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Thursday, December 20,2007

BeefTalk

by WLJ
August 15, 2005 The telephone rang yesterday morning. “Can I have some of those electronic identification tags?” the voice on the telephone asked. The call was like many already received and more will come. “What are you going to use them for?” I asked. “I need to put them in the calves when I sell so they will be age and source verified,” the voice on the telephone responded. I could feel a headache coming on. I couldn’t help but moan for a non-mutable industry, an industry filled with old cowboy mentality that spends extraordinary amounts of energy resisting change. A common point of discussion is, “You don’t have to take all those production measures because the tag is going to be used only to record the movement of cattle.” Livestock identification is not about the type of eartag. It’s about the use of data. For an eartag to mean something, the data must be recorded. The most difficult piece of data is the first piece of data. A known and defined database needs to be generated to hold data. The input, compilation, manipulation and storage of the data are huge. Take inventory numbers as an example. For years, the most difficult pieces of data to collect have been and still are cattle inventory numbers. Often the numbers presented are quoted as being estimates primarily because the actual numbers are not easy to get. The cattle are tagged, but that doesn’t mean the count is right. A universal and misleading comment is that a simple notation on the calendar is all that is needed. At the Dickinson Research Extension Center (DREC), a quick review of the inventory is needed to answer a simple question such as how many cows you have. The answer changes throughout the year. The Jan. 1 inventory at the DREC showed 307 head of mature cattle, which consisted of 291 cows and 16 bulls. The end-of-June inventory showed 269 head of mature cattle: 243 cows and 26 bulls. The change in inventory can come about because of purchases, transfers, harvest, sales or death. To enter, verify and store the data that calculates the current mature-cow inventory from Jan. 1 to June 31, 96 individual entry points on the data sheet must be entered and verified. Each inventory category needs to be entered and checked for accuracy. If nothing happened in a particular data field, the data still needs to be checked. To note no change, a zero, a blank or a null space could be entered in a data field, all resulting in a different interpretation by the computer. Again, just to fill in the inventory data for the first six months of 2005, 96 different numbers were generated. If your wall calendar has all the appropriate spaces to generate correct counts in all categories, then perhaps a simple number can work. However, history would say that a simple number only would generate more questions than answers. Did you mean this? What about so and so? Did you count the heifer in pen 23? What about the cow you were going to take back to the neighbors? Each question confounds the world of simplicity and strains the memory that is more selective than broad. The best solution is that producers need to keep accurate, well-understood data records that stand the test of time. The tag does not cost much, but the additional people, time and skills required is where the work is. Someone needs to do the data work and that someone needs a paycheck as well. Data is the truth and work behind the tag. May you find all your NAIS-approved eartags. — Kris Ringwall (Kris Ringwall is a North Dakota State University Extension beef specialist, director of the NDSU Dickinson Research Center and executive director of the North Dakota Beef Cattle Improvement Association. He can be contacted at 701/ 483-2045.)

