 metric tons, 9.1 percent lower than a year ago mostly because Australia is focusing primarily on Asian markets where the U.S. has lost market share. Beef imports from New Zealand totaled 162,629 metric tons, down 5.3 percent from last year. Beef imports from Japan totaled nearly 27.0 metric tons. Through Nov. 13, the U.S. imported 14,725 metric tons of beef from Uruguay which was 8.2 percent lower than last year. Uruguay continues to supply beef to those markets lost by Brazil and Argentina which were hit with foot-and-mouth outbreaks. Feeder cattle The cash feeder cattle markets were slightly higher last week and it appeared that despite rising corn prices, much of the news had been priced into the market. December new crop corn futures on the Chicago Board of Trade settled last Thursday at $3.77 per bushel, while March contracts moved five cents higher to $3.90. Meanwhile, cash prices in Kansas City, MO, moved higher to trade in a range of $3.67-3.69 per bushel. The CME cash feeder cattle index was steady to a few cents lower at $100.04 despite the rise in corn prices. One unexpected side effect of the sharp decline in the feeder cattle market this fall has been the canceling of some cattle sold in late summer and fall. There have been some reports of canceled deliveries of forward contracted cattle. Although the reports are scattered, it seems that the high prices paid earlier in the year, before prices began the slide, are too much for some buyers to stomach. Along the West Coast, feeder cattle prices continue to soften slightly as a result of high freight costs and the rise in feed prices that have affected everyone this year. In Vale, OR, last week, demand was slightly better than during the prior week, particularly for cattle in the 300-500 lb. range. Prices on the heavier calves and yearlings on offer were under pressure as a result of sluggish demand on cattle that will finish earlier. Steers in the 400-500 lb. class sold in a range of $111-124, while their heifer mates brought $99-110. Steers in the 500-600 lb. range sold from $96-108 while the same weight heifers brought $87-96. Farther to the north, despite a string of bad weather, in Davenport, WA, feeder cattle traded $4 higher on active trade with good demand. In the northern Plains, where the fall runs are mostly finished and cold weather prevailed last week, trends were difficult to determine as a result of light offerings and a lack of sales the prior week. However, in areas where enough cattle were offered to call a trend, it was mostly lower. For example, in Mandan, ND, feeder steers over 500 lbs. were $2-4 lower and feeder heifers over 500 lbs. were steady to $1 higher. Feeder steers and heifers under 500 lbs. were not well tested Buyer demand was reportedly good on all classes of cattle. In Sioux Falls, SD, compared to the sale two weeks prior, feeder steers were mostly steady, except 500-550 lb. cattle which were $3 lower. Feeder heifers under 950 lbs. sold steady to $2 higher on a light test. There was reportedly good sale attendance with good buyer demand on all classes. In Ericson, NE, last week, feeder calves under 600 lbs. trended $3-5 higher, with weights over 600 lbs. trading steady to $3 higher. No trend was called on a short string of yearlings, but very good demand was noted. Cattle quality was called good, with very good buyer demand. In Joplin, MO, steers under 700 lbs. were called steady to $3 lower, while those over 700 lbs. were steady to $2 higher compared to a light test the previous week. Heifers under 600 lbs. were $3-5 lower and those over 600 lbs. were steady on light to moderate demand for calves on offer and moderate to good demand for yearlings. In Oklahoma City, OK, compared to the prior week, feeder cattle and calves were called firm to $2 higher, except for steer calves in the 500-700 lb. class which were $1-2 lower. Demand was called good for all classes except moderate for heavy, fleshy calves and quality was reported to be mostly average. At the auction market in Abilene, TX, last week, feeder steers under 500 lbs. were $1-2 higher and those over 500 lbs. were called $2-4 lower. Feeder heifers under 500 lbs. sold steady to $3 higher, while those over 500 lbs. were $1-2 higher.

