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Monday, October 30,2006

Corn prices continue to move higher

by WLJ
— Additional price increases expected to further pressure market. The recent run up in corn prices has had corn users scrambling to lock in prices if they haven’t already done so. Analysts are encouraging the move, saying the price could be set to rise higher when USDA releases the next corn crop update next month. Many analysts are predicting the harvest estimate to be revised lower as a result of lower than expected yields, particularly in portions of Iowa. Dan Childs, ag economist with the Noble Foundation at Ardmore, OK, speaking at the Greater Oklahoma Farm Show recently said producers are going to have to look more closely at supplemental feeding programs and put a pencil to cost of gains as a result of the rise in grain prices. He said a recent price rally and tight corn supply report may be attributed to the ethanol boom and could put downward pressure on feeder cattle. “We may not see $1.80 corn for a long time,” Childs said. “I don’t think we will be able to send calves into the feed yard like we have been. We’ll have to find some way to keep these calves at home.” Robert Wisner, agricultural economist with Iowa State University, said the Oct. 12 corn crop report put total yield almost a billion bushels below expected market demand for the marketing year despite being the second largest crop on record, if yields reach the report’s projections. The yield, at 10.9 billion bushels, had pushed prices past $3.30 per bushel on the Chicago Board of Trade last week, with some analysts predicting it could go higher during the marketing year. “This year’s shortfall can be met by drawing down the large carryover stocks that were built up in the 2004-2005 marketing year. However, USDA currently projects August 31, 2007, U.S. corn carryover stocks at 996 million bushels. That is only a 4.4 week supply available a little more than a month before the main Corn Belt harvest season gets into full swing,” Wisner said. “Reducing the carryover stocks by another 200 million bushels next season, with prospects for total use in the 12.5 to 12.6 billion bushel range, would put the carryover at a 3.3 week supply. That would be a very tight old-crop situation.” He said there is a possibility USDA would move the estimated national yield lower again when it issues the Nov. 9 report next month. He said there were 14 years between 1965 and 2005 when the yield estimate declined from September to October. “Seventy-one percent of those 14 years had a further decline in the season final estimate. The average 2.8 percent decrease, if it occurred this year, would lower the U.S. corn crop by another 310 million bushels and would create a 1.3 billion bushel production-use deficit unless prices rise enough to ration use,” Wisner said. “That would bring August 31, 2007, U.S. corn carry over stocks down to about a 3.2 week supply. In 1995-96, the year when central Iowa cash corn prices were above $5 per bushel for six months, the U.S. corn carry over stocks were a 2.6 week supply.” Those projections are making many corn growers wish they still had corn left to sell since much of the crop this year has been forward contracted. For cattle producers, the result of the price increases means additional pressure on feeder calf markets and increasing costs of gain for feedlots. According to Chris Hurt, Purdue University extension economist, the rise in corn prices and subsequent drop in calf value has resulted in a $1.9 billion decline in annual returns for cow/calf operations. He also said excess feedlot capacity has also been costly for that segment raising feedlot breakevens. “However, learning to feed distillers’ grains at much higher inclusion rates remains the opportunity,” Hurt said. How the industry will respond to higher feed grain costs is yet to be determined, however, Hurt said the effects were already becoming evident. “The latest USDA cattle on feed report gives just a few clues (to how the industry will respond). Placements were down 5 percent, indicating less willingness to put cattle in the feedlot with such an uncertain feed price situation,” he said. “However, the October cattle on feed report is still not current enough to reflect the direction of feedlots yet. It is for the month of September, and much of the corn price increase came in October.” Hurt said over the last month, feeder cattle prices have shown the effects of the rise in price. “November feeder cattle futures, as an example, dropped $10.87 from mid-September through October 20. Cash prices for 500-550 pound steer calves at Oklahoma City, OK, dropped by $10.59 per hundredweight. So the initial surge of higher feed prices is being felt most heavily by two industry sectors. The first is feedlot managers who paid high prices for calves and did not have their needed feed costs hedged,” Hurt said. “The second, and biggest losers from much higher feed prices so far, are the cow/calf operations and some backgrounders. The cow/calf segment is particularly hard hit as lower calf prices can be expected as long as feed prices stay high, or until distillers’ grain use can help moderate overall feeding costs.” According to Wisner, ethanol production, creating the opportunity for feeding distillers’ grains, is only going to grow. According to him, ethanol production is expected to use 34 percent more corn during the upcoming marketing year than during the current year. Although the expected short fall can be met with the carryover stock from the 2005/2006 marketing year, the number of acres planted in corn next year will likely increase to meet future demands, according to Wisner. He said next year’s planted acreage will likely grow by 9 to 11 percent to meet the growing demands of the industry, although that number is subject to market forces and growing conditions at home and abroad. — John Robinson, WLJ Editor

