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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 # 703

September 15, 2010

Monthly Market Profile: Beef Complex Refuses To Get "Wiped Out" - Nevil Speer, Professor, Animal Science, Western Kentucky University

My daughter's favorite TV show is "Wipeout". We've made it a regular part of our Tuesday/Thursday evening routine during the summer. The show features contestants vying to conquer a series of seemingly insurmountable obstacles while also racing against the clock. We enjoy the show's silliness and, of course, the excruciating blows that contestants experience. But most interesting to me is the show's parallels with the realities of business: a seemingly full pipeline of willing competitors coupled with a never-ending sequence of obstacles. And in the end, success depends on strategy, determination and some luck.

Cattle feeders utilized all three during the past month and benefitted from relatively busy Labor Day action. Packers scurried around to secure inventory ahead of scheduled shipments and accordingly had to ante up. That facilitated $100 fed trade in August. The market has since chopped back-and-forth with cattle trading at $97-8 for the first full week of September. Support for live prices has been achieved largely because of stronger wholesale prices; they refuse to break and have been largely steady in the current trading range of $155 to $160. The four-week average is running nearly $18 ahead of last year.

Unfavorably (from a cattle perspective), USDA's September Crop Production and WASDE reports solidified corn's rally. Wheat's recent market run coupled with ongoing yield concerns have boosted the corn market to new highs. Obviously, this is problematic for cattle feeders - especially for those working hand-to-mouth on the feed side. That occurs on several fronts: one, replacements purchased and/or contracted several months ago are effectively now overpriced; two, higher prices generally mean wider regional basis (see illustration). That's a tough squeeze going forward. Margins need to be managed very carefully especially given the uncertainties around the corn market right now.

Herd liquidation is an item which continues to receive lots of active press coverage. Beef cow slaughter, October through July, inched up to 9.45% of last October's overall inventory (see graph below). Beef producers are proving very willing to cash in on higher market prices now while carefully guarding against future cash-flow risk. Generally speaking, 2010 has been a pleasant surprise for the beef complex. However, cow/calf producers, in this broader deleveraging environment, are no different - they're being vigilant about their balance sheets. On one hand, that's discouraging about the sector's viability. On the other hand, perhaps it provides promise about the future - the beef business is becoming more financially sound going forward and we're improving the cowherd. That allows the sector to ultimately be more responsive to business conditions versus being dominated by lifestyle decisions.

That perspective leads to overall assessment of the business environment as we approach the final quarter of 2010. The ongoing theme throughout the year has been the broader economy's influence on final demand. I've addressed it over and over in the Monthly Market Profile. Despite some upbeat signs in recent weeks, it's increasingly clear that consumers remain under pressure. And digging out of this recession is likely going to be a long and tedious process amidst interactions among unemployment, housing, and credit availability and utilization. That translates to some important long-term ramifications in terms of consumer spending habits and certainly impacts the protein complex.

Most important is beef's relative competitive position in the marketplace - in good times or bad. The first graph below depicts beef's monthly retail price compared to pork and chicken. The depiction should NOT be confused with demand (a function of quantity and price). And retail price data needs to be interpreted carefully (lots of noise in the monthly data). Nevertheless, the overall trend is striking and portrays relative strength in the overall market. But it's also surprising; it defies conventional wisdom about consumer trends in the current economic slowdown. As such, the trend underscores the importance of tirelessly working to build demand. Determination towards that end yields good results.

One final note as it pertains to industry-wide revenue. It's impossible to overstate the importance of international markets to the prosperity of beef producers. Unfortunately, one of the primary themes at the August USDA/DOJ workshop surrounded international trade; the isolationists incessantly argue against trade and propose we not concern ourselves with the complexities of foreign customers. That perspective is misguided and strategically leads to industry demise. The graph below demonstrates the significance of trade - it details the impact of foreign access on the fed market since 2004. Had the U.S. not worked to achieve access in foreign markets following BSE, beef producers would have missed out on a revenue stream of $1.8 billion through the first half of the year. That's equivalent to setting the fed market back $11-12/cwt. So instead of averaging $93 through June the fed market would have averaged about $80-1. And clearly that has ramifications all the way through the supply chain.

Given that framework, some observations from a previous Monthly Market Profile (March, 2007) about the importance of international markets prove timely:

The beef industry can't let up on the domestic front; consumers are fickle. [The beef complex] must constantly promote and position itself within its own borders. However, international trade represents the greatest possibility of establishing revenue growth. Striving for expansion of international markets must be relentless - the beef complex must continually commit meaningful resources to maximize that potential.

