Ohio Beef Newsletter

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Well-known member
Jan 20, 2007
LaRue, Ohio
BEEF Cattle questions may be directed to the OSU Extension BEEF Team through Stephen Boyles or Stan Smith, Editor

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Previous issues of the BEEF Cattle letter

Issue # 549

August 15, 2007

There's More Than One Kind Of "Producer" - Nevil C. Speer, PhD, MBA, Western Kentucky University (reprinted with permission on 8/11/07 from CattleNetwork.com)

June's summer lows proved to be nothing more than a speed bump. July opened sharply higher and sustained $89-90 trade through most of the month. And the month ended even better by tacking on an additional $1-2 allowing feeders to garner $90-91. August took another step forward as negotiations settled mostly $92-92.50. Packers did manage to win back some ground during the second week of August with trade slipping to the $90-91 mark.

Cash trade has been largely supported by several factors. The wholesale market, despite choppy action from week to week, has staged a modest rally: the Choice cutout gaining nearly $4 during the past several weeks. More importantly, though, has been the overriding sentiment at the CME. The August contract surged nearly $4 in just 7 trading sessions and encroached $95 at the end of July. Those gains have since been surrendered but proved to be supportive as the market transitioned into August. Friendly activity was largely spurred by USDA's cattle-on-feed report which outlined a favorable relationship between marketings and placements. The latter running 15% behind last year's pace and the 3rd-lowest June placement level during this decade.

The Merc's October, December, February and April contracts all surpassed the $100 mark during the same time frame; they've retreated from those levels but provide elevated benchmarks of resistance for traders to test in coming months. That favorable sentiment has also proven supportive for the calf market. Despite the corn market moving higher from short-term lows the feeder market found itself in positive territory. CME's Feeder Cattle Index surpassed $116 (compared to $110 following the 4th of July). Clearly, demand for replacement cattle remains strong in order to maintain feedyard throughput.

That being said, USDA's summer cattle inventory report proved important to market dynamics, especially in the context of current events and policy development. During the summer of 2005 I provided some coverage regarding the current cattle cycle. Most important from that discussion: traditional paradigms surrounding expansion and reduction likely need to be reexamined. In fact, beef cow numbers have been relatively steady for the past 5 years: 2007's January 1 inventory was marked at 32.89 million head just 89,000 head shy of 2003's mark. Producers have proven to be extremely careful about committing operational and capital resources for the purpose of expanding the nation's cowherd.

What's noteworthy is reticence to increase cow numbers has occurred amidst historically high feeder cattle prices - upward-trending markets have traditionally served as the primary catalyst for new expansion. However, USDA's 2007 midyear cattle inventory report confirmed continued reluctance to initiate expansion within the cow/calf sector. The report's highlight revolved around replacement heifers: this year's heifer inventory is 4.7 million head (versus 5.0 million head the previous two years and behind the 10-year average of 4.84 million head). And despite much media attention to the recent decline in replacement heifer inventory, the results are not surprising. The illustration below depicts a well-established trend which began in earnest last year: October's cattle-on-feed report indicated a markedly higher feedyard heifer mix compared to the previous several years.

Meanwhile, beef cow slaughter rates are running ahead of last year's pace (see chart below). Coupled with reduced replacement heifer inventory it's clear that meaningful expansion is not on the horizon. That's underscored by a BEEF magazine survey several years ago (June, 2005) in which only 36.5% of respondents indicated plans for expansion in the coming year.

As mentioned previously, higher calf prices have traditionally served as a reliable signal that expansion is around the corner. Why hasn't that occurred? That's not an easy question to answer. The cow/calf sector is comprised of nearly 800,000 participants all of which possess very different motives for their involvement in the business. What is clear, though, is that decision-making within the cow/calf sector has become more complex. Restraint is the result of several factors including: 1) ongoing drought concerns, 2) increasing diversification of many operations which run cows - resources are committed elsewhere, 3) shifting demographics, 4) higher costs of production, and 5) most recently increased competition for acreage stemming from higher grain prices (regarding the last point see MMP: June, 2007).

In the end, though, the "why" surrounding nonexistent expansion isn't as important as the "what": what are the ramifications and ripple effects throughout the beef complex? Inventory stability possesses some important influences, both direct and indirect, upon how business is and will be conducted within the beef complex. Most notable among these: the packing and feeding sectors are currently operating in an environment with relative excess capacity.

Of the two, it's my assessment that the packing sector can more easily adapt to such a scenario. In order to eliminate slack capacity the packing sector possesses lower exit barriers.