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Monday, October 30,2006

Beef talk

by Kris Ringwall, North Dakota State University
Do not cut out tags The other day I was visiting with a producer who wanted carcass information on the calves he sold. His frustration was directed at the failure of the system. None of the performance data from his calves was coming back to him. He tagged his calves with electronic identification (EID) tags and followed all the appropriate steps, but nothing happened. The principal reason was the electronic ID tags in his calves had been cut out when the calves arrived at the feed yard. Sometimes the message needs to be very blunt: “Do not cut out electronic identification tags, commonly known as EIDs.” The EIDs may have different appearances, depending on the tag company design, but essentially they consist of a button that is attached to the ear by means of a stud. These tags are passive electronic devices that have little to no information on them. The same holds true for all IDs that an animal may have. The visual tag IDs or brands are very important in determining who an animal is. The verification of the EID, along with visual IDs, is important to maintaining the accuracy of the database. In the previous two years, 7,282 calves have been tagged with EID tags in preparation for tracing the calves through the backgrounder, feedlot and harvest process. Our trace-back efforts have revealed 1,440 of the animals still are grazing pastures at home as replacement females. Of the 5,842 that left the home ranch in 2004 and 2005, 3,584 calves have been lost in the system (to date) and 61.3 percent of the calves were not tracked through harvest. The most obvious reason is the tags were cut out. Once the tags are removed, all information flow stops immediately. A very distant second reason is the inability to timely negotiate with individual feed yards to make arrangements at the harvest facility to have the tags read so the appropriate carcass data can be collected. The bottom line is worth repeating: “Do not cut out ear tags from cattle, and that goes for all cattle!” Another little quirk came up in the discussion that shows the relative degree that the electronic ID is misunderstood. There is a thought by some that the EID device can record data and actually is monitoring the calf and its environment. Therefore, the tags should be cut out and destroyed. The passive EID tag (used in the CalfAID program) is not capable of acting under its own power to record data. The tag must be read by utilizing appropriate equipment that only reads a factory-installed number that is permanently embedded in the tag. No other information is on the tag. There are active tags that can store data. However, that tag is not promoted to any large extent in the industry. Even then, appropriate programs must be retained and utilized through specific equipment. The common low-frequency tags currently used do not record data. The tags that do record data require special equipment that is very obvious within the work facilities. Hopefully, with time, more data will start coming back to help producers with management decisions to enhance the management of their beef cattle operations. The center has a goal of distributing 20,000 EIDs for the express purpose of helping producers better understand the complexities of tagging cattle. Each year does get a little better, but one step at a time. Remember: Do not cut out those tags.

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Monday, October 23,2006

Outlook predicts mild winter for much of U.S.

by WLJ
Most of the country will see winter temperatures above normal, though slightly cooler than last year’s very warm winter, according to the winter weather outlook announced today by the National Oceanic and Atmospheric Administration (NOAA). According to scientists at the NOAA Climate Prediction Center who produce the outlook, drought conditions also are expected to improve in most areas of the Southwest, while some drought conditions are anticipated in parts of the Pacific Northwest. The projections, based on the last edition of the U.S. Seasonal Outlook, were issued by NOAA in conjunction with the 2006-2007 Winter Fuels Outlook Conference. Weak El Niño conditions have developed in the tropical Pacific can and are expected to persist through the winter, possibly strengthening during the next few months to an event of moderate strength. However, this event is not expected to reach the magnitude of the strong 1997-1998 El Niño event. “The strengthening El Niño event will influence the position and strength of the jet stream over the Pacific Ocean, which in turn will affect winter precipitation and temperature patterns across the country,” said Michael Halpert, lead forecaster at the NOAA Climate Prediction Center. “This event is likely to result in fewer cold air outbreaks in the country than would be expected to occur in a typical non-El Niño winter.” The winter outlook reflects a blend of factors associated with weak to moderate strength El Niño events across the central and eastern Pacific Ocean, combined with longer-term trends. From December through February, the lower 48 states can expect about 2 percent fewer heating degree days than average but about 5 to 10 percent more heating degree days than last year’s very warm winter. Seasonal forecasters also expect warmer than average temperatures across the West, the Southwest, the Plains states, the Midwest, and most of the Northeast. Near-average temperatures are expected for parts of the Southeast. The outlook for winter precipitation calls for wetter than average conditions across the Southwest. Drier than average conditions are expected in the Tennessee Valley, the northern Rockies, the Pacific Northwest and Hawaii. Other regions have equal chances of drier, wetter or near normal precipitation.

