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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 # 635

May 13, 2009

I'm Getting Too Old for the Chicken Dance - Kris Ringwall, Beef Specialist, NDSU Extension Service

North Dakota Beef Cattle Improvement Association members have a recorded an average daily gain of 2.52 pounds for calves on summer pasture. This means the 70,000 calves measured through the NDBCIA's CHAPS program cumulatively gain on a daily basis 176,400 pounds, 1,764 hundredweight or roughly 88 tons.

These statistics are especially pertinent following the tough winter and spring we experienced. These challenging weather conditions translate into more work and, for many producers, higher than normal calf death loss.

The natural reaction is to pull back and delay bull turnout so calving will take place later. A look at data from the 2003 through 2007 CHAPS program shows the average bull turnout date was June 9, with a predicted beginning calving date of March 19 (based on a 283-day gestation). The actual average calving date for those herds was April 3.

Producers surveyed this spring anticipate delaying bull turnout this summer by nine days. Is that a good thing to do?

We already know the average daily gain for summer calves is 2.52 pounds. The net result is that for every day that bull turnout is delayed, producers will have one less day of calf growth.

The delay means 176,400 pounds of beef for these 70,000 calves will not be realized. CHAPS benchmarks show a producer with 100 cows usually weans 90 calves (6 percent open cows, 3 percent calf death loss and 1 percent abortions and other losses).

If the bulls are turned out nine days later, a producer gives up an estimated 2,041 pounds of calf in the fall (nine days times 90 calves times 2.52 pounds). Imagine a producer with a 9 percent calf death loss because of tough weather. A producer needs to sit down and think through the numbers.

The additional 6 percent loss, or approximately six calves for this 100-cow herd, is actually six times the average weaning weight for each calf. The benchmark value for the 70,000 calves in the CHAPS program is 560 pounds, which means producers would lose 3,360 pounds because of the six additional calves that were lost.

Producers need to evaluate if the risk of losing 3,360 pounds of calf reoccurring is greater than the planned management change of moving the bull turnout date back nine days. If we have a similar winter and spring next year, backing up the calving date to avoid difficult weather would be good.

However, if these events only happen once every 10 years, backing up the calving date would amount to an estimated 20,410 pounds of lost calf gain (10 years times 2,041 pounds), while the one bad year resulted in 3,360 pounds of lost calf gain for that particular year. In that case, the answer would appear to be to leave the calving date as is.

No simple answer exists. One could back up the calving date nine days and wean nine days later and actually wean the same amount of calf. This sounds good, but an early snowstorm on a bunch of bawling, freshly weaned calves is no good, either.

The bottom line is that ranching and farming is a dance with Mother Nature. We asked for the dance.

I would like to think the dance is a nice, refined waltz, but a fast two-step or maybe a wild polka is to be expected. Unfortunately, the "chicken dance" is thrown in every so often. Hold on to your hats because no one really knows just when and where the dance will end.

At the Dickinson Research Extension Center, we are settling on bulls going out the week of June 15 for the mature cows. The bulls will go out to the breeding heifers the last days of May. That puts next year's mature cows on a schedule to start calving March 25, which is a few days later than we have been.

I guess I'm getting too old for the "chicken dance."

AgSight: Ag's Trade Dependency, Price Volatility Dictate Need For Risk Management - Nevil Speer, Professor, Animal Science, Western Kentucky University

H1N1 matters! The impact on the pork complex is real with some estimates pegging China and Russia export cessation between $15 and $20 million per week. Perhaps more tangible is the front-end market impact: CME's May Lean Hogs contract finished at $69.00 on Friday, April 24; ten days later the contract closed business below $56 - a $13/cwt difference - the equivalent of about $25/head. Meanwhile, additional factors also matter in other markets: commodities were neither buffered from H1N1 nor protected from their own overarching concerns within the markets.

The grain markets initially responded negatively due to worries about fallout from potential pandemic and global economic slowdown. That proved to be short-lived; grains bounced back with vengeance due to overriding concerns about planting progress and worldwide supply. For example, the same ten-day period witnessed July soybeans close at $10.34 on April 24, move all the way down to $9.82 and then rebound on the way to surpassing $11. Same story within the corn pits: the July contract initially retested support around $3.75 but then jumped to higher levels and just four days later was retrying previously established resistance at $4.15.

No one needs a reminder about the importance and enduring influence of the current financial crisis - it's the predominant issue of 2009 and ever-present in our minds. As such, the potential for a pandemic arrives at an especially critical time - any type of hiccup and/or unfriendly GDP catalyst could prove to be especially problematic for global economic recovery. The World Health Organization referred to the outbreak as a "public health emergency of international concern". And estimates are wide-ranging with respect to the pending economic outcome if H1N1 gets a foothold. Thus, the sharp reaction from traders in the commodity pits.