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Thursday, December 20,2007

COMMENTS

by WLJ
August 15, 2005 The National Cattlemen’s Beef Association (NCBA) has been concerned about membership for quite some time. But it appears they were very concerned about that during their last meeting in Denver, at least that was what much of the talk was about and a few special meetings were set to address it. In a membership forum, members from the various state associations all had the chance to tell the leadership their concerns and how to correct them. The past few months, rival association R-CALF has been touting a membership of 18,000 and stating they are the fastest growing cattlemen’s association. At the same time, NCBA is claiming 23,000 members and is concerned because that number has fallen from a high of 41,000 in the early 1990s. Add them both together and it would seem there are only about 40,000 folks who are even concerned about the cattle business. There are two things these numbers are saying to me. First is that we have lost a lot of cattle producers from the business in 15 years. Secondly, we have a severe split in our industry. We all know that everyone wants the same thing, tall grass and higher cattle prices. But there are clearly several schools of thought on how to get there. If you take a look at the two groups, you’ll notice very different methods of furthering their cause. NCBA has been very successful at lobbying their concerns in Congress and getting issues passed into law. On the other hand, R-CALF doesn’t lobby, they litigate. To date, their litigation has not been successful. One uses legislative means, the other uses judicial avenues. One operates on fear and conspiracy theories, and the other works on fact and the desire to change the tax climate and expand markets. I’ll be the first to say that NCBA has had a difficult time communicating with “grass roots” cattle producers and I think that they expect the member state associations to do most of that since their technical structure is a federation of state cattle groups. Now it’s time to change the subject—the slaughter cow market is starting to fall and some have cited the Canadian border as the problem, which indirectly, it may be. Last week, Swift & Company announced it closed their Nampa, ID, plant for good. The company said it was due to market conditions and that it wasn’t able to find enough cows to process. It might also have something to do with the plant being extremely old, and located in the midst of encroaching residential neighborhoods in Nampa. Since this Canadian border rub, two cow plants have closed as a direct result of the border closure. Several years ago, a cow plant in Rapid City, SD, burned down and no attempt was made to rebuild it, which may tell us a little about the economics of cow processing. The cow market has started to take its usual summer dip as cattle producers are starting to find open cows and shipping them. Cow prices have dropped into the lower 50-cent range and, in the big picture, cow slaughter is down. Swift has been out of the market for the last three weeks and I would imagine that most market operators have missed seeing them on the seats, taking turns with the other cow buyers. The situation in Canada has changed and cow prices are going up. Over the last month, they have moved from 20 cents to 41 cents. Until just recently, Canadian packers have been barred from processing cattle under 30 months of age in the same plant as cattle over 30 months old. Slaughter cow numbers in Canada are large and they have been desperately trying to find processing for them. Now that Tyson and Cargill are able to process cows in their fed cattle plants, the market is stronger. You might say that Canadian packers just got their second windfall, the first being the 40-cent fed cattle market when BSE first raised its ugly head. Now they can buy cheap cows and sell cow beef primals. Can-Fax doesn’t keep a cow beef cutout value index as we do in the U.S., but our last figure was $111, which represents a pretty good trade on cow beef ribs and loins. But, make no mistake about it, there is no cow beef coming to the U.S. However, that could change as the cow and cow beef rule is expected sometime this fall from USDA, with it possibly taking effect next year. — PETE CROW

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Thursday, December 20,2007

Legally Speaking

by WLJ
August 15, 2005 One of the main hurdles that many taxpayers face in an audit with the IRS is showing an effort to change methods of operation or procedures that could result in an improved profit picture. Often taxpayers in the livestock or other farming industries will fail to document legitimate changes they have made to enhance operations, and this can be a problem, among others, in withstanding IRS scrutiny. If you are audited, you will be expected to show how you keep records in connection with the day-to-day business of your activity. Today IRS enforcement has stepped up the level of competency expected with respect to such records. I have previously pointed out the need to keep files showing the number of animals owned at a given time, the date of purchase, sale prices, breeding data, appraisal reports of farm realty, and so on. But you will also be expected to show underlying invoices or other proof of expenditures incurred, in addition to canceled checks and credit card statements. It is always advisable to have a separate checking account used exclusively for the activity, for otherwise the IRS will claim you are “commingling” funds. The IRS takes the view that if you have not made a profit within the first few years of operating a livestock activity, you are not engaged in a trade or business, but instead you are trying to reduce your taxable income from other sources by declaring business deductions from the farm activity. In addition to examining the records you keep, the IRS may want to visit your ranch or farm to see whether it appears to be conducted in a professional, businesslike manner. This invariably is the key. If your farm operation is unprofessional, it will be readily apparent. If it is operated in a businesslike manner, that will be something you can demonstrate with a detailed viewing of your operations. Buying your own farm is usually a plus, in that you would normally expect that asset to appreciate in value while being used for the farming activity, and you would understandably want to make improvements to enhance the fair market value. Numerous Tax Court cases, as well as IRS audits, have hinged on this point. I unfortunately get inquiries from people who ask, “Is there a form you could send me for a business plan?” I’m afraid I have little patience for such inquiries! As I have previously stated, one of the best measures of your overall business objectives is that you consult with experts and obtain appropriate documents, such as a tax opinion letter, to help support your endeavors and to recommend changes, etc. It is not sufficient to have ideas in your mind that you are implementing, even though I understand that makes sense to most of us. The reality is that the IRS is trying to raise revenue for the government, and people who take deductions for their farm losses are an easy target. A tax opinion letter can be used in evidence in your favor to prove that you have sought out expert advice with a view towards enhancing the prospects of making a profit, and that you have followed the advice given. A tax opinion letter becomes part of your permanent records, and should be updated periodically to address changes and developments in your activity. The IRS also may inquire about animals that are not productive or which are not being used for breeding or for marketing purposes. For example, if an animal has become ill and has incurred significant veterinarian fees, the question is whether this animal is going to be laid up for a long time, and whether it might be prudent to sell the animal or donate it to a school or other charity. By doing so, you are showing that you are mindful of the costs of keeping an animal that might not be productive, and that you are reducing your costs by culling the animal from your inventory. Someone I know was audited and got into quite a quagmire. What happened was that he filed a statement in a divorce proceeding saying, under penalty of perjury, that various animals were owned by his daughter and were her “pets.” At the same time, he was declaring these as a business deduction on his tax returns. Needless to say, the IRS issued a deficiency notice claiming back taxes due. When he went to Tax Court to contest the deficiency notice, he was questioned by the government attorney about the affidavit in the divorce case. He blamed his former attorney for the situation, but that failed to save the day. People who make false statements under penalty of perjury have no one to blame but themselves. This person failed to take personal responsibility for his failings, and ended up with a judgment against him for taxes due. This would come as no surprise, given the contradiction between his statement in the divorce proceeding (under penalty of perjury) and his statement in his tax return (also under penalty of perjury). I am pleased to work with clients who are honest, hard working and who do not blame others for their problems. — John Alan Cohan (John Alan Cohan is a lawyer who has served the livestock and farming industry since 1981. He serves clients in all 50 states, and can be reached by telephone at 310/278-0203 or via e-mail at johnalancohan@aol.com.)

