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OSU Extension - Fairfield County

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and the

OSU Extension BEEF Team

BEEF Cattle questions may be directed to the OSU Extension BEEF Team through Stephen Boyles or Stan Smith, Editor

Previous issues of the BEEF Cattle letter

Issue # 411

December 1, 2004

Is It Wise to Announce Inconclusive BSE Tests? - Brian Roe, OSU Extension Livestock Economist

The cattle markets dodged another bullet fired by the USDA's enhanced BSE surveillance and testing system. After the announcement that an animal had twice tested positive for BSE using a screening test, prices for most futures contracts dropped by $3. Cash market prices did not decline much, but the volume of sales of fat and feeder cattle slowed considerably. Five days later USDA announced that the 'gold standard' test showed that the same animal did not have BSE - futures contract prices immediately increased by $3 while cash sales resumed at a brisk pace to make up for the downtime created by packers who waited for the results of the second round of USDA testing before purchasing cattle. Two 'false positives' also occurred during June of 2004, and these resulted in similar market gyrations.

Is it wise for USDA to announce the fact that an animal has twice tested positive for BSE according to first round of tests, even though these tests are known to generate false positives and even though it will take up to a week to confirm or reject the results using the 'gold standard' test?

Several analysts and numerous cattle feeders and ranchers have argued that nothing should be announced unless an animal tests positive using the 'gold standard' test. They argue that the announcements can have several undesirable effects. First, it adds unwarranted volatility to the market place. Second, if the final test comes back negative, such interim announcements artificially decrease futures and cash prices during the 'limbo' period between the initial and final testing announcements. In addition, it decreases the number of cattle that are sold during this limbo period; cattle that aren't sold continue to gain weight, which increases the supply of beef that will eventually need to be moved regardless of the final test result. Finally, the mention of inconclusive test results provides several additional 'media cycles' during which consumers have to hear the term 'Mad Cow', and this additional press could slowly drag down beef demand, or at least gives packers leverage in the day-to-day sales negotiations that take place in feedlots across the nation.

Each of these arguments has it merits. However, this commonly presented list of arguments against the current USDA policy misses a couple of important issues. Let's start with the price decline that could arise during the interim period between the first and final tests. As an example, let's pretend that the only BSE case in the United States - the one first announced as a presumptive positive on December 23, 2003 - actually turned out to be a false positive. The price for fat cattle declined by $15/cwt immediately following the initial announcement, which resulted in the loss of $200 per animal - a huge penalty to pay had the case really been a false positive. But what we are forgetting is that during the same period the price of feeder cattle also declined by $10.50/cwt. If the information concerning the presumptive positive had been withheld, a feedlot owner who bought feeder cattle during that time would have paid $85 per animal too much, which translates to loss on the marketing of those cattle equivalent to a $7.5/cwt penalty. The key point is that announcing a true positive later rather than sooner will result in one positive for feedlots - higher prices for cattle sold during the days just prior to the announcement - and one negative - higher feeder cattle prices during that same period.

The key issue becomes the proper disclosure of risk, specifically, the risk that the assets being held - cattle - will lose a significant amount of their intrinsic value. One might say that it is similar to a businesses bond rating being dropped one rung from the highest rating. Since the BSE incident in Canada, one could argue the market has lowered the bond rating on cattle, which has effectively lowered the price of all cattle, particularly those cattle further from slaughter. Placed in the bond rating context, the question becomes, when should regulators step in and announce information that will cause the market to lower this bond rating. After a single screening test, two screening tests, or not until the gold standard test has been completed?

I would argue that the current USDA policy of inconclusive pronouncements following two positive screening tests reaches an appropriate balance between being trigger happy and giving the market appropriate signals concerning the potential for changing patterns of trade. Two positive screening tests are not conclusive evidence, but it allows market participants to begin to take necessary steps, such as slowing the pace of transactions, that let buyers of fat cattle (packers) and feeder cattle (feedlots) to realize that the value of the product they are purchasing may decline in value in the near future. While much of the focus has been on the lower bids that packers put forth, one must remember how those feedlot owners felt about shelling out big bucks for feeder cattle on December 22, 2003, just to find the value of those animals plummet the very next day. Furthermore, while the current policy results in more unwarranted public attention to the potential of BSE in the US beef supply than would alternative policies, it also sends a signal that the USDA and the beef industry is being vigilant with regard to the quality of the product.