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Monday, December 4,2006

BEEF talk

by Kris Ringwall, North Dakota State University
  The future of beef—global competitiveness In the world of food production, beef is one piece of a very big picture. Today’s beef production plans need to include the rest of the world, which is very complex and sometimes volatile. Trade across borders means survival. Flynn Adcock and Associates opined in “Consumer Issues and Demand,” published by the American Agricultural Economics Association’s online Choices magazine (www.choicesmagazine.org, Volume 21, No. 3, 2006), that three global forces impacting us are “animal disease outbreaks and discoveries, income growth in developing economies and trade liberalizations.” The faces and expressions of these forces are hard to decipher and have many forms. Sometimes the energy to collectively face the challenges evades us, so we retreat. It is easy to sit and ponder the future of one’s ranch or farm as the outreaches of the world drift away. That is how it was for decades as American producers were comforted with the concept that they were feeding the world. Producers stood knowing they were helping people around the world, but never would see all of it. Those thoughts went beyond market value, the need to make a profit or the need for material things. Growing up, one of the biggest days on the farm was filling the potato bin. The potato digger, originally pulled by horses and then adapted to a small International Farmall tractor, was a marvelous device. All one had to do was sit on the old seat and lift the front end as the driver turned from one row to the next. The potatoes would roll up the chain, shedding the soil as they moved under your feet and fell on top of the ground. White potatoes were for baking, red for lefsa and other uses. By the end of the day, the potato bin was full. The chickens already were in the freezer and the laying hens were moved to a winterized shed. Nobody said anything to the pigs because deer hunting season wasn’t over. The beef harvest was a bigger job, but a locker plant could be found to help process, cut and wrap the boxes of meat. The only real indication that the inventory had changed was the great aroma of fresh blood sausage cooking in the kitchen oven. Basement shelves were filled with garden produce just waiting to fill our plates as the year went on. How could one complain? The family had food for another year and the world didn’t do so badly, either. Yesterday is no longer here. Lefsa can be made from potatoes in a box. There’s hardly a home around that actually has a year’s worth of food stored in the cellar or a full potato bin (a what?). The typical beef producer today frequents the local supermarket as often as those living in town. As beef producers, we rely on the rest of the world to supply us with our other needs, including almost all of what we eat. Sitting and pondering today certainly brings up different visions. There still is comfort in supplying food to others, but there is less comfort knowing that our own cellars are no longer filled. We simply depend, like many in the world, on the ability to purchase what we need to survive. For the beef industry, the point is that the world changed. We fed the world, we educated the world, and so the world and the people changed. They don’t really need us. Harvesting potatoes was simple and pondering our future was fun. However, the pondering is gone and in its place is the need to better understand global impacts and realize that we are just one of many in pursuit of the good life.

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Monday, November 27,2006

Wheat crop looks promising

by WLJ
Winter wheat conditions slipped slightly last week as a result of dry conditions which persist in much of the southern Great Plains. However, according to reports, crop progress is still considered good and may allow for improved grazing prospects for feeder and stocker cattle, particularly when compared to last year. The news is good for stocker operators who rely on wheat pasture for winter grazing and wheat growers who are currently receiving much improved prices for wheat as a result of depressed yields in other countries. Last Tuesday on the Chicago Board of Trade, December wheat futures were trading higher at $4.78 per bushel. March and May 2007 contracts were also four cents higher, both trading at $4.98 per bushel. Although still slightly better than normal, USDA’s National Agricultural Statistics Service (NASS) last week rated the winter wheat crop as 11 percent excellent and 46 percent good, nationally. In the 18 largest winter wheat growing states, 34 percent was rated fair and only 9 percent poor or very poor. In Texas, 48 percent of the crop was rated good or excellent and 42 percent was rated fair. That compares to 54 percent good or excellent and 37 percent fair the first week of November. In Oklahoma last week, similar dry conditions were also causing a slight decline in conditions. According to NASS reports, 45 percent of the crop was rated good to excellent. Thirty-four percent was rated fair and 21 percent poor or very poor. Those numbers compare with 46 percent good to excellent, 31 percent fair and 23 percent poor or very poor at the start of November. Analysts said some scattered rain across the state helped to improve soil conditions and as with much of the Great Plains region, record setting warmth over the past three weeks has promoted late-season growth in areas with adequate moisture. Last week, USDA’s Joint Ag Weather Facility said high temperatures exceeding 70 degrees were expected as far north as South Dakota. However, USDA forecasters noted that dry conditions will continue to take a toll in much of Oklahoma. However, bolstered by timely rain, the Kansas winter wheat crop appears to have a good start, NASS reported last Monday. The agency rated 10 percent of the Kansas crop excellent and 47 percent good. Thirty-six percent was in fair condition, while 7 percent of the crop was in poor to very poor condition. Wheat planting has progressed ahead of last year and the five-year average. About 93 percent of the Kansas crop has been planted, NASS reported, and about 71 percent has emerged. In the Rocky Mountain region, Colorado’s wheat crop continues to progress, with 74 percent of the crop rated good or excellent, 20 percent receiving a rating of fair and only 6 percent poor or very poor. Montana’s wheat planting is also looking good with 62 percent rated good or excellent, 34 percent fair and only 4 percent poor. Along the West Coast, USDA said rain and snow showers from northern California to Washington have saturated coastal areas causing widespread flooding. However, farther inland, the rain has been a benefit to the wheat crop in the Pacific Coast states. In California last week, 83 percent of the winter wheat crop was rated good or excellent and 17 percent was rated fair. None of the crop in the state was rated lower. In Oregon, similar ratings were reported. According to NASS last week, 76 percent of the crop was considered good or excellent and 24 percent of the crop was rated fair. Farther north in Washington, 69 percent of the crop was good to excellent and 25 percent was called fair, with only 6 percent of the crop receiving a rating of poor or very poor.

