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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 # 644

July 8, 2009

Monthly Market Profile: This Is No Time To Handcuff Free Enterprise in the Beef Industry! - Nevil Speer, Professor, Animal Science, Western Kentucky University

Cattle feeders fully celebrated this year's Fourth of July. The month began on a sweet note and was good to cattle feeders; the week transitioning from June to July brought about several victories to relish. Any semblance of triumph has been tough to come by in recent months; recall that I opened June's Monthly Market Profile with the following statement, ". . . cattle feeders just can't seem to catch a lasting break." The ability for those triumphs to endure remains to be seen, but for now they'll take all they can get.

Let's begin, though, by backing up and reviewing the events of June. The month opened sharply lower immediately following Memorial Day: boxed beef prices took an unfriendly turn and fed trade subsequently moved lower to the $81-2 level. However, from there the market proved to be relatively uneventful. Fed cattle held together at those levels throughout the month; that's $3-4 off from May sales which were mostly $85. (And compares to $95 in 2008 - remember the stimulus effect?) Albeit softer versus the previous month the stability was largely driven by steady prices at the wholesale level: Choice cutout values chopped around $140 during the month. As such, neither buyers nor sellers held the cards to influence the market's direction one way or the other.

Despite any major developments, July opened solidly to the upside with sales beginning the second half of 2009 in positive territory: trade in the south was $1-to-$1.50 better with sales at $83-$83.50; northern trade was reportedly $1.50-$2.00 higher valuing cattle at $82-3. But higher fed trade was just icing on the cake.

The biggest news within the markets came in the form of USDA's June 30 corn acreage estimate (see graph below); the report indicated an additional acres two-million acres committed to corn versus March's Prospective Plantings estimate (85-million acres). Reaction to the report is dictated by the respective source. Some response voices a theme to the effect of, "June's report makes sense: the March report was incorrect and had to be adjusted upwards to be more in line with last year's acreage - USDA has finally gotten it right." Meanwhile, others have countered the report by stating something like, "Wow! Where did USDA find all of those acres? What about delayed planting concerns and potential shift to soybean acres?" Regardless of where you come down in that argument, the market's opinion is the only one that really matters - it responded with the latter perspective. Corn got pummeled. December corn closed Friday, June 26 at $4.04; three out of the next four days of business were losers, including limit down on June 30 following the report, and ultimately closed the week 47-cents lower at $3.57. And a three-day weekend didn't negate downward pressure with another 12-cents knocked out from the contract.

That action, coupled with solid gains at the CME for both front-end and deferred live cattle contracts, helped to boost the feeder cattle market. CME's August, September , October and November feeder cattle contracts all worked higher and finished the week at better than $102. That scenario should provide a nice boost for sellers consigning cattle to Superior's "Week in the Rockies" video sales (July 6-10) - an event which provides some feel for buyer sentiment in the coming months and helps to serve as an important benchmark for fall sales.

All that said, from my perspective the most important news to the beef complex was June's cattle-on-feed report. It was largely interpreted as being supportive for the market in coming months. Bullishness stems primarily from the larger-than-expected decline in placements: down 14% versus last year's mark and a whopping 22% versus the previous 5-year average (total placements through May are off by nearly 430,000 head versus the five-month '04-'08 average). That should provide sellers some leverage going forward with continued reduction in the fed cattle supply. That's the view from the ground.

However, in my opinion, getting some perspective from the air provides a very different take about what's occurring within the beef industry. May placements are simply culmination of an ongoing trend. The graph below represents the 12-month moving average of feedyard inventory. The moving average is utilized to remove the noise of seasonal differences. As noted on the graph, the moving average peaked in January, 2007 at 11.56 million head. Meanwhile, June's moving average inventory stands at 10.75 million head - the difference representing a decline in excess of 750,000 head on feed at any one time. Interestingly enough, the decline began in early 2007 - that coincides with roughly one turn of cattle following commencement of the corn market's advance in August, 2006. Since the peak in January '07 the moving average has declined month-over-month 23 out of the past 29 months.

None of that's news - most readers are well aware of such trends. More critically, from the alternative vantage point, the data provide some very sobering commentary about the struggles and current status of the feedyard sector. Cattle feeders are proving reticent about their respective opportunities and have reversed course in terms of inventory management. Granted, that's partly due to a dwindling feeder cattle supply - simply stated, there's fewer cattle out there to feed. But most concerning, the trend since January, 2007 potentially begins to establish a negative feedback loop within the industry:

* fewer cattle to feed hampers capacity utilization,

* declining utilization pressures profitability,

* reduced profitability dampens appetite for replacements,

* less appetite ultimately gets translated to lower feeder cattle prices,

* softer feeder markets encourages cow liquidation,

* fewer cows means fewer cattle to feed.

The primary question becomes: will we reach, or have we reached, the point in which the industry finds itself within this adverse cycle? Let's hope not. If we end up there it's a very discouraging commentary about the competitiveness of the beef industry going forward. The importance of declining revenue has been a key item of emphasis within the Monthly Market Profile for much of 2009. Per that development, in my estimation the industry is at a very critical juncture!

Amidst that reality certain camps within the beef sector continue to orchestrate an adversarial theme and promote antagonistic agendas: seemingly, the goal is to step back in time and hamper the industry with backward, restrictive and protectionist ideology. An objective to constrain rewarding market opportunities is beyond comprehension; it's perplexing why anyone ever wants to limit innovation and impede free enterprise. But most importantly, the timing couldn't be worse for that type of ideology. It should be refuted else the efforts of such thinking will result in regressive legislation and potentially yield a decisive blow to the entire industry.