That advantage is three-fold. One, because of multiple operations it's easier for companies to selectively shut down the most inefficient aspects of their respective operations (for example, a single plant or reduced hours). Two, the packing sector is predominately corporately owned - that allows individual companies to more easily write-off and/or dilute costs associated with partially suspending production or closing down a portion of operations. And three, a packing plant, with modifications, has alternative uses which aid in resale value versus an empty feedyard. Those are important differences. Similarly, some of the same advantages apply to corporate feedyards. Meanwhile, as mentioned in last month's Monthly Market Profile the feeding sector finds itself becoming increasingly competitive; there will be distinct winners and losers amidst that rivalry.

Given that background, let's put all of this into the framework of current events. USDA's final rule allowing importation of older Canadian cattle is imminent. Meanwhile, litigation continues for the beef industry. R-CALF went back to court in July to appeal a previous decision regarding Canadian cattle imports: their argument being that a total ban should be reinstated as Canadian imports are unsafe and the U.S. food supply is at risk by allowing cattle to cross the border. That's a seemingly tenuous position from several perspectives.

First, recent negotiations with the Pacific Rim countries have emphasized OIE's (World Organization for Animal Health) new BSE classification for the United States. Secretary Johanns remarked that, "This classification confirms what we have always contended - that U.S. regulatory controls are effective and that U.S. fresh beef and beef products from cattle of all ages can be safely traded due to our interlocking safeguards." And negotiators have held firm in principle: science, not politics, should be the foundation of fair trade surrounding sanitary and phytosanitary issues - all trading partners ought to heed the harmonious standards established by the OIE. Fair enough…what's good for the goose is good for the gander.

Canada also was also declared as a "controlled risk" region by OIE in late May. But R-CALF's President subsequently established a double standard in June explaining that "…if USDA relaxed our health and safety import standards by reopening the Canadian border, such a move could threaten U.S. beef exports…USDA's actions have undermined our ability to resume previous levels of beef exports, particularly exports to markets in Asia." On one hand, R-CALF is asking USDA to negotiate with the Pacific Rim on the basis of science and assuring our partners we stand on those principles. On the other hand we'll ask USDA to ignore those same standards (to which we desire to be held) and close the border to Canada.

Second, let's bring this back full circle to the cowherd expansion discussion and its implications upon the feeding sector. Open borders are important for growth. Thomas Siems, Senior Economist, Federal Reserve Bank of Dallas, honored Milton Friedman in a recent Wall Street Journal editorial (July 31 - what would have been his Friedman's 95th birthday): "Friedman taught that economic growth comes from innovation and entrepreneurship…and by firms engaged in competitive markets open to trade."

Regarding global trade R-CALF's mission statement touts its representation of "…the U.S. cattle industry in trade and marketing issues to ensure the continued profitability and viability of independent U.S. cattle producers." However, that's seemingly disingenuous and inherently conflicted given the association's trade policies. Unprincipled or unfounded protectionism doesn't facilitate profitability. It does just the opposite - it creates stagnation and hinders innovation. That's especially true in the case of excess capacity.

Stable cow numbers in the midst of expanding feeding and slaughter capacity has been price supportive for cow/calf producers creating what I like to refer to as a "feedtruck premium" - the feeding sector chasing cattle to operate at maximum efficiency. But with static replacement inventory and relative overcapacity, the primary competitive advantage is surrendered to those with enduring access to capital - namely corporations. As such, the entity placed at the greatest risk when requesting the border to be closed is the independent, family-owned grazing and/or feeding operation - their opportunity for growth is choked off. Free trade allows them to exercise their comparative advantage - that can't occur, though, if they're unable to access cattle. And after all, aren't they U.S. cattle producers too?

EDITOR's NOTE: Nevil Speer will be one of the featured speakers at the August 24 and 25 "Handling, Feeding, and Marketing Cattle for Profit" program being hosted in Ross County, Ohio by OSU Extension.

Wrecks Are Not Desirable; Vaccinate Your Calves Now - Kris Ringwall, Beef Specialist, NDSU Extension Service

The process of getting calves ready for market is not simple. In days past, calves generally were not handled or worked prior to shipping in the fall. Instead, they were gathered, sorted and hauled directly to the auction barn.

Calves would not be separated from their mothers prior to sale and the bawling of fresh-weaned calves echoed from the local sale barns. These calves did well and many returned to the countryside for a more leisurely feeding period in smaller lots or pastures.

Today, the table has turned. Many calves go directly to feed yards that aggressively feed calves. In many ways, this is a culmination of genetic selection for growth and the availability of reasonably priced feed grains available in sufficient quantities that facilitate the operation of large feed yards.

Standing at the entrance of a large feedlot today, one would see a constant flow of tractor-trailers loaded with feed or loaded with calves, courtesy of a very efficient transportation system.

In terms of filling trucks with calves, today's buyers do not have a few select orders that offer a premium. Today's buyers have a standard order that fills large pens in large feedlots with similar types of calves that are preconditioned for such an environment.