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Monday, November 27,2006

USDA official outlines expanding biofuels industry

by WLJ
The federal agriculture official in charge of rural development said last week that changes need to be made in government policies to make it easier for people in rural areas to invest in ethanol and biodiesel plants. Tom Dorr, undersecretary for rural development for USDA, said rural America has significant wealth to invest in the rapidly expanding ethanol and biodiesel industries but regulations, tax policies, and technology in rural areas don’t make it easy. The big question, he said, is: How can individual producers and rural neighbors, cooperatives and other rural entrepreneurs capture the value when big companies start to move in? “It’s not the big guy versus the little guy, measured in money,” he said. “It’s the smart and quick guy versus the fellow who never gets off the dime.” Farmers and others living in rural areas own $1.9 trillion in assets including farm land, ranches and forests, Dorr said. USDA statistics indicate that about $1.7 trillion is free of debt. That’s a tremendous untapped source of capital that could be invested, which would help keep resources in rural areas rather than see them leave as they would if large corporations owned the plants, Dorr said. For example, he said the developer of a $150 million ethanol plant would need to get investors to put up $60 million that could be borrowed against for the project. “Today in New York, you could get it in one check and in Des Moines, you could probably get it in three checks,” he said. In a rural community, it would likely take 5,000 or 6,000 transactions, he said. “That’s not efficient. We need to figure out how to mitigate the transactional cost that enables rural people to invest in these,” he said. Changing some tax policies and regulations could help, he said. The government could also offer technical assistance to help set up businesses, including franchises, cooperatives, limited liability corporations or partially owned subsidiaries. There’s little doubt that the value in biofuels is there, Dorr said. He used the example of an ethanol plant in 2003 in which initial investors bought shares at $1,000 each. A month ago, some of those investors were selling those shares at $10,000 each. “It’s about figuring out how to leverage the private capital that’s out there, capturing this wealth and keeping it in those rural communities,” he said. “The business opportunity is there and the money is there. The key is to access information and confidence building to get potential rural investors off the sidelines and into the game.” Dorr, a Marcus, IA, farmer before he accepted appointment to the USDA post by President Bush, brushed aside skepticism about whether the biofuels industry bubble would burst at some point, leaving investors with losses. “Clearly there has been a major commitment by not just the government, but the private sector, by the research community and by the investment community, in renewable energy,” he said. “All I’m encouraging people to do is to look at mechanisms to make it possible for rural citizens to invest in these to capture some of that wealth.”