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Monday, October 23,2006

International picture bright for U.S. cattlemen

by WLJ
The worldwide picture for U.S. beef exports looks positive, according to Clayton Yeutter, and that’s good news for cattlemen. Speaking at a joint meeting of the Texas Cattle Feeders Association (TCFA) and the Texas and Southwestern Cattle Raisers Association (TSCRA) in Amarillo, Yeutter told cattlemen that there is some good news in the international competitive picture. Cattle feeders were in Amarillo for the TCFA annual convention and TSCRA members gathered for their fall board and committee meetings. Yeutter, a past USDA secretary and former U.S. trade representative, believes that beef’s traditional export markets will come back fairly quickly and that’s encouraging for the U.S. cattle industry. “The real question is, can we build on that and make it bigger in the future?” Yeutter thinks the U.S. beef industry can, even in the face of global competition from Brazil, Australia, Argentina and the European Union. “First, when and if we ever complete the Doha round of multilateral trade negotiations, agricultural export subsidies of all kinds will disappear forever.” The biggest user of agriculture export subsidies, including beef, is the European Union, he said. “Once those export subsidies are out of the picture, that will make it far more difficult for the European Union to move product into the world market in competition with the United States.” Yeutter said many feel the Doha round of World Trade Organization talks is dead. “But my personal judgment is it will come back to life. I’m not sure it will come back to life in the next few months, but I think it will get there eventually. I believe that export subsidies in agriculture are going to go by the wayside and that’s going to be good for the industry.” Argentina and Australia have the potential to be major world competitors in beef exports, but Australia doesn’t have the resources to expand its beef industry much beyond its present size, Yeutter said, and Argentina’s government will continue to hamper the nation’s ability to export beef. “So that means Brazil is likely to be our major competitor in export markets in beef. And what we have to do is beat the Brazilians in terms of quality of product. We need to put higher valued, higher quality beef into the international marketplace in the coming years.” Yeutter told cattlemen that someone always asks if there are enough affluent people outside the U.S. to buy American beef. Where are those consumers? “Basically, it’s the developing nations throughout Asia that will have the population and the growing purchasing power to be able to handle additional imports of American beef products. And those can be some excellent markets for American beef through the years.”

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Monday, October 23,2006

Fed cattle expected steady

by WLJ
There was some early, light trade last week in Nebraska at $135 dressed basis while most dressed offers were holding firm in a range of $140-142 in the northern Plains. In the south, offers were in the $90 range with buyers offering only $85 for inventories, which were slightly larger than the prior week. Analysts were calling for trade steady with the previous week, when trade finally developed in earnest. The last substantial trade was at $87-88 live basis and $135-138 dressed two weeks ago. Feedlots were holding out for higher money last week as a result of higher boxed beef prices and what was expected to be a supportive cattle on feed report, in some respects. Pre-report estimates were calling for at or near record high numbers of cattle on feed for the month. However, placements were anticipated to be smaller and marketings solid for the month. Those expectations were causing packers to hold onto cattle in the hope of improving packer bids. On the other hand, packers, whose margins were still estimated to be minus $14.15 by HedgersEdge.com, were sticking to their offers last week. Boxed beef cutout values received a slight boost last week from lower production levels. Packers, who announced two weeks ago they would trim kill levels, followed through, and in the process raised Choice boxed beef cutouts more than $3.50 from the prior week. Choice cutout value on Thursday was down slightly at $146.21. Select cutout values were five cents higher at $136.41 in last Thursday’s trade. Those prices are up from $143.32 on the Choice and $134.44 on the Select from the previous week. Last Thursday, packers harvested 125,000 head, up slightly from the prior week and 3,000 head above a year ago. For the week to date as of last Thursday, packers had harvested 498,000 head, down from 502,000 the prior week, but up from the 487,000 head harvested during the same week last year.   On the Chicago Mercantile Exchange last week, live cattle contracts were mixed as futures traders waited for cash trade and USDA's cattle on feed report. In Thursday trade, contracts were lower across the board. October was down 70 points to $87.87, December was 65 points lower at $87.20 and February was down 57 points to close the session at $89.95. According to Virginia Tech Commodity Marketing Agent Mike Roberts, live cattle futures were mixed with the nearbys lower amid concern for higher feed costs pushing fed cattle to market sooner rather than later. “Floor sources stated today they were still concerned that feedlot supplies are adequate and rising feed costs will push cattle into packer yards. Trader's expectations are that beef packers will not reduce slaughter rates to any appreciable extent due to very high fixed costs,” Roberts said. “A lack of positive export news from Asia added a bearish tone to the market.” Roberts encouraged cash sellers to consider protecting a portion of fourth quarter 2006 and first quarter 2007 marketings. “Hedgers sensitive to the downturn in this market should be on short positions by now. Corn users should hold off pricing inputs at this time while considering selling a put option,” Roberts said. Feeder cattle Feeder cattle trading last week was also on a downward trend, largely as a result of the very strong corn market. Corn prices jumped to $3.16 per bushel for new crop December corn futures on the Chicago Board of Trade last Thursday. The rise in prices, more than 18 cents per bushel in a week, added heavy pressure to an already weakened feeder cattle market. According to market reports from across the country, feeder steers and heifers sold $2-5 lower. This is the fifth consecutive week of downturns and some calves were off $20-25 per cwt. during this slide. The price slide, along with harvest time and the fact that a lot of calves were marketed early as a result of drought, has pushed down auction market receipts to low levels in most areas. Buyers are only purchasing cattle in a “hand to mouth” fashion, according to Livestock Marketing Information Center Economist Erica Rosa. On the West Coast, the fall runs are resulting in heavy runs of feeder cattle at this time of year and prices there are mostly steady despite the volume. In Toppenish, WA, last week, feeder cattle steady to $3 lower. Trade was called moderate with good demand. In Klamath Falls, feeder steers sold $3 lower and feeder heifers were $3-6 lower with demand for all classes moderate to good. At Famoso, CA, feeder and stocker cattle last week were $3-4 lower last Monday. Demand for stocker cattle was excellent, with the best call for quality steers and heifers in the 450-525 lb. range, although prices were somewhat softer as a result of climbing corn prices. Feeder cattle were in excellent demand, particularly the 650-750 lb. steers and heifers. In Billings, MT, steer and heifer calves were in short supply last week and were steady to slightly lower. Demand was called good for light fleshed calves under 550 lbs. and moderate for heavier weights. In Riverton, WY, last week, feeder calves came under heavy pressure with steer calves under 500 lbs. trading steady to $2-5 lower with instances of $8-9 lower. Cattle over 500 lbs. were mostly $5-7 lower. Heifer calves under 500 lbs. traded steady with some instances of $1-6 lower, over 500 lbs. were $2-3 lower with instances of $6-8 lower on 550-600 lb. cattle. Demand was called moderate to good. In La Junta, CO, compared with the previous sale, steer calves under 600 lbs. were $2-3 lower except for 500 to 550 lb. calves, which were steady. Heifer calves under 450 lbs. were steady, while those over 450 lbs. were $2-3 lower, except for 450 to 500 lb. calves which were $5 lower. Yearling feeder steers were lightly tested. Yearling feeder heifers were $1-2 lower. Trade was called moderate to active with demand moderate to good. In Joplin, MO, compared with the prior week, steers and heifers sold $3-6 lower, with some reports of $7-10 lower. Demand was called moderate with quality average to poor in most classes. Yearlings over 700 pounds were reportedly scarce. Receipts at Joplin were much lower compared to last year as a result of market prices as much as $20 lower compared to sales last month. In Oklahoma City, OK, where runs continue to be well below last year's numbers, prices last week were $2-3 lower on feeder steers and heifers. Steer and heifer calves were $1-3 lower, with the most loss on calves over 500 lbs. Demand was called moderate to good for calves, the best action on long weaned calves.

