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OSU Extension - Fairfield County

831 College Ave., Suite D, Lancaster, OH 43130

and the

OSU Extension BEEF Team

BEEF Cattle questions may be directed to the OSU Extension BEEF Team through Stephen Boyles or Stan Smith, Editor

You may subscribe to the weekly Ohio BEEF Cattle letter by sending an e-mail to smith.263@osu.edu

Previous issues of the BEEF Cattle letter

Issue # 631

April 8, 2009

Monthly Market Profile: Spring Highs - Is There More To Come Or Was That It? - Nevil Speer, Professor, Animal Science, Western Kentucky University

Turning the calendar proved a good omen for cattle feeders. The fed market has been relatively uneventful during the past five weeks with cash sales being range bound between $81 and $83. However, April finally brought about some semblance of seasonality and a stab at moving the market higher. The month opened with live sales jumping $2 to $85. The bigger question now becomes about further upside potential and possible assertion of further gains: is there some gas left in the tank for spring highs over the course of the next four to six weeks?

Regardless of where we go from here, $85 sends a solid signal that February's sub-$80 trade represents the benchmark low. The last time the market priced the low at the front end of the year (versus a normally-expected summer low) occurred in 2004 on the heels of BSE in December, 2003: the lows occurred in January at $74-5; the eventual high for the year was established in May at $90-1. Obviously, 2009 is not a perfect parallel but there's reason to believe this year could follow a similar pattern. That logic goes as follows: the worst of consumer slowdown converged in late-2008/early-20009 and has already been realized in the beef complex - the market begins to dig out from here because conditions will normalize as the year progresses.

However, once we make the assumption that 2009's lows are in, perhaps more important will be the extent of the upside going into spring. Action in the major equity markets may support the logic above. Remember, though, stock markets are leading indicators of future economic activity and not representative of current consumer behavior - beef complex action is inherently more real-time due to the nature of the business (it's a perishable product). Recovery remains tenuous and distant so hopes for any major move needs to be somewhat muted. Nonetheless, higher prices will hinge on wholesale trade as explained in last month's Monthly Market Profile: . . . less consumer spending mean[s] weaker wholesale activity. Consumers at all income levels are tightening their belts, shoring up their balance sheets and being increasingly judicious about all types of expenditures including food. That's forced an unfriendly-to-beef rotation from restaurant to retail while trading down to pork and poultry. The outcome is less beef being purchased at lower prices[. . .] A slowdown in consumer spending for the beef sector creates weakness in boxed beef prices. That translates to a softer fed market which serves as the gateway for money entering the production sector.

As mentioned, 2009 is uncharted territory in terms of broader economic conditions and lots of unknowns remain with respect to the economy. Even if recovery is occurring it won't be a smooth reversal to the upside - it will occur in spurts with setbacks along the way. Neither will the market likely experience a $16 turnaround as it did in 2004 - upside potential will be far more tempered in 2009 due to broader uncertainty associated with current economic conditions.

Most telling of the complex's challenges: the Choice/Select spread is currently sending unfavorable signals about overall beef activity. Closing-day spread values have been negative several times during the past month. More significantly, the spread's weekly average was inverted for the week ending April 3. That's the outcome of several factors but largely driven by consumer demand in response to the current economic slowdown (for more detailed discussion about consumers and the food industry see this month's Agsight).

Regardless of what occurs, the most significant event of the past several months is the apparent reversal of leverage in weekly negotiations. Momentum has seemingly turned in favor of the cattle feeder. Per that premise packers are getting squeezed. Beef processors have worked hard to maintain margins in recent months against the backdrop of sliding wholesale values - but even steady live prices in that environment prove detrimental to margins. The fed market's jump to $85 confounds that reality even further. The illustration below reflects estimated gross profit trends; as always, the actual estimates don't matter - what does matter is the trend. Note the 2009 month-over-month differences: the line is in the wrong direction (contra-seasonal). March's values put the processor about $50/head behind breakeven. As such, the packer, too, will be looking ahead to spring - grilling season typically means better beef demand: opportunity for increased throughput, larger supply and ultimately improving operating margins.

