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OSU Extension BEEF Team

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Previous issues of the BEEF Cattle letter

Issue # 885

May 14, 2014



Forage Focus: First Cutting of Forages - Mark Sulc, Forage Specialist, OSU Extension

While we've all been focused on getting planting done between the rains, our established forage crops have quietly been growing rapidly. I hate to say this, but first cutting of forages is just about upon us. Orchardgrass was just beginning to shoot a head in central Ohio last Friday (see orchardgrass and bluegrass below in head in Perry County on 5/13/14). The alfalfa stands that were not severely injured by winter are looking great and growing fast.

For high quality feed, such as for lactating dairy cows, pure grass stands should be harvested in the late boot stage just before the heads start to peek out. So for orchardgrass in the central and southern half of Ohio, that means harvest should begin as soon as the weather and soil moisture permits.

A timely first and second cutting is critical for high quality forage. Fiber accumulates faster in the first two growth cycles in May and June than it does later in the summer. In other words, for high quality forage, take your first and second harvest early. Then you can extend the cutting interval in late summer (July into August), because the quality penalty for delayed cutting is much less in late summer than it is this time of the year.

While a timely first cutting is critical to high quality forage, you should consider giving that up this year for forage stands that suffered winter injury. Winter injured stands should be allowed to grow longer this spring and get into the bloom stage to allow energy reserves to build up. This will help the plants to recover from winter injury and regrow the rest of the summer. Use that forage for animals having lower nutrient requirements.

If high quality isn't such a concern, we still have a little time before first harvest. For beef cows or other animals with lower nutrient requirements, you can harvest forage in the bloom stage for adequate quality, and it will provide higher yields. But don't get too comfortable waiting. Keep an eye on the forage because it changes fast this time of year.

Hay harvest timing is an important management tool whether you need high quality forage, high yield, or a compromise of the two. With the rapid development of forages, be ready to take advantage of the breaks in the weather. Every spring this is a challenge in Ohio! Hopefully after this week we will get enough of a break in the weather that you will be able to get some high quality forage harvested before the soil is ready for planting once again.





Forage Planting Dates - Mark Sulc, Forage Specialist, OSU Extension

In the Ohio Agronomy Guide, I recommend that forages be planted by the first of May. But isn't this year different, because of the cold, late spring weather? After all, planting by early May has been a difficult task in much of Ohio this year, although we have had a few windows of opportunity. It is unlikely any planting will be feasible in much of Ohio this week because of the wet soil conditions.

While all of the above arguments ring true, the fact remains that we are now well into May. Tell me it won't turn hot and dry in early June, that weeds won't emerge and grow like gangbusters with all the moisture we've had, then I'll tell you that forage plantings can still be successful. Unfortunately, the law of averages is working against all of that.

Planting forages later than now may work, but the probabilities of success are declining with every passing day and the difficulties for the new seedlings are increasing. The young seedlings will be at risk of being exposed to summer moisture and heat stress before they have a strong root system established. In addition, summer annual weeds will now be emerging with the forage seedlings and we know that weeds are very competitive and destructive when they emerge with the new forage seedlings before they have had a chance to establish. In pure alfalfa stands, we have herbicide options that can help fight weeds, but in grass stands and mixtures we have few if any herbicides labeled for weed control.

So consider your options carefully before attempting to plant perennial forages yet this spring. Planting later than this week may work - and I've been fortunate with it a few times in the past - but the law of averages is really working against us now. An alternative to consider is to plant a short-season annual forage crop now that can be harvested in late June and July, then plant the perennial forage stand in early to mid-August when the law of averages is in favor of the forage seedlings once more.





"The Winter of Our Discontent"? - Dr. Roy Burris, Beef Extension Specialist, University of Kentucky

Shakespeare must have been thinking about caring for beef cattle this past winter when he coined those words. As spring arrives, we can't help but feel some relief just to get past this tough winter weather. Spring calving cows and their newborn calves especially felt the wrath of ice storms, snow, cold and mud. But spring is here and we're "over the hump". Or are we?

In the short term, we have some pressing concerns. The first one is to get the cows re-bred starting this month (May). Most cows will need to improve body condition, some substantially, or pregnancy rates will suffer. Since feed is in short supply, most producers will "turn out" to grass as soon as it appears lush, but watery grass will not sustain milk production and weight gain. Continue to provide energy supplementation a little longer. The goal is to have cows at a condition score of near 5 (ribs covered) at the start of the breeding season. If cows are not pregnant before extreme heat sets in (late June or early July), pregnancy rates will likely be very low.