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Sunday, October 22,2006

BEEF talk

by Kris Ringwall, North Dakota State University
Attending the North Dakota Stockmen’s Association annual meeting in Fargo, ND, was good. The meeting, as with all meetings, picked up the flavor of the region, a fact of life throughout the world. It seems beef meetings are filled with good humor, with much of it directed at chickens. Unlike many ethnic stories, there is no offense taken to a good chicken joke among the beef folks. In this case, egg laying Ginger was the center of attraction. Ginger starred in the movie “Chicken Run,” a funny movie by Aardman Animations involving a flock of chickens bent on not becoming chicken pie. The chickens spent the majority of the movie developing and executing a plan to escape. In the end, they succeeded, met their goals and retired in paradise. Perhaps there is a lesson in that brief statement, but I would like to make a broader point. The chicken and cow thing has been going on for some time. For the most part, the early settlers would have insisted on both, plus a milk cow, a sow and maybe sheep. As time went on, the need, or at least the desire to specialize, negated the lack of competition. The result was a competitive atmosphere by those who have survived the process of presenting consumers with something that fancies their palates. This is big business and the sparring within the world of meats began. Today, looking the competition in the eye is very real. What seems interesting is that the poultry industry, like Ginger, has a plan. Al Kulenkamp of Shaver Poultry Breeding Farms Ltd., detailed the plan for egg layers in his article, “Profile of the Layer of 2010.” Kulenkamp says, “The layer in 2010 will be substantially improved, but not dramatically different. She will be capable of laying 12 to 15 more eggs of better quality … and consume up to eight grams less feed per egg. With improved breeding techniques, the 2010 layer will be better able to cope with group-type environments.” The opposition for beef has a plan, a goal and a process to achieve that goal. They will. Where are beef producers and the mighty beef cow? Do we have a plan that entwines increased production, better quality of product, more efficiency and increased flexibility to cope with environmental modification? Ginger may tolerate a little fun poked at her, but it is not at her expense. Rather, the fun is at the expense of the beef cow. Long-term planning works. According to Kulenkamp, today’s hens lay 50 or more eggs using 25 percent less feed compared with the hens of yesterday. Chicken breeders utilize consistent, long-term breeding strategies that not only produce change for the breeder, but for the entire commercial industry as well. Yes, the beef cow has changed, but is there a plan to do what the chicken did? Can we increase production, quality, efficiency and positive environmental impacts? All of these issues are addressed. In one room, the cow/calf people gather. The meats people are across the hall and the nutritionists will have their own meeting next week. The beef animal waste people had a call to arms, but no one attended the meeting, so the points were tabled. Instead, the perceived “big” issues, such as animal identification and premises registration, are bubbling to the top. Meanwhile, we entertain ourselves with chicken jokes. Ginger is no joke. She had a plan, set her goals, got the flock to work as a unit and they all retired in paradise. Our cows have a lot of work to do.