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Thursday, December 20,2007

GeneSTAR feed efficiency could increase profitability

by WLJ
Producers in every sector of the cattle industry are facing rising costs, but none that impact the bottom line more than the cost of feed. To maintain profitability, producers must be able to identify genetic lines that provide the most feed efficient animals possible. Bovigen is addressing this ever-increasing need with a true technological breakthrough: the industry’s first and only DNA test that can identify an animal’s genetic ability to efficiently convert feed. “Producers can use the new GeneSTAR feed efficiency test to identify up to a $50 difference in feed cost between animals when ration costs are at $165/ton,” said Victor Castellon, CEO of Bovigen. “Now everyone in the cattle industry has access to a tool for measuring feed efficiency and for improving the profitability of cattle production.” The markers were identified through discovery and validation work on thousands of cattle focusing on the trait of net feed intake, sometimes also called residual feed intake or net feed efficiency. This trait was identified by nutritionists to measure differences between how much an animal should eat, and how much an animal actually eats over a given period of time by accounting for the calf’s weight, how much it grows and its composition of bone, muscle and fat. For example, an animal with a feed efficiency GPD of -3.0 will eat 3 pounds less feed per day than an animal with a feed efficiency GPD of zero. Over a 150-day feeding period and with a ration cost of $165/ton, the animal with a -3.0 GPD will cost $37 less to feed without sacrificing growth performance or carcass quality. The new GeneSTAR feed efficiency test is made up of four markers which, together, identify as much as a 15 percent difference in daily feed consumption with no effect on other measures like average daily gain, carcass weight, quality grade or yield grade. An independent study showed that feed efficiency has six times as much effect on feed yard profitability as average daily gain and that a 20 percent improvement in efficiency would equal a $65 improvement in profitability. Since feed costs (grass and purchased feed) are typically more than half of all costs in a cow/calf operation, this test has wide application across all sectors of the industry. Starting Aug. 22, Bovigen will release the new Gene-STAR feed efficiency panel test. As in past new marker releases, producers who have tested in the last 30 days will receive the new information at no additional charge.