Continue to feed a high magnesium supplement until the soil temperature warms up. Don't skip magnesium supplementation - regardless of what you read. Research conducted in the 1970's at the UK-West Kentucky station, showed that 1 oz of magnesium (22 grams of Mg) would prevent grass tetany in high risk situations. When it was left out of the mineral mix, grass tetany would appear as predicted. A mineral supplement with about 14% Mg should be adequate with normal consumption.

Reseeding pasture areas that were trampled to the point of killing the grass will be needed. Weeds like pigweed (spiny amaranth) will encroach on high traffic areas.

There are some long term considerations, too. Was this last winter an aberration or a harbinger of things to come? Since cows and calves represent a substantial financial outlay and for humane reasons, we need to re-evaluate some of our practices and consider some changes.

We could shift our calving season to the fall when weather isn't a problem to calf survival. Pregnancy rates and calf survival are generally higher than for spring calving. We have done several years of research and results are better for the fall but feed costs are higher. We only had 10 open cows out of 200 for this fall/winter breeding season. However, most people still prefer spring calving.

If you are staying with spring calving (Feb/Mar), you should make every effort to be successful (even in weather like this past winter). It could be time to consider more shelter or protection for our cows and calves. How much does it cost when you lose a few cows and several calves?

Windbreaks (natural or man-made) can be important since wind chill increases the energy requirement of cattle. Cattle depend upon their hair coats to keep heat in and cold out. Hair is effective in keeping cattle warm, unless it gets wet and flattens which lets moisture next to the skin. If cattle are wet, or the wind blows enough to separate the hair, they are more susceptible to cold. Thin, hungry cattle are even more vulnerable. We must, at the very least, increase feed (especially energy supplementation) during periods of severely cold weather.

Barns and feeding areas which protect cattle from severe weather and mud can be beneficial and environmentally desirable by managing manure and runoff. These barns offer the added benefit of keeping cattle dry during wet, cold weather. Since newborn calves are the most vulnerable to cold weather, calving barns that have facilities and equipment for "pulling" calves and are cleanly bedded may also be helpful for spring calving herds.

We don't normally need a lot of housing for beef cattle but things haven't been normal lately. This winter tested our resolve but it may have also pointed out some of the weaknesses in our programs. We want to keep cattle comfortable and healthy anyway but increased value of cattle gives us even more incentive to do just that. We can learn from the past as we enjoy new grass and sunshine.





Cull Cow Prices Strong - Tim Petry, Livestock Economist, North Dakota State University Extension Service

Cull cow prices in the U.S. have been at record high levels throughout 2014. Seasonally peak prices occurred in March, with April prices averaging about $4 per hundredweight lower than March. Record high prices have been supported by lower cow slaughter, fewer beef imports in January and February, and good consumer demand for hamburger with record high retail beef and pork prices.

Total cow slaughter has averaged about 9.5% below last year with beef cow slaughter down about 9.4% (88,780 head) and dairy cow slaughter down about 9.6% (98,660 head). Beef cow slaughter during April has been down about 16% from last year. Declining beef cow slaughter is the result of better moisture conditions east of the Mississippi River and in some areas of the Northern Plains. Record high calf prices are also stimulating interest in retaining beef cows where moisture conditions allow it. Lower dairy cow slaughter is due both to higher milk prices and declining feed costs, which has improved profitability in the dairy sector.

Fresh, 90% lean wholesale boneless beef prices at about $250 per hundredweight are down from the $264 peak in March, but still higher than the $206 last year at this time. Demand for ground beef is expected to stay strong throughout the grilling season with other beef cuts and pork at record high levels. The National Restaurant Association recently released its restaurant Performance Index (RPI) which at 101.4 rose to a 10 month high in March. The stronger RPI was supported by stronger customer traffic and an optimistic outlook among restaurant operators.

Cull cow prices are likely to remain at record high levels but with late summer seasonal weakness occurring. Risk to cow prices would come from an expanding drought and forced liquidation in beef cow country. Both the Southern Plains and Southwest are very dry now.

USDA-NASS released the first U.S. pasture and range condition report on May 5. For the week ending May 4, 2014, 22% of pastures and ranges in the U.S. were rated as very poor or poor, compared to 36% with the same rating last year.





Kentucky Beef Cattle Market Update for May - Dr. Kenny Burdine, Livestock Marketing Specialist, University of Kentucky

The unprecedented strength of the cattle markets has continued into early May. Tight feeder cattle supplies and an incredibly strong fed cattle market have continued to support feeder cattle prices. At the time of this writing, prices for 550 lb steer calves were above $2 per lb on a state average basis with larger groups selling in a range of $210-$220 per cwt. As strong as these price levels for calves are, they are largely the product of fall CME© Feeder Cattle futures trading above $190 per cwt. We seem to be trading in a new price range for feeder cattle.