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Monday, October 16,2006

Packers announce cutback in operations

by WLJ
— Negative per head returns finally take their toll. Three of the four major packing companies last week took a step toward improving profitability when they announced immediate cuts in the processing shifts at their beef plants. Analysts had been predicting the move for weeks as projected packer margins fell farther and farther behind break-even prices. Bob Price at North American Risk Management Services, Inc. said the cutbacks were a result of all the usual concerns, such as poor margins, lower priced competing meats, and difficult trading conditions overseas. The largest of the companies announcing cutbacks, Springdale, AR-based Tyson Foods, said the company intended to reduce its operating hours from 40 to 35 during the next six to eight weeks. That reduction alone will eliminate approximately 12,000 head of cattle from the slaughter mix each week. A Tyson spokesperson blamed the slowdown at least partially on difficulties in export markets and the expected seasonal softening of beef demand. “Access to key export markets remains limited. Competing meats, such as pork and poultry, are significantly less expensive (than beef), and we’re in the fall season when beef demand historically softens,” the company said in its statement. In addition to the cuts in slaughter at its primary Plains states plants, Tyson announced its Boise, ID, beef plant would be permanently shuttered last Tuesday, as had been previously planned. The losses in the beef industry have weighed heavily on Tyson Foods, with quarterly losses reported in May and July. The third quarter report, issued in July, showed Tyson was $53 million in the red. It is widely anticipated that the company will also record a loss for fiscal year 2006 which ended Sept. 30. Competing proteins such as chicken and pork, which sell at retail for less than beef, have also contributed to the problems in the beef market. National Beef Packing Co. also put the brakes on its operating hours last week when it reduced its hours at Dodge City, KS, and Liberal, KS, to an estimated 37 hours per week, down from its normal 40 to 48 hours per week. The company said it had gradually been cutting back its operating hours for the previous two weeks before making the official announcement. “We’re normally a six-day-a-week operator, so for us, this is a dramatic cutback,” company spokesman Keith Welty said. He said he was unsure of the cost savings for the company as a result of the reduced operations. According to Welty, there are 3,100 employees at the Liberal plant and 2,800 employed in Dodge City.   In a release, National Beef President Tim Klein attributed the action to “poor demand, tight supplies of cattle, and the continued limited access to our export markets.” “We do not expect market conditions to improve for several months,” Klein said. “We will make a concerted effort to keep our suppliers, customers and employees abreast of our reduced production schedule.” By the end of the day last Tuesday, Swift & Company, the third-largest processor of fresh beef products in the U.S., also announced its intent to limit production at three of four domestic beef processing facilities. The company said it plans to limit its kill schedule to only 32 to 37 hours per week. Swift cited declining gross margins due to high cattle prices, seasonally weak domestic boxed beef demand, and limited access to key international export markets as the key reasons for the production cutback. Swift officials said the company intends to limit production at its Cactus, TX, Grand Island, NE, and Greeley, CO, plants until beef processing gross margins materially improve. The company said it, too, had been working reduced kill shifts for the past several weeks. Although Cargill Meat Solutions (CMS) has not publicly announced it will reduce operating hours or kill level, CMS spokesman Mark Klein said the company had been working at a slower rate for the previous month. “We have been managing our hours, including reducing them for the last 30 days. It has been on a week-by-week and plant-by-plant basis depending on availability of cattle and the price,” Klein said. Last Wednesday, after the reductions were announced, HedgersEdge.com estimated packer losses in excess of $50 per head. Analysts said they expected the cutback in harvest would help support the boxed beef cutout prices and, as a result, boost packer margins. However, despite the cutbacks, slaughter volume was still above year ago daily and weekly totals last Tuesday when packers harvested 128,000 head. That figure was 7,000 above the prior Tuesday and 12,000 head more than a year ago. For the week to date, 255,000 head had been harvested, 6,000 more than the prior week and well above the same week in 2005 when packers killed 240,000 head. Packers haven't been the only ones impacted by large supplies of slaughter-ready cattle and a decline in boxed beef prices. According to information from the Livestock Marketing Information Center (LMIC), feedlot closeout prices have hit cattle feeders hard for much of this year. High feeder cattle prices and a stronger than normal grain market have kept them in the red as well. In coming months, break evens will move even higher, making it increasingly difficult to regain positive margins at the feedlot level. For example, the estimated monthly breakeven for a 750-pound steer that will reach slaughter weight in January 2007 is just over $98 per cwt., according to LMIC data. — John Robinson, WLJ Editor  