Be sure to note, though, that April's $85 achievement doesn't necessarily mean profitability for the cattle feeder: it remains a margin business and managing margin is more important than the absolute levels of the buy or sell. Closeouts remain challenging from a cash-to-cash perspective. The outcome of that enduring trend in the feeding sector is best indicated by March's cattle-on-feed report. Placements continue to be slow (which will further confound the packer in terms of supply and need for competitive bids in coming months). The second graph below depicts six-month cumulative totals - roughly one turn of cattle. The total number of feeder cattle placements is nearly 500,000 head behind last year's pace - or one-million head on an annual basis! Again, as referenced last month, the outcome of reluctance and/or inability within the sector to place cattle is indicative of enduring cash flow challenges and ultimately equates to a slower and softer feeder cattle market. Regardless, both the packer and the feeder are carefully managing inventory in these challenging times.

Lastly, USDA's highly anticipated planting intentions pegged corn acres at 85.0 million acres. That compares to 81.5, 82.5 and 85.5 million acre pre-report estimates (Informa, Farm Futures and Allendale, respectively). Nonetheless, USDA's 85-value will largely serve as the target for traders to work from here. Meanwhile, attention will turn to monitoring planting and market conditions for potential deviations as we head into planting season; after all, the report's key word is "intention" making actual decision making a week-to-week analysis. Thus, there'll be some volatility along the way. The third illustration below depicts total production based on varying acreage and yield outcomes. Bottom-line: production estimates for a median value of 83.5-million planted acres (and 92% harvest rate) at rough trend-line yield of 155 bu/acre equates to production of approximately twelve-billion bushels. That output is in line with outlook for minimum total usage for the '09/'10 crop year. Therefore, at best, the industry maintains current carryover in the coming crop year; conversely fewer acres, less yield, or higher usage dictates next year's carryover to decline which means higher prices to ration usage or purchase additional acres. Stay tuned.

Forage Focus: Fertilizing Pastures - Dr. Bruce Anderson, Professor of Agronomy, University of Nebraska - Lincoln

After adding a hundred, sixty, or even just forty pounds of nitrogen per acre to your pastures in past years, did your grass grow really nice in April and May? Then did it get stemmy in June with cows trampling and laying on it more than eating it? And by August was most of the grass brown or dead, much of it matted down, with the only green material so short that cows could barely get any of it? If this describes your pastures, do something a little different this year. For starters, don't fertilize all your pasture right away. You're stimulating more spring growth than your cows can eat, so only fertilize half or three-quarters of your pasture now. Be sure, though, that the unfertilized area is fenced off from the rest of the pasture.

Now, go ahead and have your cows graze pretty much like you normally do but be sure to graze the unfertilized area so you finish with it sometime in mid-May. Then check the weather and soil moisture. If you think there will be enough moisture for some good regrowth, then fertilize this previously unfertilized area. Let it regrow for six weeks or longer and you should have some really good grazing available for July or August.

What if it's dry in mid-May with poor prospects for regrowth? In that case, save your money and don't apply any more fertilizer. You still will have produced about as much pasture growth as if you had fertilized everything to begin with, but without spending as much.

If your pastures are overgrown in spring and run out in summer every year, change fertilizer timing. You'll get more grass when you want it or maybe save some money.

Depth and Contact Crucial in Forage Establishment - Marvin Hall, Penn State Forage Specialist

More failures in establishing forages are the result of improper seeding depth than any other cause! If seeding depth isn't correct then you might as well not bother to plant. Forage seeds have a very small supply of stored energy to support the seedling until it emerges and begin making its own energy. Seeds placed too deep are not likely to emerge. Optimum seeding depth varies with soil type (sandy, clay, or loam), soil moisture, time of seeding, and firmness of seedbed but generally is not more than 3/8 inch deep. A rule-of-thumb is that "5-10% of the forages seeds planted should be on the surface after seeding".

Ensuring that seeds are placed at the proper depth requires a firm seedbed. It is extremely difficult to accurately regulate seeding depth if the soil is soft and fluffy. Here is a rule-of-thumb regarding soil firmness "On properly firmed soil, an adult's footprint should not be deeper than ½ inch". Forage seeds should be covered with enough soil to provide moist conditions for germination but not so deep that the shoot cannot reach the surface.

