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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 6, 2009

Monthly Market Profile: Steer/Heifer Mix: Cow/Calf Producers - What Say You? - Nevil Speer, Professor, Animal Science, Western Kentucky University

Last month's Monthly Market Profile focused on the issue of spring highs and included the following excerpt: 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?

That question stemmed from the market's six-week achievement of working back to $85 at the end of March following mid-February's sub-$80 low. Upside potential indeed!

Nearly as soon as the MMP was released boxed beef began a new upward march - to the tune of about $18/cwt in the following three weeks. Not surprisingly, the fed market tagged along: cash sales jumped to $86 and then traded mostly $88 for the following couple of weeks. That surge was short-lived, though, as the market quickly ran out of gas. April's ending sales were largely $2-3 lower with fed trade finishing the month at $85-6 and giving back almost all of the gain of the previous few weeks.

It goes without saying, the cattle feeder never complains about higher prices. In fact, by some estimates, a proportion of closeouts have actually been in the black in recent weeks: calf-feds priced against last fall's low point in the feeder cattle market. However, the big winner in recent weeks has been the processor - they've captured an overwhelming proportion of the run-up in wholesale prices. Subsequently, as last month's MMP was coming to press, the packer was on the cusp of ending its losing streak due to improved demand, bigger throughputs and better margins and managed to reverse direction from the following March-issue excerpt: 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.

The first graph below illustrates the reversal in recent weeks. Gross profit during the second-half of April jumped above $150/head and provides at least a short window of reprieve in terms of operational profitability. And it's no accident that the average weekly harvest surpassed 650,000 head during the previous two weeks - the first such run time since late-September and well ahead of the non-holiday weekly average of 614,000 during 2009. And cattle feeders have been largely willing to surrender that bounty to processors given the break back to $82 for both the June and August contracts at the CME.

The next few weeks will be very critical and likely prove contentious amidst weekly negotiations. On one hand, feedyards will attempt to cash in to the fullest extent possible per current positive basis (a window which is quickly waning per last week's spot market decline); managers want to sell as many as cattle as soon as possible. And sizeable weekly harvest will remain possible as long as the packer remains in the black. On the other hand, cutout values have come under pressure in recent days; $150+ seems an important resistance level and may not be sustainable much longer once the scrambling to meet Memorial Day needs is over. Further declines will mean shrinking potential for margin; the answer will either be lower margins or lower bids. Meanwhile, there's indirect fallout from H1N1 influenza: closed export markets means additional pork that ultimately will land within the domestic market; Memorial Day is traditionally beef-focused but pork may favorably compete as consumers look for value in a struggling economy.

Lastly, USDA's April cattle-on-feed report revealed larger March placements versus 2008. But turn-level placements remain behind both the year-ago and the five-year average pace (second illustration below). However, in my estimation there's one hugely important item that's seemingly been overlooked in recent weeks: USDA's quarterly estimate of the steer vs. heifer mix within the nation's feedyards. This one was especially important as it represents culmination of calf-fed placements from the spring, 2008 calf crop; that is, it's indicative of calves having been placed on feed through fall '08 and spring '09 - the remainder of the calf crop will likely arrive later in the year following summer grass programs. Nonetheless, it's the mix that's important.

The third illustration below provides some reference from which to work: it outlines the U.S. beef cow inventory during the past several decades. Note that beef cow inventory has declined a whopping 3.6 million cows since the recent peak in 1996. Even more dramatic, though, was the loss of 700,000 cows last year alone. The final illustration highlights the quarterly steer/heifer mix during the past ten years. One would surmise that last year's sharp cow sell-off might induce increased interest in heifer retention - that'd subsequently be reflected in this spring's steer/heifer feedyard mix and partially explain lower placement activity. But that's not been the case and heifers continue to comprise approximately 37% of the total feedyard population - consistent with previous years.

There are likely a number of varied reasons for that occurrence; many readers undoubtedly can provide a number of logical explanations. Ultimately, though, it depicts a relative bearish outlook with respect to profitability - a decision making process that is especially important and revealing amidst the current financial crisis. Increased production costs coupled with household financial pressures are influencing the cow/calf sector: the outcome clearly is not in favor of running more cows. But most important are the ramifications on an industry-wide basis. Most notably, further declines in beef cow numbers will eventually impact the industry's infrastructure in an unfavorable manner. Clearly, that's not a feel-good message. But it's also reality and should neither be avoided nor placated if the beef complex is to remain competitive. Stay posted.