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Monday, October 16,2006

Fed cattle prices slide

by WLJ
Short bought packers last week jumped into the market early and got trade started at levels lower than the prior week. A combination of factors, including seasonal softening beef demand at the consumer level and a sharp decline in the Chicago Mercantile Exchange (CME) live cattle contracts on Monday worked against cattle feeders who, last Wednesday and Thursday, sold cattle in a range of $86-$87 live and $135-$138 dressed in the north and $87-88.50 in the southern Plains. Packer interest tapered off once moderate trade had developed, indicating they were not interested in buying more cattle than necessary to meet immediate needs. A similar trend was evident the prior week, when trade developed very late in the day, Oct. 6, at very low volumes. The widely expected news that packers were going to trim kill levels by reducing operating hours finally came through last week. Now all that remains is to see how much the cutback will actually affect slaughter volumes. Some analysts last week were quick to point out that previous announcements did little to decrease slaughter volume and didn’t last long. Despite packer statements that the cutbacks had been underway for several weeks, the slaughter volume for the month to date last week was still well above 2005. For Thursday last week, USDA estimated slaughter volume at 123,000 head, which was down 5,000 from the prior week but still ahead of 2005. For the week to date last Thursday, packers had processed 502,000 head, which was 1,000 head more than the prior week and 19,000 head more than the same week in 2005. Reductions in harvest did boost boxed beef cutout prices, but not enough to boost packer profitability very much. Choice boxed beef cutout values last Thursday were up just 14 cents, to $143.42, in morning trade. Select was also up 49 cents, trading at $134.36 for a Choice/Select spread of $9.06. Despite the improvements, packer margins were still deep in the red, according to HedgersEdge.com. Last Thursday, per head losses were estimated at $53.70. Movement of product was called moderate as wholesale buyers worked to fill needs before prices climb as a result of the cutbacks in kill levels. On CME last week, early week trade was sharply lower as a result of bearish sentiment after the lower cash trade the week prior. October and December live cattle contracts lost 167 and 152 points respectively and were as much as $2-3 lower than the prior week. During last Monday's sell-off, contracts dropped below their 100-day moving averages which triggered technical fund selling which added to the pressure. Despite the early week losses and lower cash trade, CME live contracts bounced back last Thursday, with contracts closing higher across the board. October was 40 points higher at the end of the session, closing at $88.75. December was up 80 cents, the largest gain of the day, to close at $87.70. February and April contracts were both 77 points higher, closing at $89.87 and $88.90 respectively. Mike Roberts, commodity marketing agent for Virginia Tech, said Cash sellers should consider protecting a portion of fourth quarter ‘06 and first quarter ‘07 marketings at this point. “Hedgers sensitive to the downturn in this market should be on short positions now,” Roberts said last week. Feeder cattle Live cattle losses on CME last week were enough to pull feeder cattle contracts sharply lower. Figure in seasonally larger runs of cattle, higher corn prices, a cut in USDA’s corn crop estimate, larger numbers in auction markets, and lower cash trade in the country and it added up to a rough week for feeder cattle last week. Monday CME trade saw significantly lower trade especially in the nearby feeder cattle contracts. October feeders were 223 points lower at the end of the session, closing at $110.75. November was down 292 points to $108.32 and January contracts gave up 300 points to settle at $106.27. Those prices were more than $3 lower than a week earlier. Feeder cattle sales trended lower all week as a result of a lack of support from either cash or contract trade and with the cutbacks in slaughter and lower prices being paid for fed cattle, it looked last week like it might be some time before that changes. If grain prices continue to rise like they did last week, it will add additional pressure to the feeder cattle market. Numbers of yearling feeder cattle remain tight, which should help to support prices in the near term, however, rallies are likely to be limited on either the cash or contract side. In Coleman, TX, last Wednesday, feeder steers under 500 lbs. were $1-3 higher, defying the week's trend. Those calves over 500 lbs. were steady to $1 higher. Feeder heifers were also $2-3 higher. Trade and demand were called good. At Oklahoma City, OK, last week, feeder cattle and calves were $2-4 lower, except thin fleshed, long weaned or preconditioned calves under 500 lbs. which sold steady to $3 higher. Demand was called moderate to good for all classes, with the best demand for light weaned calves. Calves over 500 lbs. found narrow outlets as northern buyers pull out of the market. In West Plains, MO, last week, feeder cattle were sharply lower with steers and heifers $2-7 lower. A few steers under 350 lbs. sold $12-15 lower than the prior week’s strong market upturn for light feather-weight steer calves. Supply was moderate to heavy with the demand called light to moderate. In Dodge City, KS, compared with the previous week, steers 300-650 lbs. sold steady to $2 lower on a light test. Heifers in the 300-650 lb. range didn’t have enough volume for a test, but a lower undertone was noted at the market. Steers 650-950 lbs. were called weak to $3 lower, also on a light test. La Junta, CO, markets sold steer calves under 500 lbs. steady with the previous week, while those over 500 lbs. were $3-5 lower with a full decline on cattle in the 600 to 700 lb. range. Heifer calves and yearling steers were $2-3 lower on active trade and moderate to good demand. In Riverton, WY, compared to the prior week, steer calves under 500 lbs. were $2-4 lower, and those over 500 lbs. were steady with some instances of $2-5 higher. Heifer calves at the market were under pressure with most steady to $2-3 lower. Yearlings steers were called steady with some instances of $3 lower. Heifers were steady with replacement quality animals in the 800-850 lb. range $4-5 higher on moderate to good demand. In Billings, MT, last week, steer and heifer calves were $2-5 lower in a light test, except 600 lb. steers traded near steady. Demand was called moderate as a result of lower quality and smaller lot sizes being offered. On the West Coast, in Toppenish, WA, last Tuesday, feeder cattle were called $2-7 lower on moderate trade and light to moderate demand. In Famoso, CA, stocker and feeder cattle were $2-3 lower with excellent demand for stockers, especially the quality 450-525 lb. steers and heifers. Feeder cattle also met excellent demand, especially the 625-750 lb. quality steers and heifers. At Madera, CA, stocker and feeder cattle were steady with the prior week with 500 lb. class steers bringing $102-117.75 and the heifers in the same class were selling between $99 and $112.50 in a light test.

