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Previous issues of the BEEF Cattle letter

Issue # 700

August 25, 2010

Why Do We Have Fairs and Shows? - John Grimes, Extension Educator, OSU Extension - Highland County

The Ohio State Fair has concluded and by the end of the month the majority of county fairs in the state will have taken place. As a County Extension Educator and cattle producer that has two daughters that love to show cattle, I am fully aware of the time and effort of a large number of people that work together to make shows and exhibitions possible. This list of people includes the exhibitors, family members, breeders, veterinarians, club advisors, award sponsors, show management, and other volunteers working behind the scenes. There are countless hours of time and significant dollars dedicated to the successful completion of a show. So why do we do it?

While I was not around when the concept of holding livestock shows began, I can speculate that the goals of those involved were relatively simple. Especially at the county level, I suspect fairs were started as a means to showcase local agricultural production, learn about new technologies, and let folks learn about what was considered the industry standard for a species of animal for that day. I'm sure that some folks were motivated by making a little bit of profit off the event as well!

Before we had much of the modern technology that is available to us today, fairs and shows gave folks the opportunity to evaluate an animal's conformation by an unbiased expert (judge) and help educate the public as to the "ideal" animal for producers to target at that time. We can look back and question the logic of some of the historical decisions that were made. Did we need "belt buckle high" cattle of the 1950's and early 1960's? Did we need sixty inch tall steers in the 1980's?

While we can question some of the types cattle selected in the show ring, there is no question that the cattle of preference in the show ring at any given historical point had a large impact on the commercial cow-calf sector. The best example of the impact of the show ring on beef production in my memory was the rapid adoption of the Continental breeds in the late 1960's and early 1970's. How many Charolais, Simmental, and other Continental breed bulls were scattered across the country because of a change in type of the Grand Champion Steers selected at shows like Chicago, Denver, and later, Louisville?

While many of the same early goals are still in place, modern technology has made some of the early benefits of the show ring seem a bit outdated. Today's purebred and commercial cow-calf operations as well as feedlots have much more technology available that can assist us with the task of producing better beef. Improvement began with structured performance testing programs that measured individual animal performance. Sire evaluation programs through breed associations gave us more in-depth information of the genetic merit of seedstock. Ultrasound technology gave us another tool to determine carcass merit instead of using harvest measurements. DNA technology gives a rapid means to identify potential individual genetic superiority and also identify potential lethal defects. The guesswork in breeding better cattle has not been eliminated but it has been significantly reduced.

So where are we at with the shows of today? Some of the most important benefits of today's shows do not directly translate to the cowherd back at the farm. As an employee of OSU Extension, I would be remiss not point out the direct benefits to 4-H and FFA youth that participate in livestock shows. Youth that participate in junior shows have the opportunity to learn many lessons that can better prepare them for adulthood. Project participation prepares youth who desire to become involved in production agriculture in the future a sound knowledge base to work from when developing their own herds. Besides learning about animal husbandry, 4-H and other youth programs can provide the opportunity to develop leadership, responsibility, teamwork, ethical decision-making skills, etc. through their participation in livestock shows. Unfortunately, our youth livestock projects and other 4-H related programs have been successful for so long that they are often taken for granted. In light of current government budget difficulties, we can't forget to remind government leaders and the public of the long-term benefits that our youth programs provide.

I do believe possibly the most important purpose for having shows grows in significance with every passing day. Shows and exhibitions provide animal agriculture with a golden opportunity to better educate an uninformed public about what we produce and the methods we use to accomplish food production. These educational opportunities are available at county, state, and national shows at any time we interact with the non-farm public. Do not assume that just because you are exhibiting at a rural county fair that everyone understands our production methods and how we care for animals. The public's disconnect with production agriculture is growing in rural and urban settings alike.

I believe it is the responsibility of every exhibitor, family, farm, or ranch that participates in a show to tell the public about our positive role in feeding the world. Outside of family functions or acquaintances at school or your job, when will you have a better opportunity to tell the story about how we raise our product? It is easier to tell the story at a show because you have the animal on hand to assist with "show and tell!"