While we the industry and USDA ponder the proper BSE testing announcement policy, BSE continues to dominate trade issues. On that front, Japan and the United States continue to negotiate the exact hurdles that US beef must jump before gaining entrance to Japanese markets. It appears that no significant trade will occur prior to summer of 2005 due to issues surrounding age verification of US animals. It is estimated that producers can only document animal age for about 10% of US cattle, which is the method of age verification preferred by the Japanese. Barring a sudden acceptance of US-backed carcass-based age verification protocol, the US will need to ramp up animal identification efforts in order to access Japan and, possibly, other lucrative Asian markets. The lack of a US animal ID system will reduce our exports in the short term.

Also, the likelihood of resumed cattle trade with Canada also increased after President Bush's recent visit with Canadian leaders. Bush publicly promised to make the resumption of cattle trade a priority, though he also said that standard rules-making processes will be followed, which means at least a 90 day wait. In other words, no cattle movements prior to March 1, 2004. This suggests that there may be a mild influx of fat cattle and, possibly, heavy feeder cattle during the normal spring peak.

Recent futures market sessions place average prices for 2005 in the low-$80's with the only exception being February 2005 contract, which has recently traded in the upper $80's. I contend that the fundamental supply of cattle in both the US and Canada remains near its cyclical low and should allow for prices to average in the mid-$80's for 2005 and, barring any further confirmed BSE positives, to trade near $90 during the fall of 2005.

"Beefing" Up Ohio's Cattle Market with Specialty Program - Candace Pollock, OSU News and Media Relations

Individuals who food shop in areas such as Cleveland, Toledo, Akron/Canton or Dayton may have seen packaged beef with the "Ohio Signature" label.

The product - raised, processed and packaged right here in Ohio - is quickly finding a market with consumers looking for higher quality, fresher and safer meats, and is breathing new life in Ohio cattle producers downtrodden by the competition of U.S. beef production.

"Consumers spend roughly $2 billion a year in Ohio on beef products. Only about 3 percent of that comes from beef raised in Ohio. The rest of that comes from other countries and states," said Dan Frobose, an Ohio State University Extension beef cattle marketing agent for the Agricultural Business Enhancement (ABE) Center. "To me that says 'opportunities.'"

Frobose is among a wide variety of Ohio State specialists in Extension and research who have strived over the past five years to help Ohio beef producers establish a specialty market that tailors itself around their consumers. The work, along with a $1.26 million U.S. Department of Agriculture grant supported by Marcy Kaptur, Ohio's 9th District Congressional representative, has resulted in the Great Lakes Family Farms cooperative - a group of about 50 Ohio producers who carry the "Ohio Signature" label on their fresh, freezer and beef jerky products.

"This is a consumer-driven market," said Frobose. "The success of the program lies in the fact that we go from consumer to conception, rather than conception to consumer."

According to a University of Dayton consumer preference study, Ohio consumers are in support of the state's economy and agriculture and favor buying Ohio-raised products, especially if that product is fresher, safer and of a higher quality. Additionally, nearly half of those surveyed would pay a 20-cent premium or more on such a product.

Based on the results of the survey, producers in the Great Lakes Family Farms cooperative grain-feed cattle that are traceable from the calf supplier to the processing plant (source verified), are hormone-free and all natural, and are raised under animal welfare requirements. Additionally, the meats that are packaged are federally inspected and carry a USDA grade on par with Certified Angus Beef. And because of the efficient management process under the program, as much as 90 percent of the cattle going to market meet the qualifications of choice and prime cuts, some of the highest quality meats consumers can buy.

"The management practice under the program provides more accuracy in selecting cattle ready for harvest," said Frobose. "That's important because it reduces the days cattle are in the feed lot and it screens out those cattle that are too heavy or too light and the ones that never reach ideal quality."

In addition to meeting consumer needs, the "Ohio Signature" program also provides cattle producers a way to continue in the business.

"The focus of the cattle industry has moved to the Great Plains," said Frobose. "The frustration in Ohio is how do we diversify our income portfolio to include beef because the economic scales do not lean in our favor. We also have to deal with the social pressures that come with livestock production."

Beef producers like Roger Boyle of Weston, Ohio, are grateful that such a program exists.