Price Summary

EDITOR's NOTE: Next week in the Ohio BEEF Cattle letter, read Speer's AgSight column entitled Ag's Trade Dependency, Price Volatility Dictate Need For Risk Management.

Forage Focus: Grazing Bites, May 2009 - Victor Shelton, NRCS Grazing Specialist

I can remember at least two times in the back of my memory as a young teenager being requested to "show me your hands". I thought the first time that this was an unusual request but put my hands out to which they were turned palm side up for a quick assessment. "Good, grab a pitch fork and follow me." I figured out a fair time later that he wanted to see if I had any "work" experience . . . and I guess the calluses were sufficient, I helped out there off and on that entire summer. I tell this story because the same is somewhat true with the management of your grazing system; do we have a "hands on" approach? If we are not out there "working" the system, then we may not be accumulating all the potential benefits . . . or the cows.

I talk quite often to producers that already have a mindset on what they perceive as the desired or ideal system for them . . . and they are often right on track. On the other side, they often tell you that they want a system where they move the animals on a set day period - I call it grazing management by the calendar . . . moving every Wednesday, Saturday or every so many days on a set schedule. Now, if your grass grows that perfectly and evenly all season long, that is just great, mine doesn't . . . .not even close. OK, I'll say first that this is still probably better than continuous grazing, but it does have some flaws. Most grazing plans will indicate an "average" recommended moving day and rest period for the growing period, but like I said a minute ago, that is quite variable depending on the forage and livestock and very much so on the weather. What should we really be doing and basing moves on? The same thing we have talked about lately - what else - enter and exit heights. This is a very universal "concept" and you would find that this is true with about any forage you encounter here or elsewhere. Each species has an ideal enter and exit height. Most tall cool-season grasses such as orchardgrass and tall fescue are best to commence grazing at 8 to 10 inches and animal removal at 3 to 4 inches - 4 being best. Shorter cool-season grasses such as Kentucky bluegrass or Perennial Ryegrass can be entered at 5 to 6 inches with removal at 1 to 2 inches, 2 being ideal. Perennial warm-season grasses such as Switchgrass, Indiangrass and Big Bluestem should have an enter height of 18 to 24 inches and an exit height of 6 to 8 inches - 8 being ideal. Other like species are similar with some variations.

Why minimum grazing heights? Like we've talked about before, the live growing top growth - leaf, leaves - the solar panel - is generally equal to the like live roots below ground. The shorter the top, the shorter the roots - or just less roots and thus less solar panel, less carbohydrate movement to the roots, less roots, less and slower regrowth - less production, possibly lower persistence and probably the worst thing, potential less growth as meat and milk.

I have a copy of a short video clip and also the same in a power point that was produced by the University of Kentucky which is actually a time lapsed series of pictures taken every so many minutes of two tall fescue plants. One mimics an overgrazed pasture situation and the other at a more proper removal height. As the plant grows - right before your eyes over a very fast paced five days, the "well managed" plant more than quadruples the size of the over grazed specimen; wow, this certainly reassures us that grazing height does make a significant difference in production potential. Back to that "hands on" management, it doesn't rain everyday . . . get out of your truck or off your 4-wheeler and walk out and take a good look at your pastures; you can't effectively do a visual going 45 mph! Do the cows need to be moved? What are the dominant forages present and are they being managed for their potential? A grazing stick, which is a yard stick with some extra beneficial information included, is a good tool to have on hand for this walk. It will help you access what that average "height" really is. If you are raising cows, you can somewhat use the cows for a gauge for tall cool season forages - with head down, enter at about eye height and exit when you can see the muzzle or perhaps a little more accurate, enter at knee height of the cow and exit when you can see the dew claw. There are certainly very accurate ways to measure the average height present and even the amount of dry matter present, and all is good information, but probably not critical on most operations with dairies being the probable exception.