While animal agriculture in Ohio and many other states have faced challenges in recent years as to how we do business, the fact of the matter is that our society has always had animal consumption as a part of our diet. How large a part of the public's diet will be derived from animal proteins in the future remains to be seen. Shows and exhibitions can be an important avenue to assist us in our efforts to reclaim the term "animal welfare" and show the public that livestock producers do have the animal's best interests in mind.

"Level Playing Field" Fraught With Sinkholes - Nevil Speer, Professor, Animal Science, Western Kentucky University

Some historical perspective is useful here. Recall the beef industry's market share began slipping in the early 1980s. Misperceptions about beef's health attributes were gaining traction within the medical community and subsequently spilled over into the general public. Adding insult to injury, it became apparent during the '90s that beef was also losing its primary market advantage - palatability (especially concerning given it's the foremost purchasing motivation among consumers and provides opportunity to derive price premiums relative to the competition). Convergence of these factors coupled with aspects of product inconsistency, lack of preparation convenience and disproportionate rise in costs placed the industry in a tenuous situation.

The competition took advantage of the opening. Pork and poultry were successfully advancing their respective perceptions among consumers while also becoming increasingly efficient. Beef was being smothered in terms of the all-important price/value relationship. Growth stalled: between 1980 and 1998 (low-point in beef demand) new spending on beef products was meager - $6/person. Meanwhile, new spending on pork and poultry grew by $112/person (stated another way, beef gathered only five cents out of every new spending dollar - the competition teamed up for 95 cents).

Erosion of market share had to end. But that would necessitate change. Beef was working within a haphazard system that encouraged commoditized production. Cattle (and their carcasses) were often forced to fit systems they weren't suited for. Cooler sorts proved unreliable in meeting customer specifications. Shortfalls and inefficiencies had to be minimized. Bolstering competitiveness would require the industry to become more customer-centric and move away from its product-driven approach.

Rebuilding demand mandated commitment to continuous improvement; production systems needed to close the loop. The system had to establish systematic, process-driven incentives to ensure reliable, steady supply of cattle in the future to meet customer demands. Towards that end the National Beef Quality Audits (NBQA) began initial work in 1991 to identify critical quality shortfalls and baselining system performance. That was only the start - there's still work to do. In fact, NBQA 2005 identified those components to be an ongoing concern; the audit's top three industry goals for 2010: 1) clarification of market signals that encourage production of cattle, carcasses and cuts that conform to industry targets; 2) foster communication among groups and segments of beef supply chain; 3) increase age and source verification to build supply lines of cattle to fit domestic and export markets.

Those objectives establish the premise of industry coordination based on objective and verifiable market signals. That's brought favorable change to the beef industry's supply chain by facilitating production systems that are increasingly responsive to end-user specifications. Moreover, such coordinated systems promote better process control, flow scheduling and overall production efficiency. Hence, both sides of the price/value equation are being enhanced. That's good for everyone - a rising tide. The empirical evidence is undeniable. Beef's production sector has witnessed increased revenue over the past twelve years - more dollars available for beef producers throughout the system (see graph below).

But supporters of the newly proposed GIPSA rule want to turn back the clock and subjugate gains made in recent years. Such a setback is riddled with unintended consequences. Quality management and process control go out the window. Business improvement becomes stagnated and beef reverts to a utility product. That setting automatically boosts the competitors - they get further ahead by conducting business in their current state of advanced coordination while beef is burdened by fundamental complexities.

Moreover, stepping back to the status quo leaves small producers out to dry. Industry progression has given rise to a plethora of marking options for producers - from which both large and small can profit based on their capabilities. But imposing a cash-only, one-price-fits-all marketing system limits opportunity. The economics change as value-driven incentives disappear from the system. Big trumps small: market leverage and competitive advantage goes to large producers (which fuels consolidation even further). Weekly markets devolve to a game of speculation and adversarial exploitation. And therein lies the problem: the rule is self-defeating penalizing the very entity it's intended to help.