As a reminder, be sure to also catch this month's AgSight!

Price Summary

Ohio's New Fence Law - Jim Skeeles, OSU Extension Educator, Fairfield and Hocking Counties

For nearly a year now, since last October, we have a new "fence law". The old law stood for more than 100 years before the new law took effect in October, 2008.

The old law was written when nearly each and every property owner had livestock, thus there was a line fence to turn livestock on the property line between neighbors. So the basis of the old law was that each adjoining landowner was responsible in equal shares for building and maintaining the common line fence between them.

The new law on the other hand assumes that few people have livestock and few neighbors will desire that there be a line fence on the property line. Therefore, construction and maintenance of a new fence is the sole responsibility of the property owner benefiting from the fence. However, if the other neighbor is to also benefit from the fence (such as running livestock against the fence), each neighbor is responsible for expenses according to the equitable benefit derived by each.

The new law establishes an equitable apportionment rule for existing line fences built before the law change. The intent of the law is to continue shared responsibility between landowners for existing fences, but the responsibility will be "equitable" shares rather than equal shares as it was under the old law.

The equal shares rule of the old law is still in effect for certain government fences. These include fences on land owned, leased, managed or controlled by the department of natural resources, a conservancy district or a political subdivision with a real property interest in "recreational trails," if the government land is adjacent to private land used to graze livestock.

The new law also includes clear standards for new line fences, but only for fences that contain livestock. Preferred livestock fences can be of three types: 1) A woven wire fence of either standard or high tensile and with one or two strands of barbed wire at least 48 inches from the ground; 2) A nonelectric high tensile fence of at least seven strands constructed according to Natural Resources and Conservation Service standards and 3) A barbed wire, electric or live fence to which both parties agree, in writing. These preferred partition fences are not mandatory if the adjoining landowners agree to a different fence, but the agreement must be in writing and recorded with the county recorder.

The new law also provides for establishing the existence of a line fence, agreements between property owners concerning the line fence and expenses incurred by which neighbor for construction or maintenance of a line fence. Generally this documentation is accomplished by filing of an affidavit with the county recorder.

Situations where an affidavit would be appropriate would be:

1) If a line fence existed within two years of the filing of the affidavit that has been taken out and there are plans to run livestock against a newly constructed line fence, filing an affidavit by September 30, 2009 could allow equitable apportionment of expenses whereas without the filing expenses would be solely the responsibility of the person building the fence to contain the livestock;

2) When the expenses for building and maintaining a line fence are solely the responsibility of one neighbor, if the other neighbor or subsequent neighbor within 30 years of building the fence runs livestock against that fence, if an affidavit of the existence of the fence and the expenses borne by only one neighbor is filed and proper procedures are followed, reimbursement for a portion of the expenses are possible and,

3) If a line fence is removed (notification of intent to remove is now required 28 days prior) and not replaced within one year, unless an affidavit of fence removal is filed upon fence removal, the expense of replacing and maintaining the fence falls solely on the property owner removing the fence.

Neighboring property owners no longer have a right to exclude someone who is building or maintaining a new line fence for the adjacent owner. The new law grants rights to the adjoining landowner or a contractor to enter on up to ten feet along the line of a neighbor's property for construction and maintenance, but also states that the owner or contractor is responsible for harm caused to the neighbor's property, including crop damage.

The old and new law maintains a duty to keep a fence row clear of brush, briers, thistle and weeds within four feet of the fence. A landowner may demand that a neighbor clear the fence row and may seek the assistance of the board of township trustees if the neighbor fails to comply with the demand. The trustees may hire labor to complete the work and assess costs against the owner's property taxes through the county auditor.

Historically, township trustees have had the legal duty of resolving line fence disputes, but now an aggrieved owner can either go to the trustees, court of common pleas or request binding arbitration.

EDITOR's NOTE: More detail on Ohio's new fence law, including an example affidavit, may be found at the OSU Agricultural and Resource Law web site.

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

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were mixed Monday with nearbys off and deferreds up. The AUG'09LC contract closed off $0.450/cwt at $84.425/cwt; $0.200/cwt lower than this time last week on hedge selling and jitters over the U.S. economy. DEC'09LC futures closed at $89.875/cwt; down $0.175/cwt and $0.375/cwt lower than last report. The February contract broke even. Slow retail sales amid a weaker U.S. economy pressured prices. Traders don't see any let up in the near future. Beef demand is off on the highest unemployment in 26 years noting more hamburger grillers than steak grillers this past holiday. Tight supplies and higher cash cattle were supportive. USDA put the Choice Beef Cutout at $137.98/cwt, up $0.09/cwt but $1.40/cwt lower than this time last week. Cash cattle traded $1.00-1.50/cwt higher as USDA put its 5-area average at $82.81/cwt; up $1.18/cwt from last report. According to HedgersEdge.com, average packer margins were lowered $11.75/head to a positive $1.80/head based on the average buy of $81.64/cwt vs. the average breakeven of $81.78/cwt. It is still a good idea to hold cattle to heavier weights if you can. It might be a good idea to lock in near-term feed needs.

FEEDER CATTLE at the CME were up again Monday on support from lower grain and tight supplies. AUG'09FC futures finished at $103.80/cwt; up $0.350/cwt and $2.075/cwt higher than last report. The OCT'09FC contract closed at $102.925/cwt; up $0.450/cwt and $1.600/cwt higher than this time last week. Cash feeders were $2/cwt higher in Oklahoma City. The latest CME Feeder Cattle Index was placed at $98.93/cwt, up $0.41/cwt and $1.26/cwt higher than a week ago. It might be a good idea to hold feeders to heavier weights.

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