Good thing we've been successful towards that endeavor otherwise we'd be working in a stagnant business and witnessing producers getting "wiped out" in a massive way.

Price Summary


Week Ending:

9/10/10 9/3/10 8/27/10 8/20/10 8/13/10
Slaughter Steers ($/cwt) n/a 95.45 98.97 99.30 94.05
Choice Cutout ($/cwt) 160.84 163.12 163.79 158.47 153.59
Select Cutout ($/cwt) 154.72 156.80 157.30 151.26 146.67
Hide and Offall ($/cwt) 10.92 10.81 10.85 10.86 10.80
USDA Slaughter Weights (lb) 1278 1279 1280 1278 1276
USDA Steer Carcass Weights (lb) 842 840 840 844 837
CME Feeder Cattle Index ($/cwt) 113.71 113.57 115.04 113.63 112.81
Cow Cutout ($/cwt) 130.20 133.41 133.40 132.96 130.87
Corn (basis Omaha: $/Bu) 4.24 4.06 3.81 3.70 3.62
Cattle Harvest (000 head) 583 672 678 667 643
Beef Production (million lb) 451.8 521.2 525.3 515.8 495.5

Forage Focus: Time to Wrap Up the Last Cutting of Alfalfa - Mark Sulc, Forage Specialist, OSU Extension

It is time to take the last cutting of alfalfa and red clover in Ohio. Cutting this week will allow plenty of time for the stand to regrow and store energy and proteins in the taproots, which are important for winter survival and early growth next spring.

It may be tempting to wait to cut the alfalfa because of low yield due to the recent dry weather, in hopes that rains will come and more growth will occur. But delaying the last cutting of alfalfa to late September into mid-October can carry serious risk to the health of the stand. Cutting later will interrupt the process of storage of energy and proteins in alfalfa taproots. When cut during the fall rest period, the plants will regrow and utilize precious taproot energy and protein reserves without sufficient time to replenish them before a killing frost.

Fall cutting may not result in real obvious stand loss, although that can occasionally happen. The more common occurrence is for fall-cut alfalfa stands to suffer some loss of vigor and yield next year that is not so obvious. One could only see such loss of vigor and yield next year if side-by-side comparisons were made within the same field, where strips of alfalfa are cut or not cut this fall. Often, the yield gained by cutting during the fall is lost in reduced yields the following year.

If stands cannot be cut this week or are not worth cutting due to low yield, a LATE fall harvest is probably a safer alternative than cutting next week and into to mid-October, By LATE HARVEST, I mean as close as possible to a killing frost of alfalfa, which happens when air temperatures reach 25 F for several hours. This often does not happen until sometime in early November in Ohio. BUT I recommend a late harvest option ONLY IF the soil is well-drained, the stand is healthy, a variety is planted that has excellent winter hardiness, and the soil has good fertility status.

If you cannot cut alfalfa by this week, waiting to cut near the killing frost will prevent the late fall regrowth that "burns up" energy reserves. This will reduce the risk of loss of vigor next spring.

A fall harvest after a killing frost (end of October, early November) is relatively safe IF the soil is well-drained and there is no history of heaving on that particular soil. Without residue cover, the temperature at the soil surface will fluctuate more, so the potential for heaving injury is greater, especially on soils with less than perfect drainage.

I am often asked whether leaving a large amount of fall growth can harm the alfalfa stand in the winter. The fear is that the alfalfa will "smother itself out". I have let pure stands of alfalfa go into the winter with a lot of growth, even more than we see this fall, and I have never experienced a problem or seen the crop "smother out". So if we do get a lot of growth this fall, and you don't need the forage, it won't harm the alfalfa stand to let it be and not cut it.

Fall management of alfalfa is one of the few controllable factors that will potentially influence the health of your alfalfa stand next year. It could play a determining role in how much yield you get next year.

Cattle Market Optimism but with Reality Checks - Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist

Against a backdrop of very supportive supply fundamentals, there is much reason to be very optimistic about cattle prices in general and for the foreseeable future. At the same time, there are several market factors that remind us that there are limits to just how strong prices can realistically be.