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Thursday, December 20,2007

Premium grades add $500 million to cattle business each year

by WLJ
USDA Prime, Choice, Select and Standard have been the staples of graded beef, at least since the system was overhauled in the 1970s. The Choice grade may have been made too broad for effective use because in recent years, its upper two-thirds has further segmented into a kind of fifth grade: premium Choice. The industry is half a billion dollars ahead each year because of that. Cattle-Fax published a paper in July called “Value of Quality Analysis,” which considered what would happen if all the premium quality categories and brands went away. “If we went back to a Choice/Select basis on everything we produce today, it would cost us, on average, $2.59 per hundredweight of carcass,” says Brett Stuart, Cattle-Fax analyst and author of the paper. He compared a weighted Choice/Select cutout to that of the current “premium cutout,” including premium Choice values to get that figure. “The fact that we differentiate higher grading beef, including CAB (Certified Angus Beef), is worth roughly $20 per head,” he says. Multiply that by the annual harvest and it shows that from 2004 to 2007, premium categories added $470 to $601 million each year. “That premium is on the live side of the industry,” Stuart notes. “That is not the meat premium received by the packer, it’s the premium paid by the packer to the seller of the cattle.” Feeders and cow/calf producers retaining calves through harvest take home the biggest share of the added revenue, but Stuart says it’s good for everyone on the cattle side. “Even the guys selling calves at weaning benefit. That $20 a head filters through the live side of our industry,” he says. “If you look at long-term profitability in the feed yard and packing plant, it’s less than $13 a head. Something that adds upwards of $20 per head in total value is highly significant.” More cattle grading premium Choice will strengthen this trend, not derail it. “As more high quality beef is produced, does it saturate the market, creating a decrease in total market value?” Stuart asks. “This research showed, no, it doesn’t. You actually add value with more quality.” Every percent increase in Choice grade is worth 20 cents per head more than the Choice/Select baseline cutout. The converse is also true, showing that a drop in grading will weaken this premium. “Over time, there has been growing demand for high-quality beef,” he says. “If quantities increase over time while this demand builds, the extra product is easily absorbed.” If the percent of Choice-grading cattle increased a couple of points each year, this added value should hold up. “We feel there’s some pent- up demand that’s not being serviced with the current supplies of high-quality beef today,” Stuart says. That sends a clear message to cattle producers that it pays to shoot for premium brand targets such as that represented by CAB. “This demand for higher quality beef will continue to grow in the future,” he says. “As we differentiate, we have more opportunities to add value.”

