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BEEF Cattle questions may be directed to the OSU Extension BEEF Team through Stephen Boyles or Stan Smith, Editor
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Previous issues of the BEEF Cattle letter
Issue # 640
Monthly Market Profile: So Much For Beef's "Green Shoots" - Nevil Speer, Professor, Animal Science, Western Kentucky University
Pop quiz time - multiple-choice question: cattle feeders: A) have skin like iron; B) are always optimistic about the next turn of cattle; C) love the business of trading and can't imagine doing anything else; D) always believe they can beat the market; E) all of the above. You answered with . . .? Those are probably all essential qualities to remain resilient and keep motivated right now because cattle feeders just can't seem to catch a lasting break.
June opened on a very sour note. Following four weeks of steady trade at mostly $84-5 the market found itself under pressure from sliding wholesale prices once Memorial Day was over. Sellers retreated relatively quickly with some deals brokered as early as Tuesday following the extended weekend. Business began the month of June with cattle trading in the North at $82.50-$83 but prices eroded from there as the week progressed; the Southern-tier followed up with cattle being priced largely at $82 including some reports of sales dipping all the way down to $81. An $82 market compares to $85-6 a month ago and $95 in 2008 (more on that later).
However, the spot market is really only part of the story. Perhaps more damaging was the action at the CME. The June contract broke through $80 (June 2) - a significant psychological support level and established a new life-time low for the contract. Meanwhile, the August contract also marked a new low (the previous intra-day low occurred back in February) and settled below $81; the contract has given up over $4 during the course of the past six weeks. On one hand, it could be argued that the futures market is oversold and due for some recovery (indeed, those contracts reversed direction later in the week). On the other hand, cattle contracts are facing a double-whammy being weighted down by action in the hog pits: June Lean Hogs are now sub-$60 due to concerns about sliding wholesale prices and slowing pork movement. Net result, barring any kind of unforeseen dramatic reversal, negative sentiment at the CME will pressure cash trade in coming weeks and leaves prospects for cash trade range bound for the remainder of the summer.
More importantly, that's also true from a fundamental perspective - the wholesale beef market. The first graph below depicts weekly Choice cutout values. It's important to note that 2008 represents an anomaly: the contra-seasonal surge in the middle of the summer was the direct result of stimulus checks. Therefore, the '05-'07 average represents a much more accurate benchmark in terms of seasonal expectations. The cutout staged a great recovery during April but has since run out of gas…so much for "green shoots" within the economy, at least as it pertains to the beef sector. The question now becomes about severity of downside risk to the market - will the cutout test $130? The subsequent outcome of that question revolves around fed trade - will it retest the sub-$80 low established back in February?
Regardless of where the market ends up, the most important aspect to the beef complex right now relates back to the cattle feeding sector. The second graph portrays estimated aggregate feedyard revenue (an updated version from previous Monthly Market Profile discussions). The trend continues in the wrong direction: beginning last fall the sector has experienced lower prices and slower throughput. By my estimates, the cattle feeding sector, through June, will be some $1.8 billion behind last year's pace and approximately $1.2 billion behind the 5-year average. Regardless of the actual number, the trend depicts a shrinking revenue base to work from and represents a sector that eventually will have to contract.
Meanwhile, there are still numerous analysts who continue to emphasize the supply side of the price equation. That is, better days are coming for the market because of a relatively limited fed cattle supply and the need to aggressively pull cattle forward. Some forecasters are touting prices north of $90+ for fed cattle later in the year. That said, it's important to provide some historical perspective. During the past five years ('04-'08) when cattle traded $90 or better (108 out of 260 weeks) the following conditions existed: average fed price = $93.65; Choice cutout: = $153; Select Cutout = $144; drop = $9.88. Moreover, packer margins during those $90+ weeks hovered around $125. And there certainly hasn't been much slack of late (but that's always the case) for the beef processor in terms of margins that would help boost the market (see third graph below). Therefore, any hopes for $90+ cattle, given current drop values, would require the Choice wholesale market to climb into the upper-$150s.
The point being, positive talk and good intentions aside, history provides some objective insight for various price targets. That's true for all participants, including cow/calf producers who need to begin
focusing on fall marketing plans - especially in light of recent action at both the CME and CBoT. To conclude, this is a critical juncture for the market. There's lots of uncertainty out there: there's no
room to take anything for granted and managing one's business requires constant attention. (For more on this see June's Agsight entitled What Does "New Normal" Mean For
Agriculture?)