Not surprisingly, boxed beef prices have dropped back a bit from pre-Labor Day highs and, in fact, dropped below $160/cwt. for Choice last week. Nevertheless, wholesale beef values are still roughly $10/cwt. higher than the August lows. Fed cattle prices, which briefly spiked to $100/cwt, have dropped back into the upper $90s. At current levels, boxed beef and fed cattle prices are compatible and, while boxed beef is looking for some footing, fed cattle prices seem solidly grounded to maintain current levels for the rest of the year.

Feeder cattle prices are relatively strong and are likely to remain so through the fall. Stocker prospects, in terms of both economics and production potential, look pretty good and will likely maintain demand for lightweight stocker cattle this fall. Feedlot demand, especially for long yearlings is expected to more than match available supplies but the extent of feedlot demand for.

middle-weight feeders will depend on evolving corn prices this fall. Seasonal weakness in feeder prices is likely to be muted this year compared to typical fall price decreases.

The reality checks have already been alluded to above. While export beef demand remains very supportive, domestic demand, particularly for middle meats is rather sluggish. If boxed beef can stabilize near current levels, the situation described above is sustainable for the remainder of the year. Additional weakness in boxed beef prices will begin to pressure fed cattle prices as well. Domestic beef demand will continue to limit boxed beef and fed cattle prices until additional economic recovery results in stronger domestic beef demand.

The other unknown is the corn market. Current estimates for corn production are for the 2010 crop to match last year's record crop of 13.1 billion bushels. Yield estimates have decreased recently and could drop a bit more. Use estimates have risen for exports and industrial use at the expense of feed use. Current corn supplies can best be described as barely adequate and corn prices will likely remain above $4.00/bushel and could spike quickly if ending stock levels drop from current minimal levels. Additional strength in corn prices will ration corn use, especially for the cattle sector, and will limit feedlot demand for lighter weights of feeder cattle.

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

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed up on Monday. The OCT'10LC contract closed at $97.450/cwt; up $0.300/cwt. The DEC'10LC contract closed up $0.400/cwt at $100.375/cwt. The APR'11LC contract closed at $102.225cwt, up $0.125/cwt. A good day on Wall Street, a weaker U.S. dollar, and good exports were supportive. USDA reported exports up 23% over last this time last year. Profit-taking and hedge selling limited gains near the end of trading. Cash cattle were steady-to-firm with USDA putting the 5-area average at $96.98/cwt; down $2.07/cwt from last report. USDA put boxed beef prices at $169.42/cwt; off $1.31/cwt. Fund rolling was noted with over 11,000 contracts rolled. According to HedgersEdge.com, the average packer margin was lowered $2.85/hd from last week to a positive $17.15/hd based on the average buy of $96.90/cwt vs. the average breakeven of $98.22/cwt.

FEEDER CATTLE at the CME finished up Monday. SEP'10FC futures closed at $112.350/cwt; up $0.650cwt. The OCT'10FC contract finished up $0.550/cwt at $112.375/cwt. The NOV'10FC contract finished at $113.025/cwt, up $0.550/cwt. Feeders ran out of steam near the close losing some gains but still finishing in positive territory. The CME feeder cattle index was placed at 113.71/lb; up 0.22/lb. Cash feeders in Oklahoma City were steady-to-firm with estimated receipts at 10,500 head vs. 7,450 this time last year. There was no sale last Monday due to the holiday.

CORN futures on the Chicago Board of Trade (CBOT) finished mixed Monday with deferreds past July 2011 down and nearbys to that contract gaining. The SEPT'10 contract closed at $4.692/bu; up 5.25 cents/bu. DEC'10 corn futures closed up 5.25 cents//bu at $4.834/bu. The DEC'11 contract closed at $4.560/bu; down 3.25 cents//bu. Tightening U.S. corn stocks, lower yields forecast by USDA, good exports, and wet weather seen as slowing the U.S. harvest were supportive. USDA last week lowered the expected U.S. corn yield by 2.5 bu to 165.0 bu/ac. If realized, this would result in the lowest ending-stocks-to-use ratio in 15 years. In addition, USDA put corn-inspected-for-export at 36.314 mi bu vs. 38-42 mi bu. Large funds climbed to record-large net bull positions at 333,214 contracts after buying 13,000 lots. Cash corn basis was flat amid slow farmer selling. While this may not be the top of the corn market it would be a good idea to price up to 80% of the 2010 crop while holding at 60% sold in the 2011 crop.

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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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