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Thursday, December 20,2007

Fed cattle trade stalls ahead of report

by WLJ
After the packer buying spree of the previous week, fed cattle trade was all quiet in advance of last week’s much-anticipated cattle on feed report. Packers had a large supply of cattle procured and show lists at feedlots were generally smaller so both sides appeared content to wait until Friday to trade cattle. As of Thursday afternoon last week, cattle were offered at $88-89 live basis and $140-141 dressed. Packer bids were very light and several dollars below asking prices at $83-84 and $134-135. Analysts last week were expecting trade to occur at prices mostly $1 higher than the prior week at $86-87 live and $138-139 dressed when it did finally occur. According to Glenn Grimes and Ron Plain at University of Missouri, the American Agricultural Economics Association annual outlook survey for the remainder of the year and 2007 for livestock and the marketing year of 2006-2007 for crops shows the average Nebraska fed cattle price for 2006 at $83.20 and for 2007 at $81.82. “If these estimates turn out to be accurate, the year 2007 will be a similar year to a little lower profits or more losses than 2006. The estimated decrease in cost of feeder cattle at a short $4 per cwt. would be about $26 to 28 per head. However, the increase in costs of corn would add nearly $18 per head for feed costs. The lower fed cattle price would reduce sale value by $16 to $17 per head,” they said last week. Packer margins, estimated by HedgersEdge.com last Thursday, were still positive with a margin of $24.05 per head and plants were taking advantage of the profit by increasing harvest levels. Boxed beef cutout values moved higher much of last week with Choice trading up for the week to $151.09, higher by more than $3 from the previous Thursday. Select cutout values rose $3.81 from the prior week to trade at $139.92 last Thursday. According to USDA data, the percentage of harvested cattle grading Choice or better has been increasing on a weekly basis and recently has been above 55 percent, although still averaging two percentage points below the average of 57 percent for July 2005. As a result, the spread between Choice and Select beef cutout values is getting smaller. Harvest for last Thursday was estimated by USDA at 121,000 head, down 6,000 from the prior week and 4,000 from a year ago. For the week-to-date kill, USDA estimated packers harvested 497,000 as of Thursday, down 5,000 head from the prior week, but 3,000 more than the same week in 2005. Beef demand at the retail level last week was called moderate and it appeared that the cutout values were close to topping out for the near-term. Buyers for retail stores last week reportedly weren’t willing to pay any more for beef than in recent weeks and were wary of buying more than needed to meet immediate demand. Most wholesale purchases were being delayed in hopes that there would be some weakness in cutout values down the road. It appeared that may become a possibility last Wednesday, with middle meats dropping in price. According to USDA reports, the Choice rib and loin primal, specifically Choice ribeyes, fell $12 cwt. Choice strip loins lost $15 cwt. and choice top butts were down $10 cwt. which contributed to the losses Thursday in the cutout value. The only positive news in the boxed beef market could be found in the chuck and round primals. Cow cutouts Cow values last week moved higher with most trade moving up by $1 as a result of demand for cow beef from the grinding sector in advance of the Labor Day holiday and the start of the school year which adds strength because of the volume used by school lunch programs. Cow carcass values were up 60 cents last Thursday to $106.47. The 90 percent lean product was also higher by more than $2, to $132.76. As a result of the pending cattle on feed report and the absence of cash fed cattle trade, trading on the Chicago Mercantile Exchange was mostly sideways to slightly lower last week. In last Thursday’s session, the August contract trade was down 82 points to settle at $87.10. October was higher by 25 points, closing at $92.05 and December was off 5 points, closing at $90.90. Feeder cattle Compared to two weeks ago, feeder and stocker cattle sold steady to $4 higher with the best gains coming early in the week last week. Demand was reportedly best for yearlings which are in short supply as a result of the dry conditions that have sent cattle to feedlots early this year. Larger strings of calves are being weaned now and sent to town for sale and the runs are growing, particularly in the northern tier. Calves found solid demand because feedlots apparently have ample pen space available. The continuation of the hot and dry weather across the central U.S. has been taking its toll on health because of heat stress and that has caused sick pens to bulge. On the upside for feedlots, the drought hasn’t taken its toll on the corn crop this year and the crop report issued by USDA showed this year’s crop is expected to be the third largest on record. That information was bearish for new crop December corn futures which slipped last week and lent strength to the feeder cattle market. The result has been prices which remain above last year’s levels, no doubt giving cow/calf producers something to smile about. In auction market trade last week in Amarillo, TX, compared to the prior week, feeder steers and heifers sold at prices steady to $3 higher on a limited test. Trade was called active on good demand. In Oklahoma City, OK, compared to the prior week, feeder steers and heifers were steady. Steer and heifer calves sold $1-4 higher, with the most advance on steers. Demand was good for all classes. Weather continues hot and dry across the state, however significant rainfall occurred in some areas Monday night which added to the positive sentiments of those on the seats. In Dodge City, KS, compared with the prior week, feeder steers 350-550 lbs. and heifers 350-500 lbs. last week were steady to $3 higher on a light test. Steers 750-925 lbs. were called steady to weak on a light test. Heifers 500-800 lbs. sold for prices steady to $1 higher, with those in the 800- 900-lb. class weak to $1 lower on a light test. To the east in Joplin, MO, steers and heifers under 600 lbs. sold steady to $2 higher with a heavy supply of calves weaned right off the cow as a result of some producers weaning calves earlier than normal due to lack of grass and high hay prices. Last week, yearlings sold steady to firm with several load lots trading and several carrying extra flesh. Demand and supply were called moderate. In Bassett, NE, feeder steers and heifers trended predominantly steady, with only 750- to 800-lb. steers trading $1-2 lower. There was no appreciable test on weights over 900 lbs. from the previous sale, but it should be noted that demand was very good for the few offered lots. The run was comprised of good quality, yearling steers and mostly spayed heifers. In the northern states, runs of cattle are still light, however, some states are starting to show increases in the number of cattle offered. In Hub City, SD, last week, a good sized run of feeder steers and heifers sold steady to $2 higher with most of the offering comprised of long strings of feeder cattle coming off grass pastures. Just as live cattle contract traded sideways, feeder cattle futures were also mixed last week despite good news on the upcoming corn crop and November through May feeder cattle futures reaching new contract highs in early trade last Thursday. August feeder contracts dropped 10 points to close at $115.57. September, October, November and January contracts were all higher with October feeder contracts as the biggest winner in last Thursday’s session, closing up 40 points at $117.22, just short of a contract record.