Producers should continue to watch the grain markets as we learn more about corn planting progress this spring. While it is early, planting progress appears to be ahead of last year. We discussed last month that a significant decrease in corn acres was expected for 2014. Since early April, new crop corn futures have largely traded within ten cents per bushel of $5. Changes in corn price are a major driver of feeder cattle prices through the summer. Thus far, 2014 has been a true bull market for feeder cattle.

Many summer stocker operators have placed calves into summer grazing programs and this was largely the focus of a March article that Greg Halich and I wrote. In that article, an estimation of returns to a summer stocker program was made based on fall feeder cattle futures and estimated expenses for the stocker program. Many stocker operators undoubtedly took some type of price protection on the calves that were purchased in order to manage the downside price risk potential. I thought it would be appropriate to focus this month's article on two common price risk management strategies and how they would have applied to this 2014 market.

I get a lot of questions about the advantages and disadvantages of simply selling futures as a risk management strategy versus purchasing a put option. When a producer sells a futures contract for the month in which they plan to sell feeder cattle, this is often called a straight hedge. In a market like we have seen thus far in 2014, producers who sold futures contracts have been losing on those futures contracts as prices increased. As this happens, producers send margin money to cover the losses on those contracts. Those producers are losing on their short futures positions, but are making it up as the value of the cattle they will sell this fall increases. However, margin calls can be very frustrating as they require significant capital and the producer will not benefit from the strong feeder cattle market until the cattle are sold.

Conversely, when a producer purchases a put option, they pay a premium to buy the right to sell a futures contract at a predetermined price. If the market goes down while they own the cattle, they can make money on the option because they own the right to sell at a higher price. Of course if this happens, it means that the overall cattle market has dropped and they will likely sell their cattle on a weaker fall market. The producer is out the premium spent regardless of what the market does. A put option provides downside risk protection, but a producer is always better off if the market stays strong and their put option ends up expiring worthless. Put options are often thought of as "price insurance" in that it is great to have if the market drops, but one is better off if they don't collect on their "insurance".

I have often shared that my philosophy on risk management is to protect the downside first, then worry about the upside. Both of these strategies provide solid downside protection. The straight hedge provides the highest level of protection as no money is spent on premium and producers immediately gain on the futures market as prices decrease. While the put option sets a lower price floor, it does still provide significant downside risk protection. However, 2014 has clearly been a market where those who considered the upside have benefited and I wanted to briefly describe what is meant by this.

Producers who protected their prices by selling futures have made significant margin calls over the last couple months. Again, this will be largely offset when cattle are sold if the market holds. But, by selling futures they have not been able to benefit from the rising feeder cattle market on cattle that were protected by the straight hedge. A bull market such as the one we have enjoyed thus far in 2014 is the type of year when put options can be very advantageous. Producers who chose to purchase a put option, rather than sell a futures contract have been able to benefit from the rising market. Many of those producers may have spent $10-$25 per head on premium, but that has been more than offset by the increase in the market. The put option set a price floor, but not a ceiling on their sale prices.

While I wanted to describe how these two strategies would have worked in 2014, I think it is very important that I make two additional points. First, I want to stress that applying risk management strategies to a single year can be very misleading. The primary point of this article was to describe how purchasing put options may be more attractive than straight hedges in some cases. However, the reason why price risk management makes sense is because there is uncertainty about the direction of prices. There was no guarantee about where prices were headed earlier in the year. Had the feeder cattle market decreased this spring, producers who sold futures contracts would have been better off than those who purchases put options.

Secondly, it is also important to remember that it is still very early in the summer stocker season. There are still many factors that will affect feeder cattle prices between now and fall and producers who have risk management positions in place are protected from potential decreases in feeder cattle prices between now and sale time. So while it is useful to examine strategies today, there is still a great deal of uncertainty going forward and risk management strategies are taken to deal with that uncertainty. Stocker operators have a lot of money at stake this year, especially given the incredibly high prices paid for calves this spring. Hedging and options, as well as forward contracts, LRP insurance, and other risk management strategies provide an opportunity to manage that downside risk and limit the potential loss should markets move against producers while they own cattle.



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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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Keith L. Smith, Associate Vice President for Agricultural Administration; Associate Dean, College of Food, Agricultural, and Environmental Sciences; Director, Ohio State University Extension and Gist Chair in Extension Education and Leadership. TDD No. 800-589-8292 (Ohio only) or 614-292-6181.



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