Free enterprise rewards ambition, ideas, innovation, and resourcefulness. The beef industry is a case study of the successful and transformative power of market-driven incentives and open communication. The real test is consumer dollars; the collective vote tally revealed beef was getting left behind. But the industry renewed itself and became increasingly competitive. As such, history provides an explicit lesson of what, and what NOT, to do. The beef business is battle tested. Why retreat now and give back what was so difficult to win in the first place?

Cull Cow Marketing - Dillon M. Feuz, Ph.D., Professor, Department of Applied Economics, Utah State University

As we approach late summer, early fall, it is a good time for cow-calf producers to start thinking about their culling decisions. Should you wean calves early and cull early? Should you cull and sell in Oct/Nov? Should you feed the cull cow from November into February or March? Three factors should be considered when making the culling decision: (1) seasonality of cull cow prices, (2) price differences between slaughter grades and number of cows in each grade (their body condition score), and (3) cost of feeding cull cows.

Cull cow prices generally follow a consistent seasonal pattern. Prices normally are the lowest October through January and are the highest from April through August. If overall cattle prices are rising/declining sharply in a year, then this price pattern may not be as apparent. However, from 1980-2009 there was only one year when the price for cull cows was higher in November than it was in August. Prices for cull cows are based on their USDA carcass grade or their expected carcass grade. Price differences between these grades impact the price of cull cows. These price differentials vary from year to year and also from month to month within a year. The differential is wider in higher priced years and in the fourth quarter of the year. Average price differentials between market classes at Torrington, WY from 2005 - 2009 were Boner cows were 7.5% higher than Lean cows and Breaker cows were 3.5% higher than Boner cows. The Commercial grade or White Fat market class is frequently not reported. When it is, the price is typically 10% higher than the Breaker prices at the same auction.

Depending upon the weight and frame of a cow, it requires about 60-80 lbs. of weight gain to increase one BCS. A cow with a BCS of 3 in the Lean Market Class would require about 140 lbs. of gain to get to a BCS of 5 and into the Boner Market Class. A cow with a BCS of 4 in the Lean Market Class would only require about 70 lbs. of gain to get to a BCS of 5 and into the Boner Market Class.

At different times of the year a cow may be gaining weight or losing weight based on the quantity and quality of the forage they are consuming. Considering the fact that many cows may be losing weight and BCS during the fall, they may be sliding from the Boner to the Lean market class. Furthermore, the seasonal price pattern is that prices are typically declining through the fall. Therefore, where possible culling earlier in the fall rather than later will likely result in a higher market price and more weight being sold.

If a producer culls a cow in the fall and wants to feed her to take advantage of seasonal price increases, what is the optimal rate of gain and how long should the cow be fed? The answer to these questions will depend upon the initial cow weight and BCS, the availability and cost of various feed sources and the current price of cull cows.

Let's quickly look at three different rations: an alfalfa/grass hay ration with an average daily gain (ADG) of 1.25 lbs., an alfalfa hay-corn silage ration with an ADG of 2 lbs, and an alfalfa hay-corn grain ration with an ADG of 3 lbs. I will assume that the cows weigh 1050 lbs., have a BCS of 4, and the market price for Lean cows is $40/cwt. in November. Alfalfa is $90/ton, grass is $76.50/ton, corn silage is $33.75/ton, and corn grain is $3.75/bushel. The cows are fed for 90 days and sold in February. A cost of $0.30 per day is charged for yardage and interest on the value of the cull cow is also charged. The net return to feeding cows with these assumptions would be $27.49, $67.89, and $65.93 per head for the hay, silage, and corn grain rations respectively.

I encourage you to look at your own resources and evaluate carefully what options you have with your cull cows. Compared to the traditional culling and marketing in November, it is often the case that returns will be greater if the cows are culled in late summer/early fall or if they are fed for some time after culling.

Summer Lows Likely In; Where to for Cattle Markets? - Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist

Both fed cattle and boxed beef markets put in what appeared to be unusually early summer lows in June. Since then the industry has waited anxiously to see if those lows would hold through August. In fact, boxed beef prices did decrease in early August and put in a new low. Fed cattle prices also decreased from July levels but did not drop below the previous June lows. More importantly, both boxed beef and fed cattle prices advanced this past week and the likelihood of more summer pressure on cattle and beef markets seems low.