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Thursday, December 20,2007

COMMENTS

by WLJ
August 22, 2005 Last week, Western Video Market held its annual two day sale at Little America in Cheyenne, WY. At the onset, sellers were a little nervous. However, as the sale progressed, the market was established and many yearling steers were trading at that $1-plus level; one set of 900-pound steers brought $114.25. On the calves, 400-pounders traded in the $140s, 500-pounders in the $130s, and the 600-pound calves in the $120s. In the broad picture, the market was good. Perhaps not as good as it was 10 weeks ago, but still very solid. Fuel and freight were big elements weighing on the market and the basis on which cattle are traded. West Coast cattle were selling at an $8-10 discount to western Plains cattle. In northern California, diesel is costing $3.25 a gallon; one cattleman said it cost him $3.10 per loaded mile to ship a load to an auction market 180 miles away. Corn prices have traditionally been one of the elements that would influence the feeder cattle markets. The rule of thumb is that for every dime increase in corn prices, a $1 per cwt decrease in feeder cattle prices can be expected. Now it would seem that every dime in fuel prices may have a similar effect. I asked around to see if any of the cattle market analysts have figured in fuel costs as a market influence, and no one had. Andy Gottschalk, analyst at HedgersEdge, did say that for every $10 increase in crude oil price, $50 billion in discretionary spending was taken away. Unfortunately, that hurts the cattle industry in two ways—the cost of getting cattle to market and the amount of money consumers will be spending on beef. I spoke with several auction market operators about the Canadian border situation. Some said it had a major effect, while some said it had little to no impact. However, they all had the idea that the packing industry was going to inflict downward pressure on the market because of it. I’m not sure if the relationship between an auction market man and a packer will ever find harmony. The slaughter cow market in the northern Plains and Northwest is in a precarious situation. The closing of Swift’s Nampa, ID, plant and Smithfield’s Gering, NE, plant has left the regions with few outfits to process cows. Shawn Madden, market operator from Torrington, WY, said they are shipping cows to BPI in Fresno, CA; Smithfield’s Green Bay, WI, and Phoenix, AZ, plants; and also to Caviness Packing in Hereford, TX. These cow processors are putting a lot of freight on those cows, which will ultimately influence the price. I wouldn’t think it bodes well for cull cow season. Each of these cow processing plants is between 600-800 miles from Torrington. On the more positive side of things, Darrell Wood, cow/calf producer from Susanville, CA, is busy trying to carve out his niche in the beef business. His group sells Western Grasslands Beef into a high-end grocery chain in California, “Trader Joe’s,” and several independent markets and restaurants. Wood said that they have been processing about 80 head a week and are about to go to 120 head a week. He said they are paying $180 per cwt on the rail. The product is labeled as “grass fed,” and carries Carolyn Carey’s “Born in the USA” label. Wood said getting into the meat business is a whole new world and that he’s getting a real education about the packing and meat business. He’s been attending National Meat Association meetings and getting new perspectives about the packing industry and their issues. Mac Graves, also with Latigo Marketing, is the CEO of Western Grasslands Beef. He started as a consultant but was interested in the challenge of getting this product to market. He was on his way to Bentonville, AR, to talk with WalMart about taking on their grass fed hamburger line. Graves also said that they will have an organic product on the market by the end of the year. While many in the business are attempting to sue companies and the government for their perceived problems in the cattle markets, it’s refreshing to watch the development of small companies like Western Grasslands Beef and others. The meat business is a tough business, but those niche markets are there and many smaller, more independent processors and producers are learning how to access them. — PETE CROW

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Thursday, December 20,2007

COMMENTS

by WLJ
August 22, 2005 Last week, Western Video Market held its annual two day sale at Little America in Cheyenne, WY. At the onset, sellers were a little nervous. However, as the sale progressed, the market was established and many yearling steers were trading at that $1-plus level; one set of 900-pound steers brought $114.25. On the calves, 400-pounders traded in the $140s, 500-pounders in the $130s, and the 600-pound calves in the $120s. In the broad picture, the market was good. Perhaps not as good as it was 10 weeks ago, but still very solid. Fuel and freight were big elements weighing on the market and the basis on which cattle are traded. West Coast cattle were selling at an $8-10 discount to western Plains cattle. In northern California, diesel is costing $3.25 a gallon; one cattleman said it cost him $3.10 per loaded mile to ship a load to an auction market 180 miles away. Corn prices have traditionally been one of the elements that would influence the feeder cattle markets. The rule of thumb is that for every dime increase in corn prices, a $1 per cwt decrease in feeder cattle prices can be expected. Now it would seem that every dime in fuel prices may have a similar effect. I asked around to see if any of the cattle market analysts have figured in fuel costs as a market influence, and no one had. Andy Gottschalk, analyst at HedgersEdge, did say that for every $10 increase in crude oil price, $50 billion in discretionary spending was taken away. Unfortunately, that hurts the cattle industry in two ways—the cost of getting cattle to market and the amount of money consumers will be spending on beef. I spoke with several auction market operators about the Canadian border situation. Some said it had a major effect, while some said it had little to no impact. However, they all had the idea that the packing industry was going to inflict downward pressure on the market because of it. I’m not sure if the relationship between an auction market man and a packer will ever find harmony. The slaughter cow market in the northern Plains and Northwest is in a precarious situation. The closing of Swift’s Nampa, ID, plant and Smithfield’s Gering, NE, plant has left the regions with few outfits to process cows. Shawn Madden, market operator from Torrington, WY, said they are shipping cows to BPI in Fresno, CA; Smithfield’s Green Bay, WI, and Phoenix, AZ, plants; and also to Caviness Packing in Hereford, TX. These cow processors are putting a lot of freight on those cows, which will ultimately influence the price. I wouldn’t think it bodes well for cull cow season. Each of these cow processing plants is between 600-800 miles from Torrington. On the more positive side of things, Darrell Wood, cow/calf producer from Susanville, CA, is busy trying to carve out his niche in the beef business. His group sells Western Grasslands Beef into a high-end grocery chain in California, “Trader Joe’s,” and several independent markets and restaurants. Wood said that they have been processing about 80 head a week and are about to go to 120 head a week. He said they are paying $180 per cwt on the rail. The product is labeled as “grass fed,” and carries Carolyn Carey’s “Born in the USA” label. Wood said getting into the meat business is a whole new world and that he’s getting a real education about the packing and meat business. He’s been attending National Meat Association meetings and getting new perspectives about the packing industry and their issues. Mac Graves, also with Latigo Marketing, is the CEO of Western Grasslands Beef. He started as a consultant but was interested in the challenge of getting this product to market. He was on his way to Bentonville, AR, to talk with WalMart about taking on their grass fed hamburger line. Graves also said that they will have an organic product on the market by the end of the year. While many in the business are attempting to sue companies and the government for their perceived problems in the cattle markets, it’s refreshing to watch the development of small companies like Western Grasslands Beef and others. The meat business is a tough business, but those niche markets are there and many smaller, more independent processors and producers are learning how to access them. — PETE CROW