Forage seeds need to absorb at least their own weight in water before germination begins. Unless the forage seed has been planted in saturated soils, the water generally moves into the seed from surrounding soil. Adequate seed-to-soil contact ensures maximum water movement into the seed in the shortest time. Field situations (cloddy or loose soil) that do not promote good seed-to-soil contact generally result in extended germination periods and sporadic emergence. The use of press wheels on a grain drill or culti-packing after seeding can improve seed-to-soil contact.

Don't Let Spring Yard Cleanup Kill Your Cows? - Stan Smith, OSU Extension PA, Fairfield County

It's the time of year when lots of people are outside trimming, pruning and generally cleaning up in the yard and around the farmstead. Most cattlemen are aware that often times various 'trimmings' can be toxic to cattle. Unfortunately, in a progressively urbanizing state like Ohio, neighboring homeowners don't always realize that vegetation they may consider to simply be "organic matter" or "feed" for some critters, may actually be deadly to them. It's just one reason it behooves farm owners, and especially cattlemen to establish acquaintance with neighbors, sharing with them seasonal concerns.

Perhaps during this time of year, the greatest risk may come from those who need a place to discard their yew bush trimmings. As little as one half pound of yew trimmings, consumed by a 500 pound calf can be fatal. The most common symptom of poisoning from this evergreen ornamental bush is sudden death within 24 hours. Occasionally death may be precluded by respiratory difficulty, shaking or muscle weakness. There is no known antidote for yew poisoning, so prevention is critical.

As spring progresses and new plants begin rapid spring growth, additional vegetation with the potential to harm livestock will emerge and leaf out. For more information regarding the potential for plant toxicity to livestock visit this story published by OSU media services during the 2007 drought: http://extension.osu.edu/~news/story.php?id=4175

For more information and applications on any of these programs, visit www.oh.nrcs.usda.gov, or contact the NRCS office at the USDA Service Center serving your county.

Weekly Roberts Agricultural Commodity Market Report - Mike Roberts, Commodity Marketing Agent, Virginia Tech

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished mixed Monday with nearbys up and deferreds outside October '09 futures down. The AUG'09LC contract was up $0.275/cwt at $85.075/cwt; $0.675/cwt over week before last. DEC''09LC futures closed at $90.150/cwt; off $0.05/cwt. The market couldn't make up its mind early but found support against spec selling and profit taking after higher cash cattle were reported late in the day. Cash cattle were up $1-$2/cwt from last week in the southern Plains while USDA placed the 5-area price at $84.76/cwt; $1.77/cwt higher than week before last. USDA put the Choice Boxed beef price at $136.75/cwt; up $1.17/cwt. Packers are hoping that the spring grilling season will pick up beef demand while a depressed stock market hangs like a cloud over any good news. According to HedgersEdge.com average packer margins declined $8.85/head from week-before-last. The average processor margin was placed at a negative $51.40/head based on the average buy of $82.99/cwt vs. the average breakeven of $79.02/cwt. Feed buyers should hold off buying needs on expected downticks in corn. If you have to buy now corn prices are expected to get softer in a couple of weeks.

FEEDER CATTLE at the CME closed up on Monday. The APR'09FC contract closed at $95.95 /cwt; up $0.550cwt and $1.950/cwt over week-before-last. AUG'09FC futures finished at $99.600/cwt; up $0.850/cwt and $0.425/cwt higher than last report. Higher nearby live cattle, buy stops, spreading into back months, and heavier buy-over-sell orders were supportive. Cash feeders were not as supportive; selling steady-to-$2/cwt lower in Oklahoma City. Prices are expected to be better this week on improving grass. The CME Feeder Cattle Index for April 2 was placed at $94.99/cwt, up $0.72/cwt. If you need corn buy on down ticks in the corn market. If you have grass you're in good shape. Move cattle when ready on market uncertainty.

Visit the OSU Beef Team calendar of meetings and upcoming events

BEEF Cattle is a weekly publication of Ohio State University Extension in Fairfield County and the OSU Beef Team. Contributors include members of the Beef Team and other beef cattle specialists and economists from across the U.S.

All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status. Keith L. Smith, Associate Vice President for Ag. Admin. and Director, OSU Extension. TDD No. 800-589-8292 (Ohio only) or 614-292-1868

Fairfield County Agriculture and Natural Resources