In general, cattle and beef prices did not drop as much this summer as many analysts expected earlier and it may be instructive to try to understand why. In the first place, demand has probably been better than expected. Although macroeconomic conditions are still fragile, the stock market has stalled and unemployment hasn't dropped much; domestic beef demand has certainly not been the negative that it was last year. Moreover, export demand has continued strong all year and has provided critical support to beef markets.

More importantly than demand has been the increasing support due to ever tighter cattle supplies. Lighter carcass weights have resulted in lower beef production despite slaughtering more cattle this year. Not only are feeder cattle supplies at historically low levels on an annual basis but strong feedlot placements in May and June reduced available supplies for the second half of the year. Feedlot placements for the rest of the summer will be lower but will increase seasonally when the fall runs of long yearlings and calves begin. It appears that feedlots are quite current and even the large May and June placements will not result in significant bunching of feedlot marketings this fall.

Forage conditions have also played a role getting us to this point and will help going forward. Good forage conditions this spring and summer spurred strong demand for summer grazing. Based on current budget projections, there will likely be good demand for winter grazing on wheat pasture. Although supply driven cattle markets tend to squeeze margins, forage based gains are valuable in a world of higher priced corn. Stocker margins certainly look more favorable than feedlot margins in the coming months.

All these factors together suggest generally higher cattle prices and more upside potential than downside risk albeit with potential volatility. Fed cattle prices will likely advance into the upper $90s late in the year, perhaps just about covering the increasing feedlot breakevens that will result from higher feeder cattle prices. Feeder and stocker prices will be subject to seasonal pressure in the fall but both strong stocker demand and continuing feedlot demand (depending critically on corn prices) may limit seasonal declines. Uptrending beef demand, even at a slow pace may further support cattle prices. At some point, perhaps as early as this fall, limited heifer retention could begin further squeezing feeder supplies. I expect feeder and stocker prices to remain very robust for the remainder of the year. That said, while there are many reasons to be bullish, risk is ever present and every producer must evaluate their unique situation to determine the best approach to these market opportunities.

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

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed up somewhat on Monday. The AUG'10LC contract closed at $99.725/cwt; up $0.125/cwt and $4.600/cwt over last report. The DEC'10LC contract closed up $0.600/cwt at $101.150/cwt; $2.925/cwt higher than this time last week. The APR'11LC contract closed at $102.050/cwt, even with Friday's close and $1.15/cwt higher than last report. Higher retail prices, fund buying, and higher cash prices lifted futures even though profit taking started on the opening. USDA put choice boxed beef at $163.14/cwt; up $1.37/cwt and $7.89/cwt higher than last report. Cash cattle were steady-to-firm with processors paying as much as $5-$6/cwt more than last week. As Troy Marshall put it today, "The magical $100/cwt price has been reached." USDA put the 5-area price at $98.75/cwt; $4.58/cwt higher than this time last week. Spreading out of the August into the December contract was noted. Friday's USDA cattle-on-feed report was considered neutral-to-mildly bearish even though the data was within trade estimates. According to HedgersEdge.com, the average packer margin was raised $7.05/hd from last week to a positive $23.00/hd based on the average buy of $97.54/cwt vs. the average breakeven of $99.3/cwt.

FEEDER CATTLE at the CME finished up Monday with the exception of the NOV'10FC contract. AUG'10FC futures closed at $114.750/cwt; up $0.15cwt and $2.050/cwt over last report. The OCT'10FC contract finished up $0.075/cwt at $117.650/cwt and $4.500/cwt higher than last week at this time. The NOV'10FC contract finished at $117.675/cwt, down $0.025/cwt. Feeders settled higher on spillover support from live cattle buying and technical buying. Strong technicals were also supportive. Spreading was noted buying 2011 and selling September. Oklahoma City, OK reported estimated receipts for 10,400 head, vs. 6,221 head last Monday and 7,557 head a year ago. Compared to last week steers and heifers were steady to firm at $2-$3/cwt higher at $102.000/cwt. The CME feeder index as placed at 113.24/lb, up 0.23 lb and 0.42/lb over last report.

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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.

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