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Thursday, December 20,2007

Pasture Management

by WLJ
August 22, 2005 Why pay attention to your soils? Long-term soil health is directly related to how much money you can put into your pockets. Soils and soil quality determine plant vigor. Soil organic matter content is the key indicator of soil health. Soil organic matter is important for maintaining soil structure. Soils with good soil structure generally have lower erosion rates, higher water infiltration rates and higher water-holding capacities and also serve as an important nutrient reservoir. Besides, I say, “If you can learn to feed the soils, the soils will feed you.” Healthy soils equate to a healthy life. Healthy soils are alive with all kinds of small critters living in them, eating away, making carbon, the black color in soils, called carbon sequencing. So it’s just logical, that if we can estimate and learn how to sustain and even improve soil, you can then capture more ‘solar dollars’ (a free source of energy). You won’t have to go to town and buy that same energy with ‘paper dollars’. A client of mine once asked me, “Wayne! What is the fastest way to grow more soils?” I thought about that question and responded: Find a chunk of long-term rested ground, like 10 year old CRP land—highly erode-able land set aside for conservation and government payment. Then graze and trample all that old dead non-cycling plant matter into the ground. Do this during a dry, non-growing time. By doing this, you have just speeded up a healthy soil making process by incorporating new organic matter. The biological principle here to remember is: Down yellow litter, feeds small soil critters. How to determine soil health: I pull a plug of soil, 2” x 2” x 4” deep, that fits nicely into my hand. I then photograph this plug for record keeping. I use a digital camera and snap a picture holding the plug up in the air with the background location of where I dug the plant. This gives me fast visual upper surface soil profile record. I use a small trowel, two inches wide and four inched long that has a bent handle which allows me to tap it into hard ground with a small hammer. This saves me from packing a heavy shovel around in remote pasture locations. I can see and feel certain soil health indicators in this plug (see photo). There are 3 key soil health indicators that I look for using this method: Soil type, soil organic matter content, and soil compaction. I first look for soil compaction, because that is the one healthy indicator that we have some control over. Compaction problems visually show up below the surface organic matter as shiny smooth layers of soil, all pushed together. Monitoring this way I once found heavily compacted soils, where the roots would only grow in the cracks of the clay soil, which was responsible for greatly lowering the forage production. I next look for organic matter content. Organic matter is the vast array of carbon compounds in various stages of decomposition. Visible organic matter shows up as thatch (dead and decaying plant parts in the very top layer), roots, and occasional underground bugs and worms. Another item to look for is the very small black particles that give soils that great earthy smell. These are the results of organic mater decomposition. I also determine the type of soils I sample. Take a small portion the soil from the plug in your fingers, wet it and rub it between your fingers. If the polishes make a shiny smooth sticky coating on your fingers and is grayish brown, it’s probably clay, If it feels very smooth and slippery, but not quite polished and is dark tan, it’s probably silt. If it feels gritty (small sand particles), and is light tan, it’s probably sandy soils. If it crumbles and is dark in color, not especially gritty, smooth and shiny, you probably have a loamy soil. In reality, there are all kinds of different soils. Usually in mixtures of all these different elements, but you can come close to what the major soil types are. Each soil type has their inherited limitations and advantages. What’s handy about this way of assessing soil health is that you can quickly compare one area to others. For example, I thought I had found a compaction problem in one pasture I was inspecting one day. So I dug a soil plug, and found no compaction. This soil was full of small stones, rocks and sand which does not compact. You need that sticky clay particle to form a compaction layer. Another example that surprised me was on inspecting a grazing cell center where the water and fencing configuration is built like the spokes of a wagon wheel. We found tall grass all around the cell center. However, when I went to dig up some chucks of sod to observe the root structures, I had to jump up and down on the shovel like a mad man. We had nice tall healthy looking grass, but the heavy clay soil was very compacted. Just adjacent to this cell center was an area fenced off from livestock grazing, that we called the “TEST REST AREA”. A long-term observation area of what no grazing looks like. I went to jump onto the shovel in this small fenced off area and about fell on my face. My shovel easily fell into this soft fluffy soil. What’s going on here? Compaction on the outside was caused by livestock grazing and soft fluffy soils appeared on the no-grazed area! This cell center was constructed on heavy gumbo clay soils. Gumbo is on of a variety of fine-grained soils that become waxy and very sticky mud when saturated with water. When these soils are highly compacted and dry out, they become very hard, and would make fine bricks. However, comparatively speaking, the grass was much thinner and shorter in the non-grazed area The owner of the non-grazed lands walked by this exclosure and told me, “Long-term rested soils do not grow good cow feed, and Wayne, it doesn’t even pay taxes”. The lesson learned here: If you graze livestock at high stock densities, be careful of compaction. Plan alternative areas and enough rest to allow these compacted soils to fluff with spring and fall frost heaving actions. Bottom line, soil health is the key to growing strong abundant dense vigorous forage for any livestock operation. Next time you walk your pastures, dig some plugs and see what’s happening to the soils below the surface. On top of your soils follow this one controlling rule: Keep the soils covered! —Wayne Burleson Wayne Burleson is a land management consultant working out of Absarokee, Montana. You can visit with Wayne at (406) 328-6808 or E-mail him at rutbuster@montana.net. Wayne also has an educational web site at www.pasturemanagement.com.