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Monday, October 9,2006

Shipments to South Korea on hold

by WLJ
—Lack of clarity preventing companies from trade. USDA statistics showed last week that no beef has been shipped to South Korea since the border opened. Sources at major packers have said they are concerned about having shipments condemned in the event inspectors find even small fragments of bone in shipments of U.S. beef. Officials with the South Korean agriculture ministry have said they will have a zero tolerance policy regarding any bone fragments in beef products sent overseas. That stand means any product found containing bone fragments could be rejected or destroyed by government inspectors. That is a risk major exporters aren’t willing to take. Lynn Heinze, U.S. Meat Export Federation vice president of information services, said vague responses and instructions from South Korean officials are the reason packers have not yet resumed shipments overseas. “Individual companies will make their own decisions as to when they will resume shipments, but without additional guidance, it could be some time before shipments begin,” said Heinze. USDA sent a high-level delegation to Korea in August in an effort to come to an agreement on an acceptable standard for a tolerance level for bone fragments in boneless beef shipments, but the South Koreans rejected the request. Sources at major packing companies said most don’t intend to ship overseas until a standard is reached. The border officially opened to shipments of boneless beef from animals under 30 months of age on Sept. 8. USDA Foreign Agriculture Service officials said last week the agency would “continue to press Korea for appropriate beef trade protocols.” The regulations, which U.S. officials had hoped to get changed quickly once trade barriers were lifted, said if problems are found, South Korea “may suspend temporarily export loading from the relevant meat establishment that produced the exported beef.” The regulations also state inspectors may “return the export beef to its origin or destroy it if discrepancies with the health requirements of Korea are found.” In Hong Kong, which maintains similar standards to those imposed by South Korea, shipments from some U.S. plants were prohibited after the discovery of bone fragments in shipments of beef from multiple U.S. packing plants. In 2003, the U.S. exported more than $814 million worth of beef to Korea, with boneless beef accounting for $449 million. A large portion of the remainder was bone-in product such as short ribs, which are popular in Korean-style barbeque dishes. One source at a major U.S. packer said his company wouldn’t ship to Korea until a standard is met, a condition which was conveyed to USDA officials negotiating with South Korea even before the announcement to open the border was made. Until a standard is set, or at least the penalties for bone fragments are set forth, packing companies have too much to lose, according to that official. Industry sources have said maintaining a zero tolerance for bone fragments is very difficult and more costly than it sounds. “The industry can probably do it on a small scale, but it would be very cost prohibitive and it’s unlikely they (South Koreans) would be willing to pay for it,” the source said. Meanwhile, in an effort to ramp up supplies in light of the border closure, South Korean farmers have been increasing their herd size. This year, total cattle numbers in the country have risen sharply, according to the nation’s agriculture ministry. The South Korean beef cattle herd increased to a seven-year high of 2.02 million, up 3.2 percent in the latest quarter-to-quarter comparison. The herd has grown 37 percent since 2003 and is the highest since 2.09 million animals were recorded in September 1999. — John Robinson, WLJ Editor  