"It's a good program and it's a good thing for the area," said Boyle, who has seen local outlets to sell his cattle slowly diminish over the years. "No longer are there places around here to sell my beef. This program provides me those market opportunities, keeps me in a business that I like doing, and gives me the opportunity to provide a good product to consumers."

Producers are averaging a 10-cent to 15-cent premium per hundredweight for cattle that meet brand qualifications. These premiums are derived from improved efficiencies and the marketplace.

Despite the successes of the program, producers do face some challenges. One of those challenges is the lack of Ohio-based processing facilities that can process and package meats in the form that retailers require.

"It's hard to compete in Ohio with our size and lack of facilities," said Larry Warns, a beef producer from Perrysburg, Ohio. "It's a hurdle that we are still working to overcome."

The producers in the co-op raise, on average, 50 head of cattle a year. Most processing facilities find that number too small to deal with. This year producers are looking to market 1,200 head of cattle. In five years, the group hopes to increase that number to 5,000.

Other challenges producers face include raising and producing cattle throughout the year, overcoming the cost of federally grading the meat because of their small size, and training laborers.

Such challenges, however, haven't squelched the enthusiasm of those in the "Ohio Signature" program who are confident that the consumer will give the program that push toward success.

"Consumers tell us that they can't find the quality of our meats anywhere else," said Warns, who has been in the beef production business for over 25 years. "Some have even told us that once they start buying Ohio Signature they don't switch to anything else. They are hooked on it."

For now consumers have to do a little hunting for the "Ohio Signature" label. Currently about 20 retailers throughout Ohio carry the product. Producers also sell their product, both fresh and frozen, at local farmers markets.

In addition to fresh meats, the Great Lakes Family Farms co-op also sells beef sticks and beef jerky under the "Ohio Heritage" label. They are looking to expand their markets by offering corporate beef gift packs, and tapping into the senior citizen population by offering high energy meats as a part of their diet. Ohio State researchers in the Department of Animal Sciences, along with researchers in the College of Medicine and the Department of Human Nutrition are involved in studies that are addressing this market opportunity.

For more information regarding the "Ohio Signature" program, or to find retailers that sell "Ohio Signature" beef, log on to http://www.ohiosignature.com.

EDITOR's NOTE: Participating in, and marketing beef cattle through value added "branded" programs such as "Ohio Signature" will be but one of several marketing options that are explored during the Ohio Beef Cattle Marketing Symposium, tentatively scheduled for January 28-29, 2005 in Lancaster, Ohio. Watch for more details in the coming weeks.

Ohio Bull Test Data is Posted

The official "on test" report has been posted to the Ohio Bull Test web site in MS Excel and PDF formats. The report lists the two weights at the beginning of the test, and their average for the official start weight. Please note that Weight per Day of Age is abbreviated WDA. You will also find the consignor's name listed, and well as the bull's sire.

The Ohio Bull Test begins with an average weight of the first two days on test to create the official start weight. Likewise, after 112 days the last two days on test (March 14 & 15, 2005) are averaged together to create the official end weight. This procedure is in accordance with the Beef Improvement Federation guidelines and is done to minimize fill effects.

Beginning with the 28-day weight period the report will contain average daily gain (ADG) along with ratios for ADG, WDA. Additionally, the Ohio Bull Test Performance Index will be calculated. The OBT Performance Index = 60% ADG ratio + 40% WDA ratio.

OBT herdsmen are pleased to report there have been minimal health problems with the bulls through this first four weeks since delivery. Additionally, the results from the BVD testing done to identify any persistently infected carriers all came back negative.

Visitors are always welcome at the Ohio Bull Test and especially on weight days. The 28-day weights will be collected on Tuesday, December 21. The process generally starts around 9:00 AM. If you have questions regarding the Ohio Bull Test or the OBT sale scheduled for April 16, contact Justin Lahmers at the OCA office at 614-873-6736 or jlahmers@ohiobeef.org. As always, you can find the most recent information, and may track the progress of the test at http://bulltest.osu.edu.

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.

All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status. Keith L. Smith, Associate Vice President for Ag. Admin. and Director, OSU Extension. TDD No. 800-589-8292 (Ohio only) or 614-292-1868

Fairfield County Agriculture and Natural Resources