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Thursday, December 20,2007

Ethanol plant investments growing

by WLJ
Investments in ethanol plants are growing across the nation—including areas where larger populations need a generous supply of ethanol, according to a new report, “U.S. Ethanol,” by Rabobank. As the demand for ethanol rises, so does the need for processing plants. And, despite rising input costs—such as corn—profits remain obtainable, and investments are seen as favorable. By the first quarter of 2009, more than 200 ethanol plants are expected to be in production, which represents a capacity increase of more than 91 percent during a three-year time frame. Much of this growth in ethanol production is largely driven by demand created by government support. In fact, “government support for ethanol production, and increasing demand for ethanol in all states, will continue to foster growth of destination plants,” said Jennifer Cole, Rabobank Food & Agribusiness Research Associate. (The first ethanol plants—in the Corn Belt—are often referred to as origination plants, whereas plants outside the Corn Belt are often referred to as destination plants.) Investors are finding that the traditional areas for ethanol plants, in the Corn Belt, are becoming saturated, and are looking elsewhere. “One of the main advantages to building plants outside of the Corn Belt is the ability to ship ethanol shorter distances,” said Cole. “It is more practical and less costly to transport corn compared to ethanol.” By moving the final product closer to consumers, investors are able to keep costs in check. Because ethanol is a highly flammable substance, it incurs higher insurance rates than shipping raw corn. So the focus of investments in ethanol plants has shifted from corn producing states—Iowa, Illinois, Nebraska and Minnesota—to areas such as New York, Texas, Oregon, Arizona and Washington. “However, growth in these new regions must be accompanied by investment in infrastructure, just like any new business that requires storage and transportation,” Cole said. Additionally, “when looking at a potential ethanol plant site, the investment must be viable for the long term and perform in a sustainable manner. That is, by the time a plant comes online 12 to 18 months after breaking ground, the cost of production is likely to be different, and these uncertainties must be factored in.” While destination plants are often smaller in capacity compared to origination plants, they are increasing capacity and technological efficiencies with each plant. As more are built, the necessary criteria to support the system is growing. For example, nearby plants must be near major highways or preferably railroads. They also need planned sources for corn, water and other resources necessary for production. So far, the need for plants seems to only be increasing. By 2008, there will be better data available on the profit margins that ethanol plants earn which will determine the pace of growth through 2012.

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