So, once we have an idea of the height of the forages presently in the field being grazed, do we know where we are moving to next? And perhaps the next move? We are close to the period where the fuel is thrown on the fire and forage growth explodes - are we ready? Do we have a game plan? It pays to have one and a contingency plan for time periods like the past two years where drought was a problem in many areas. We may need to clip or cut forages for hay to keep everything in check. I often recommend that people track enter and exit periods. An easy way to do this is to take a simple map of the grazing system and write on the map, enter and exit date, and any other data you want to include. If nothing else, it will tell you how much time has lapsed since the last time it was grazed which are useful for several things, parasite cycles for one.

I look at my hands today and they are certainly older hands than the ones a few decades in the past and appear to be me to more my father's hands than mine; hopefully still showing that I'm not afraid of a little work - "hands on".

Keep an eye on the forage and happy grazing!

Animal Sciences Open House, Annual Hall of Fame Ceremony

On May 27th, the Ohio State University Department of Animal Sciences will celebrate the achievements of those who have enhanced student education and enriched the animal sciences industry through an open house and the annual Hall of Fame ceremony.

This year, the Department will induct Elizabeth Harsh, executive director of the Ohio Cattlemen's Association, into the Animal Sciences Hall of Fame. "Recipients of the Animal Sciences Hall of Fame have demonstrated superior skill and achieved success in the field of Animal Science for themselves and their families. They have also practiced service to others through giving their time, energy and thoughtfulness in the local community," said Dr. Steve Boyles, associate professor, who coordinates the Hall of Fame ceremony. Harsh directs and coordinates the activities and programs of the Ohio Beef Council and the Ohio Cattlemen's Association.

Several prestigious student awards will also be presented during the Hall of Fame Ceremony which will begin at 3:00 p.m.

Prior to the Hall of Fame, the Department will host an open house to showcase the achievements and the exciting changes and opportunities happing in Department's programs. The open house is an opportunity to hear about the accomplishments of faculty, staff and students and gain their perspective on the programs, courses and research and extension activities of the Department.

The complete schedule of the day's events is:

12:00 to 3:00 p.m. - Department of Animal Sciences Open House

12:30 to 2:30 p.m. - Tours of the Meat Science Laboratory

3:00 to 5:00 p.m. -Hall of Fame Ceremony

4:00 to 5:00 p.m. - Social Hour

For those planning to attend the Open House an RSVP is requested. Please send RSVPs to April A. Hayes, Marketing Coordinator, Department of Animal Sciences, 2029 Fyffe Court, Columbus, OH 43210 or Hayes.432@osu.edu by May 8, 2009

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

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were mixed on Monday. The JUNE'09LC contract closed at $81.875/cwt; off $0.225/cwt. The AUG'09LC contract closed up $0.075/cwt at $82.100/cwt but $0.200/cwt lower than last Monday's close. DEC'09LC futures closed at $88.825/cwt; off $0.025/cwt and $0.450/cwt lower than last report. Weaker-than-expected cash markets pressured prices. However, the discounts of futures to cash and expectations for better beef demand were supportive. Cash cattle traded for $2/cwt lower as UDSA put the 5-area price at $85.715/cwt; $2.21/cwt lower than this time last week. Several floor sources said traders are expecting seasonal demand to kick in anytime. USDA on Monday put Choice Boxed Beef cutout at $148.31/cwt, down $0.190/cwt but $3.87/cwt over this time last Monday. H1N1 flu continues to pressure demand on secondary pressure from pork. According to HedgersEdge.com average packer margins were reduced $10.80/head from this time last week. The average processor margin was placed at a positive $6.70/head based on the average buy of $87.95/cwt vs. the average breakeven of $88.46/cwt. Hopefully feed needs for several weeks were bought on previous advice. Feed buyers should hold off on buying more feed needs at this time.

FEEDER CATTLE at the CME closed mixed on Monday. The MAY'09FC contract closed at $97.400/cwt; off $0.050/cwt. AUG'09FC futures finished at $98.675/cwt; up $0.225/cwt and $1.075/cwt lower than last report. Technical buying to cover short positions, buy stops, expectations for feeders to be coming off grass therefore moving into the feed lots, and lower corn prices weighed on prices. The discount to feeders in distant months and spreading into August out of May were supportive. The CME Feeder Cattle Index was placed at $99.52/cwt; off $0.32/cwt from last Friday and $0.59/cwt lower than last Monday. It probably would be a good idea to move feeders when ready this week.

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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