Price Summary
|
Item |
Week Ending: | ||||
| 6/5/09 | 5/29/09 | 5/22/09 | 5/15/09 | 5/8/09 | |
| Slaughter Steers ($/cwt) | 81.96 | 88.33 | 85.08 | 85.16 | 84.03 |
| Choice Cutout ($/cwt) | 141.39 | 145.60 | 147.03 | 146.14 | 146.10 |
| Select Cutout ($/cwt) | 135.68 | 139.41 | 141.91 | 142.93 | 143.51 |
| Hide and Offall ($/cwt) | 7.22 | 6.81 | 6.71 | 6.36 | 5.87 |
| USDA Slaughter Weights (lb) | 1266 | 1265 | 1267 | 1272 | 1279 |
| USDA Steer Carcass Weights (lb) | 826 | 820 | 822 | 820 | 824 |
| CME Feeder Cattle Index ($/cwt) | 98.75 | 100.26 | 99.89 | 99.15 | 99.51 |
| Cow Cutout ($/cwt) | 109.77 | 115.51 | 117.24 | 115.61 | 115.42 |
| Corn (basis Omaha: $/Bu) | 4.26 | 4.12 | 4.07 | 4.12 | 3.98 |
| Cattle Harvest (000 head) | 670 | 625 | 678 | 672 | 652 |
| Beef Production (million lb) | 513.4 | 478.6 | 519.3 | 516.0 | 502.8 |
Farm Animal Cruelty Legislation: Coming Soon to Ohio? - Peggy Hall, Director, OSU Agricultural & Resource Law Program
Ohio may once again serve as a battleground state for a political issue. The Humane Society of the United States has turned to Ohio as its next target for farm animal cruelty legislation. The effort is part of a trend in state legislation that prohibits certain livestock management practice on farms. Laws preventing "cruel" confinement of farm animals have passed successfully in five out of six attempts, beginning with Florida in 2002. Arizona, Oregon, Colorado and California initiated similar laws. Only Nebraska has rejected a farm animal cruelty proposal.
Last fall, California voters decided the most recent farm animal welfare issue when they enacted the Prevention of Farm Animal Cruelty Act. The new law arose as a ballot initiative, a procedure that allows a legislative proposal to be placed on the ballot and decided by all citizens rather than by the elected legislative body. Over 63% of the voters supported California 's Proposition 2 and its stated purpose of prohibiting the "cruel confinement of farm animals in a manner that does not allow them to turn around freely, lie down, stand up, and fully extend their limbs."
The new California law applies to certain farm animals: calves raised for veal, egg laying hens, and pigs during pregnancy. Egg-laying hens means chicken, turkey, duck, goose, or guinea fowl kept for the purpose of egg production . For pigs, there is an exception for the seven days prior to the expected birth date. Exceptions also exist for research, veterinary care, exhibitions and slaughter. Otherwise, the Prevention of Farm Animal Cruelty Act states that a person shall not "tether or confine" calves, hens and pigs on a farm "for all or the majority of any day, in a manner that prevents such animal from lying down, standing up, and fully extending his or her limbs and turning around freely."
A few definitions are important to the meaning of the California law. A "farm" is land or buildings used for commercial production of animals or animal products, but this does not include markets. "Fully extending limbs" means fully extending all limbs without touching the side of an enclosure. In the case of egg-laying hens, this means fully spreading both wings without touching either the side of an enclosure or other egg-laying hens. "Turning around freely" means turning in a complete circle without any impediment, including a tether, and without touching the side of an enclosure. An "enclosure" is any cage, crate, or other structure, including gestation crates, veal crates and battery cages. Note that the laws prohibits the tethering or confinement for "all or the majority" of a day, and thus is not a complete prohibition.
A person who violates California 's Prevention of Farm Animal Cruelty Act is subject to criminal misdemeanor charges. A successful conviction can result in punishment of up to $1,000 in fines and 180 days in jail. These penalties are in addition to charges that may arise under California 's other animal welfare laws.
An interesting provision of the California law is its effective date of January 1, 2015 - over six years from its enactment. Proponents say the intent of the delayed effective date is to address concerns about the financial impact of adapting facilities to the new law. Opponents state that advocates designed the delay to give them time to pass similar laws in other states without legal challenges and a backlash of anger and implementation issues in California .
Proposed farm animal cruelty legislation in Ohio would likely amend Ohio 's animal cruelty law. Ohio Revised Code 959.13 currently states that a person may not torture, beat, mutilate or kill any animal, deprive an animal of food or water, confine an animal without access to shelter from wind, rain, snow and excessive sunlight, carry or convey an animal in an inhumane manner, or confine animals in railroad cars for more than 28 hours without food and water. For animals other than cattle, poultry, fowl, swine, sheep or goats, a person may not confine an animal in an enclosure without providing it with exercise and a change of air.
The effort to bring a farm animal cruelty law to Ohio will occur soon, according to the Humane Society of the United States . The organization - which is not affiliated with Ohio 's county humane societies and animal shelters - has formed a farm animal campaign aimed at "reducing the suffering of animals raised for meat, eggs and milk." For further information on the farm animal campaign, see http://www.hsus.org/farm/ . A preview of the website will give agricultural advocates and livestock operators a preview of the next big battle that may soon be waged in Ohio.
EDITOR's Note: Next week in this publication, Luther Tweeten discusses the economic impact the proposed animal welfare regulations discussed by Peggy Hall may have on Ohio.