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Monday, November 27,2006

Placements drop in October

by WLJ
— Cattle on feed numbers remain record high. — Marketing rate a disappointment. The Nov. 1 cattle on feed report from USDA again showed record high numbers of cattle in U.S. feedlots. According to USDA calculations, there were 11.95 million head of cattle on feed at the first of the month, up 4 percent from last year. That figure is the highest recorded since USDA began the data set in 1996. The number of cattle on feed was mostly inline with analysts’ pre-report estimates. “Cattle on feed increased 2 percent less than normal from October 1 to November 1,” said Andy Gottschalk at HedgersEdge.com. “This pattern will prove to be beneficial to the market midway through the second quarter of next year. A continuing trend toward lower placements this month will only reinforce that potential benefit.” However, the placement number at 2.43 million head was the second lowest October number since the data series began in 1996 and was well below analysts’ guesses. The October 2006 placement level was 13 percent below last year and 10 percent lower than 2004. After the report was released, analysts predicted that the lower number of placements would support the market next year. Placements in all weight classes of cattle were down, but heavyweight placements showed the largest declines from last year, largely due to advance marketings and drought which forced feeder cattle into feedlots earlier than normal this year. Placements of cattle under 600 pounds were down 5.5 percent from last year. Cattle placed in the 600-699 pound range and those in the 700-799 pound range were 18 percent lower than last year. Heavyweight placements of cattle, over 800 pounds, were down 13 percent from year ago levels. The trend was also expected to be supportive of the overall market picture next year, as the lighter placement weights allow more flexibility in how and when cattle are marketed by feedlots. According to Len Steiner and Steve Meyer, analysts with the Chicago Mercantile Exchange (CME), the placement rate was directly impacted by the higher grain prices which started climbing sharply last month. That climb has probably slowed feedlot purchases of feeder cattle this fall. “It certainly appears that feed costs may be having an effect on the decision process this year,” they said. “Corn in the Texas panhandle cattle feeding region last week at $3.82 per bushel. That compares to $2.15 per bushel one year ago and $2.71 per bushel as recently as September 1. It that doesn’t affect some decision making, we’re not sure what will!” Marketings, as reported by USDA, were the single biggest disappointment in the report. At only 1.8 percent above last year with the help of an extra marketing day, the marketing rate for fed cattle during the month of October was actually behind last year's levels. The decline, mostly a result of lackluster beef demand and high retail prices, has boosted steer and heifer carcass weights to all-time record levels. Although steer weights have started to decline seasonally, last week’s heifer carcass weights were still at their peak levels. The additional carcass weight is adding to the heavy supply and packers are having a difficult time clearing inventory. Analysts last week said they expected carcass weights to continue to trend lower as is typical this time of year. High feed grain prices, particularly corn, are expected to hasten the decline in weights as cattle feeders work to limit the costs associated with feeding already expensive cattle. One possible method of reducing feed costs is wheat pasture grazing, although high wheat prices this year and slow growth progress may limit the availability of its use this year. According to Steiner and Meyer, the number of cattle moving out of feedlots onto wheat pastures this year has been lower than normal. “We have been concerned that Other Disappearance could grow dramatically this fall if wheat pasture conditions were favorable. USDA’s weekly crop progress report...shows wheat emergence is ahead of last year and the five-year average in Texas but trails those two measures in Oklahoma and Kansas,” they said. “Other disappearance was in fact considerably higher (23,000 head more) than last year, but that is more a function of low disappearance in October 2005.” They said the level of disappearance this year is close to normal and does not indicate a large movement of cattle out of feedlots to wheat pasture grazing. They called the movement at present a “non-factor” for the current cattle market. On the CME cattle contracts, last Monday, in fact, behaved much as expected. Live cattle were largely mixed, with near-term contracts trading slightly lower. Deferred months, however, moved higher in the day’s session. Feeder cattle contracts were sharply lower after a rally the prior week. Early last Monday, corn prices surged after news that Argentina halted export shipments of corn. That sent feeder cattle contracts tumbling to trade near contract lows. Canadian cattle on feed report It was also reported last week that north of the border, Canadian producers have been ramping up their beef production. Since regaining access to a good portion of its international market, Canadian production has been on the rise. According to CanFax, Canada's current cattle on feed numbers for feedlots in Alberta and Saskatchewan totaled 1,001,473 head on Nov. 1. This was 10.1 percent more than one year ago and 6.8 percent more than two years ago. The last time the cattle on feed number was above the one million mark was in April of this year. The number of cattle placed on feed during October in Canada declined 2.1 percent from a year ago to 315,130 head. This was also down 15.5 percent from two years ago. During October, fed cattle marketings totaled 186,166 head. This was up 16.9 percent from last year and up 13.6 percent over two years ago. — John Robinson, WLJ Editor  

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