The bottom line is that the need for preconditioned calves is now the norm, not the exception. At the Dickinson Research Extension Center, in response to the recommendation of our local veterinarian and in preparation for this fall's shipping, the calves were vaccinated with a seven- way clostridial, including blackleg caused by clostridium chauvoei; malignant edema caused by clostridium septicum; black disease caused by clostridium novyi; gas gangrene caused by clostridium sordellii; enterotoxemia and enteritis caused by clostridium perfringens types B, C and D; and histophilus (haemophilus) somnus.

The calves also received a five-way viral product at branding for infectious bovine rhinotracheitis, bovine viral diarrhea types I and II, bovine respiratory syncitial virus and bovine parainfluenza 3.

The cost of these products was 76 cents for clostridial/somnus vaccine and $1.86 for the five- way viral product. Two to eight weeks prior to weaning, a booster vaccine is administered for clostridial/somnus and the five-way viral.

At the same time as the booster vaccination, calves receive their initial vaccination for mannheimia (pasteurella) haemolytica. The cost for pasteurella is $2.32 per dose. The booster vaccinations cost 76 cents for clostridial/somnus vaccine and $1.86 for the five-way viral product.

At weaning, the calves again will receive all three vaccinations at a cost of $4.94. The calves would not need to be vaccinated at arrival at the feedlot because they should be fully prepared for the transition. The total cost for the vaccination program is $12.50 per calf.

This is a fairly aggressive vaccination program, but these calves are heading to the feedlot. For every 100 calves in the feedlot, the death of one calf would be more costly than the price of an aggressive vaccination program.

In addition, the nature of many of these diseases, if ever encountered, seldom involves just one animal. The reality of an outbreak is that a significant number of calves will be sick. The lost performance, lost value on the rail and actual treatment costs combine to produce what most cattle producers call a wreck.

It's best to not go there, so vaccinate the calves.

Forage Focus: Managing Alfalfa During and Following a Drought - Marvin Hall, PSU Forage Specialist

Alfalfa in some areas of Pennsylvania is experiencing drought stress and the question of alfalfa management during this time is being raised. But before we discuss the management of drought-stressed alfalfa, lets look at how alfalfa responds to drought conditions.

Alfalfa is commonly referred to as a drought tolerant plant. During the onset of drought conditions, alfalfa will stop using carbohydrates for stem and leaf production and store those carbohydrates in the roots. This provides high levels of root carbohydrates for long term survival if drought conditions persist and the leaves become photosynthetically inactive. However, alfalfa's ability to survive a drought does not mean that alfalfa will not show drought related symptoms. Water-stressed alfalfa will experience decreased stem elongation and in some cases mature more rapidly. Leaf production is less effected by water stress than stem elongation. This results in higher forage quality of water-stressed plants than their unstressed counterparts.

To Harvest or Not to Harvest?

The primary criterion influencing the decision to harvest drought-stressed alfalfa should be based on the cost of harvesting and the value of the forage. The alfalfa plants may look weak and severely stressed during a drought; however, harvesting at the stage of plant development when you would normally harvest is recommended as long as adequate alfalfa is present to justify the cost of harvesting. The plant, even though it may be very short, will already have stored more than enough root carbohydrates to ensure survival if the drought persists or support regrowth if sufficient rains remove the drought conditions.

Yellow Feed - Stan Smith, PA, Fairfield County OSU Extension

We've received several questions regarding the baling of oats for dry hay in the fall. All agree, at the very least it will be a challenge. While doing some research on the subject of growing and harvesting oats for forage, Curt Stivison from Fairfield County SCWD found some research out of Canada which offered the alternative of killing oats with glyphosate, allowing them to dry down while standing, and then mowing and baling the dry oats. In Canada they call it "yellow feed." The following is excerpted from a note Curt received from Russel Horvey, Beef and Forage Specialist from Alberta.

"Yellow feed could be a good option for your producers to bale up oats as greenfeed when the conditions are not ideal. I will pass on a short summary of what I know from going over research done here on the Canadian prairies."

"For work done in Saskatchewan, one (1) litre of glyphosate per acre needs to be applied 3 days prior to the preferred stage for cutting. Plants will continue to grow for 3 days following application. In fact feed test results show that protein and energy continued to improve after spraying for several days. The thing I found interesting about this research was that quality did not fall off as expected. Even though the crop turns yellow, the protein and energy levels stayed up."

"The research here was done over a couple years, one year quite wet, the other quite dry. After spraying, the crop was left stand for about 1 month or until conditions to bale were ideal. It was then swathed and baled immediately behind the swather. Many of us thought there would be a lot of shattering and leaf loss leaving oats stand this long. Surprisingly there was very little shattering. Being able to swath with equipment at least twice the width of a mower conditioner speeds up baling the yellow feed between showers. Again the quality of yellow feed remained equal to or better than the quality of green feed put up conventionally."

FYI, this link will take you to an updated look at one of the oats fields presently growing in Fairfield County.


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