Forage Focus: Pastures - To Clip or Not to Clip? - Rory Lewandowski, OSU Extension Educator, Athens County
As I write this newsletter, we are getting rains and temperatures that are helping pastures to produce a lot of dry matter growth. Along with that growth has come seed head production. Once that grass plant produces a seed head, it stops producing vegetative tillers and the quality of the plant declines as fiber percentage increases, while crude protein and energy percentage decreases. In the "Pasture for Profit" grazing schools, one of the pasture management principles is remove seed heads and strive to keep the plant in vegetative growth. Seed heads can be removed by grazing animals or avoided if grazing passes are timely. However, with the growth rates we experience in the spring, it would take some high stocking rates and densities to avoid seed heads or remove all the seed heads. Most, if not all, beef cattle owners are going to have to deal with seed heads in their pasture. The second option is to clip those seed heads off. This is a necessary pasture management chore isn't it?
I've had several interesting discussions about clipping pastures recently. As a result, I'm "refining" my recommendations about pasture clipping, and adding some qualifications. While it is true that clipping seed heads will allow the plant to go back to vegetative growth and will result in higher quality forage, it is also true there is a cost associated with clipping pastures. The Ohio Custom Rate publication (2008) says bush hogging costs about $15/acre. To get a payback from that $15/acre the beef cattle producer must be able to utilize the benefits that clipping is producing. Here are some considerations:
* Do my cattle need the increased quality that clipping seed heads will produce? A vegetative plant is high in crude protein. A beef stocker may need this kind of quality. A first calf cow may need the higher quality forage. Does a mature cow in milk need vegetative quality pasture?
* Pastures clipped in May are likely to produce another set of seed heads. Will you be able to get another grazing pass in to utilize the quality before seed heads form again?
* Instead of clipping seed heads in all pasture paddocks, could some paddocks be dropped out of the early season rotation and used for hay production? If the paddocks that remained in the early season rotation could then be subdivided, in effect increasing the stocking density, the cattle would graze more evenly with less selection, and minimize the need for clipping.
* If economics dictated that pastures could only be clipped one time per year, when would be the best time to clip? Clipping in late July/early August would insure that re-growth is vegetative and would prepare paddocks for a stockpiling option.
* On the other hand, that $15/acre cost for clipping off seed heads might also be looked at as management that is necessary to open up the pasture canopy, let sunlight in and insure that lower growing white clover stays in the pasture mix.
* Clipping might be important in your management scheme to allow grass plants to continue vegetative growth and tillering to thicken the sod base and fill in bare areas, or simply as management to hasten re-cycling of plant nutrients in the pasture paddock. Some may even view clipping seed heads as giving an added benefit of reducing some weed pressure in pasture paddocks.
The point here is that the beef producer should know what they are trying to accomplish when pastures are clipped. Clipping should meet some management objective. I'd be glad to continue this discussion and hear your point of view.
Weekly Roberts Agricultural Commodity Market Report - Mike Roberts, Commodity Marketing Agent, Virginia Tech
LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) fell on Monday. The JUNE'09LC contract closed at $79.425/cwt; down $0.725/cwt and $1.100/cwt lower than last report. The AUG'09LC contract closed off $0.525/cwt at $80.625/cwt and $1.025/cwt lower than this time last week. DEC'09LC futures closed at $88.600/cwt; down $0.325/cwt and $1.275/cwt lower than last report. Losses in other commodities, a lower DOW Jones, and a sell-off in feeder cattle futures weighed on prices. Cash cattle were bid $2-$2.50/cwt lower to $82/cwt in the Plains while sellers priced animals between $84-$85/cwt. Trading was slow and is expected to remain spotty across the country as packers partially fill processing lines. USDA placed the 5-area price at $82.06/cwt and Choice Beef Cutout at $89.96/cwt, up $0.31/cwt. Last Friday Russia lifted its ban on U.S. beef and poultry from California but retained its ban on fresh and frozen pork. According to HedgersEdge.com average packer margins were lowered $21.45/head to a negative $13.55/head based on the average buy of $83.54/cwt vs. the average breakeven of $82.46/cwt. It is a good idea to go ahead and sell cattle when ready. Feed prices are waiting on the USDA WASDE report to react.
FEEDER CATTLE at the CME were off on Monday. AUG'09FC futures finished at $95.850/cwt; off $0.775/cwt and $4.325/cwt lower than last report. The OCT'09FC contract closed at $96.775/cwt; down $0.800/cwt and $3.900/cwt lower than this time last week. Feeders are technically weak in spite of being near oversold status as fund selling increases, especially near the close of today's session. Cash feeders remain weak on losses in fat cattle. Feeder cattle in Oklahoma City were $2/cwt lower last week. The latest CME Feeder Cattle index for June 4 was placed at $98.75/cwt; off $0.23/cwt and $1.77/cwt lower than last report. It is still a good idea to hold feeders to heavier weights if you can. Feeder cattle buyers who don't have to risk feed inputs on lighter cattle are willing to pay more.
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.
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