Influenza aside, avid debate continues among economists about what's ultimately around the corner. The real concern, though, is founded in the treading through current uncertainty. Per that condition, January's Monthly Market Profile noted that players within the commodity markets should prepare themselves for turbulence: "Careful decision-making and risk management has never been more critical - a wrong decision on any given week could prove very costly!" Financial management in the real-time doesn't afford much room for the long-term outlook given the volatile and uncertain markets of late.

Along those lines, my students often question the real-life or practical importance of studying futures markets and/or risk management strategies. ("Is this really important . . . do I really need to know this?") Broader concerns about the economy coupled with recent developments in recent weeks surrounding swine flu underscore the enduring importance of tackling the potential for unknowns head-on. After all, risk management allows both buyers and sellers to offset major or minor shifts in market conditions depending upon one's strategy. We never know when unknowns or unknown-unknowns (unk unks) are going to appear.

The initial reaction in prices following reports of "swine flu" and subsequent reversal over on the grain side comes on the heels of last year's run-up and sudden plunge in commodity prices. That overall condition, volatility and uncertainty, is driving various companies to do more hedging as noted in the following excerpt (Hedging Now Second Nature for Food Groups, Financial Times, August 18, 2008):

"Good commodity risk management is consequently becoming an essential part of remaining profitable . . . Although food companies have long employed 'procurement' people with logistical skills in sourcing commodities, they are now looking for people with experience in trading commodities . . . Meanwhile, consumer industry bankers say investment banks are putting money in commodities teams that give food and consumer goods companies advice on how to hedge their risk exposure. When corn prices rose or fell 5 cents per bushel per day, companies could afford not to be hedged because the price movements were not big enough to lower profits. But now that they are swinging by 30-40 cents a day, and prices have soared - which means they account for a bigger proportion of total sales - companies are being hit with considerably higher additional costs."

And much of the current uncertainty stems from an inherently global economy where agricultural products are especially trade dependent. Single events now possess the potential to ripple worldwide due to market connectedness and thus impact arbitrage on a global basis.

That said, risk management is often facilitated through futures and options markets which exist to fulfill two distinct roles: 1.) risk transfer, and 2.) price discovery. However, the previous excerpt highlights much of the current controversy surrounding the role of futures markets - namely, some argue that various forces within the futures markets are artificially causing amplified price swings.

The argument goes as follows: there's a positive feedback cycle at work in the markets - price swings attract speculative capital which cause further price swings and so on. In other words, speculative forces are detrimentally contributing to volatility versus absorbing risk exposure among hedgers. Therein enters much of the controversy surrounding long-only index funds; some argue this becomes a self-perpetuating problem: first, index funds invest in commodities thereby driving prices higher and creating volatility…subsequently, large food companies and corporate banks assume significant positions which inherently drives index fund investment even further.

That controversy is another topic for another issue. It's essential to address, though: overview and understanding of price volatility, risk management and functioning of futures markets has never been more important! That's especially true when considering the events of late, the outlook for continued global economic uncertainty, currency fluctuations, and politics within agriculture's heavy dependence upon international trade.

Rory Lewandowski has scheduled a livestock mortality composting program for Wednesday, June 10 from 6 to 9 p.m. at the Athens County Extension office. Cost of the program is $10, which includes a livestock composting manual. Pre-registration is requested to the Athens County Extension office at 740.593.8555 by Thursday, June 4.

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

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were up on Monday in solid gains. The JUNE'09LC contract closed at $83.275/cwt; up $0.300/cwt and $1.400/cwt higher than last report. The AUG'09LC contract closed up $0.300/cwt at $83.900/cwt and $1.800/cwt higher than last Monday's close. DEC'09LC futures closed at $90.825/cwt; up $0.700/cwt and $2.000/cwt higher than last report. After a weak start on weak outside markets expectations for better cash prices later in the week rallied futures. Two floor sources said they were expecting another $1/cwt for fat cattle later in the week. The USDA 5-area average price was placed at $84.04/cwt but $1.675/cwt lower than this time last week. USDA on Monday put the Choice Boxed Beef cutout at $145.14/cwt; up $0.27/cwt but $3.17/cwt lower than last report. June/August bull spreads were supportive. According to HedgersEdge.com average packer margins were reduced $0.10/head from this time last week. The average processor margin was placed at a positive $6.60/head based on the average buy of $85.22/cwt vs. the average breakeven of $85.74/cwt. Hopefully feed needs for several weeks were bought on previous advice.

FEEDER CATTLE at the CME finished up on Monday. The MAY'09FC contract closed at $99.550/cwt; up $0.2000/cwt and $2.15/cwt over last Monday's close. AUG'09FC futures finished at $101.60/cwt; up $0.900/cwt and $2.925/cwt higher than last report. Live cattle were supportive as feeder calf buyers see grass coming along well now. Technical traders from a large speculative firm came in late buying heavily into the August contract supporting that contract. A higher CME Feeder Cattle Index was supportive being placed at $99.71/cwt; up $0.20/cwt from Friday but near even with last week at this time. It may be a good idea to hold feeders to a little heavier weight for now.

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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