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Monday, October 9,2006

Feedlots hold out for more money

by WLJ
Fed cattle trade continued its recent trend of slow development last week as packers once again worked hard to convince feedlots they intended to stick to offering prices. As of Thursday last week, bids were still as much as $5-6 below asking prices. Very little trade had taken place and analysts were calling the market steady to perhaps $1 higher at $91 live and $140-142 dressed basis when buyers and sellers finally came together. At those prices, packers were well into the red ink, with an average per head loss, estimated by HedgersEdge.com, of $45.70 last Thursday. Attempts to move the boxed beef cutout value higher have been difficult to sustain and packers seemed reluctant to trim kill rates, despite widespread belief they intend to do so soon. Choice cutout values last Thursday were near steady at $142.39. The Select trade was slightly higher at $134.72. For the week-to-date last Thursday, harvest was estimated at 501,000 head, 5,000 more than the prior week and 15,000 more than the same week last year. When combined with the record steer and heifer weights, it amounts to a substantial increase in the amount of retail product being offered at the wholesale level. Jim Robb, director of the Livestock Marketing Information Center, said the cutout values moved higher but that doesn’t necessarily reflect the number of steers and heifers being slaughtered. “If you look at the volume of cattle being slaughtered, it becomes pretty clear that the numbers are higher than last year for the month of September. What isn’t getting as much attention is the fact that the increase is entirely in the cow and bull slaughter,” Robb said. “Preliminary numbers show cow and bull slaughter last month was up 12.5 percent over last year. Steer and heifer slaughter for the month was actually down 2.2 percent.” That slaughter mix has hit cow cutout values extremely hard as the market attempts to absorb the additional volume. USDA cow cutout values last Thursday had dropped to $101.02. The 90 percent lean was trading at $124.30 and the 50 percent trim was $36.87. Those figures compare to last year, when cow harvest year, when cow harvest was considerably lower, in a very negative manner. During the same week in 2005, the cow carcass cutout value was $105.87. The price of 90 percent lean was $130.70 and 50 percent lean traded at $51.38. The combination of sagging demand at the consumer level and beef output more than 5 percent ahead of last year, has packers at the lowest gross margin in many years. The Chicago Mercantile Exchange was higher in last Thursday’s session, despite quiet in the cash market. Despite pressure as fund traders moved money out of October contracts to December, the nearby contract gained 97 points to close the day at $91.35. It lent some support to feeder positions as they held on for better offers last week. December traded 82 points higher at $90.10 and February rose 80 points, closing at $91.35. The gains in the corn market last week took their toll on the feeder calf traders and sent the market down. In most auction market trade, where lighter than normal fall runs are beginning, prices were sharply lower as a result of strong Chicago Board of Trade corn contract movement. Last Thursday, new crop December corn closed the day’s trade at $2.74 per bushel. The upward momentum has feedlots scrambling to secure their corn prices if they haven’t already done so. Robb said the calf and yearling markets were being dominated by the news from the corn pit. “The feeder market, and particularly the contracts, are being linked to gains in corn, perhaps even more than they should be at this point.” Add the recent dismal reports from wheat pasture regions to the pressure from the corn trade and there was ample reason last week for buyers to sit on their wallets. According to Derrell Peel, agricultural economist at Oklahoma State University, hot, dry, windy conditions in the state are erasing hopes of good grazing conditions, which just weeks ago were looking very promising. Temperatures into the 90s last week, along with a lack of precipitation, have already taken their toll on newly sprouted wheat pastures. “There are some reports that the wheat has blown out with the recent winds and will have to be replanted. Emerged wheat needs moisture very soon to avoid losing the young stands. In other cases, dry-planted wheat is still waiting for moisture to germinate. In still other cases, the locally heavy September rains washed out some dry-planted wheat that has or will be replanted,” Peel said. “All of this confirms that fall wheat forage production for grazing will be minimal.” The resulting poor prospects have put a damper on the demand for stocker cattle in the southern Plains. “Oklahoma feeder markets have developed a weaker undertone the past two weeks with lack of wheat pasture demand for stockers compounded by limited feeder demand due to swelling feedlot inventories. Feeder cattle auction volumes are still at or above last year’s levels but should moderate in the coming weeks as earlier drought-induced sales are expected to result in reduced weaning calf runs in October and early November,” Peel said. “This should help moderate seasonal calf price decreases, but the poor wheat pasture prospects described above may mean that demand weakens more than supply, thereby keeping prices on the defensive.” Along the West Coast, the feeder market is less affected by the dry conditions of the southern Plains, however, markets there were also under pressure last week. In Vale, OR, the first real readjustment of the fall run happened last week. The market was called $3-7 lower. In addition to the corn news, buyers there reported the lower fed cattle futures in the first quarter of 2007 were cause for concern. In Famoso, CA, the market trend was steady on feeders and $2 lower on stocker cattle last week. Most demand was found on the feeder cattle, particularly those steers and heifers in the 650-800 lb. range. Demand for feeder cattle from 450-550 lbs. destined for spring harvest was also called good. In Billings, MT, steer and heifer calves over 500 lbs. were steady to $2 lower, with weights under 500 lbs. called steady to $4 lower. Yearling heifers sold $1-2 lower. Calf demand last week was light to moderate, with the weakest part of the market for 600 lb. heifers. Demand for yearlings last week was moderate to good. In Torrington, WY, compared to the prior week’s auction, feeder steers under 650 lbs. were mostly steady, with the 400-450 lb. steers $2-4 lower with quality not as attractive as the previous week on the lighter steer calves. Cattle in the 700-900 lb. range were steady, while those over 900 lbs. were steady to $1 lower. Feeder heifers 400-500 lbs. were steady to $3 higher, and 700-750 lb. heifers were steady with some instances of $2 lower on good demand. At Hub City, SD, compared to the previous week, yearling steers and heifers sold steady, with a large run of high quality yearlings coming off grass. Spring calves sold $1-2 lower in a light test. For spring-born calves, best demand was for light fleshed weaned calves with both spring and fall shots. Farther south in Dodge City, KS, in a light test last week, steers in almost all weight classes were weak to mostly $3 lower. Heifers between 400-650 lbs. were weak to $5 lower, while those from 650-800 lbs. were weak to mostly $3 lower. In West Plains, MO, last week, steer and heifer calves sold $2-5 lower, except light/feather weight stocker calves under 375 lbs. and 500-600 lb. steers were steady to $2 higher. Yearlings mostly steady on moderate supply. At the market, it was noted temperature changes and expanding numbers in sick pens on feedlots prevented buyers from bidding up the market. In Oklahoma City, OK, a limited test on feeder cattle left the market mostly steady with moderate to good demand as light numbers made it difficult to create even loads. Steer and heifer calves were steady to mostly $2-3 lower. In Abilene, TX, feeder steers were called $2-5 lower, with yearlings steady to $1 lower. Feeder heifers were $2-4 lower, and yearlings steady to $2 lower in active trade.

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