Ohio Beef Newsletter

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Well-known member
Jan 20, 2007
LaRue, Ohio
MMP: Full-Court Press - Nevil C. Speer, PhD, MBA, Western Kentucky University (reprinted with permission from 3/12/07 CattleNetwork.com)

March: basketball and higher prices. (My fervor for college basketball makes it difficult to not digress into discussion about the tournament. MMP, though, is short for Monthly Market Profile, not "March Madness Preview". So…I'll stick with the market.) 2007's version has commenced with lots of promise! February's live trade was largely uneventful as cattle were weighed up at $90-1 for most of the month. March rolled around and established a whole new platform from which to work. Higher prices came with April Live Cattle assuming leadership as the front-end contract and inheritance of weak basis as February expired. Cash sales adjusted accordingly; sales for the week ending March 2 were mostly $3 higher ($94 in the south and $93 in the north).

That was simply a precursor of better things to come. Cattle feeders stumbled upon good news all around. March's first full week of business witnessed CME's April Live Cattle contract surge past $101 while June encroached $99.

Meanwhile, active wholesale trade provided fundamental support for cash negotiations. Friday's Choice cutout spot price was $11 ahead of the previous week's mark while the weekly average was nearly $6.50 better. Fed trade subsequently broke out on Wednesday; prices where sharply higher and managers agreed to sell cattle at $98-9.

Talk of a $100 spring market is now seemingly within reach. Perhaps more important is the outlook for closeouts as spring transpires. Consider that a month ago the April and June contracts were $95 and $92, respectively. Moreover, the cash market is $8 better than the mark 30 days ago. Therefore, depending on the marketing window, cattle feeders have been provided with $75-100 additional revenue.

For the time being, sellers apparently have the upper hand. First, from the supply perspective, the expectation has been that winter weather would manifest itself upon the market. That influence has been a little slow in coming but has seemingly arrived. Lighter carcasses have restricted packer throughput and forced them to bid the market higher to obtain necessary tonnage. Moreover, earlier concerns about burdensome front-end supply have been largely abated by declining slaughter weights. Also to that point, winter weather helps to more evenly disperse available supply and will smooth harvest flow schedule expectations for much of the 2nd-quarter. Second, from the demand side, the recent surge in wholesale prices has been nothing short of phenomenal. And to that point, the complex is on the front edge of seasonally improving beef activity serving to further underpin the fed market.

All well and good…but with the market there's always a flip side. The bears are waiting to come out of hibernation and looking for a break. One, they argue support stemming from winter weather is overdone: encroachment of spring brings about improved performance and will facilitate compensatory gain in coming months. That'll bring about reversal of 2007's year-over-year trend of lower carcass weights and lead to increased production. Two, March beef activity may simply be a knee-jerk reaction to February's tepid consumer spending - wholesale activity will normalize with time. Three, improved closeouts will induce renewed interest in buying heavy replacements from winter programs and quickly pressure front-end supply. And four, what goes up must come down: the market is seemingly due for a correction; the tighter the market winds itself up the more severe the turnaround will be.

Regardless, events of late have been very supportive for all classes of feeder cattle. Corn has been steady-to-softer lending some optimism to the swap from both a fundamental and psychological perspective. Additionally, higher deferred live futures and improved cash flow have been transferred back into replacement purchasing action. Prospects for increased marketings in coming weeks could drive prices even higher amidst competition to procure replacements to maintain feedyard occupancy. And spring/summer grazers have also been busy hunting light-weight cattle in preparation for turnout: 450-lb steers peaked at $135 in Oklahoma City in late-February - nearly $6 better than the previous week.

Seemingly, during the past year a day hasn't passed without some type of trade news relative to the Pacific Rim. Beef's export status in Japan and Korea has been an ongoing drama. The lack of sustained progress leads to frustration.

Negotiation can seem like wasted effort because scientific benchmarks become muddled amidst politics. Disingenuous, non-tariff trade barriers are challenging to deal with. At times, the benefit derived from reestablishing normal trade relations doesn't seem to justify the required effort. Amidst obstruction, it becomes important to remind ourselves the importance of foreign trade to the industry.

The first illustration below represents trade activity of Japan, Mexico, Korea and Canada in 2003 and 2006, respectively. Collectively these four countries accounted for nearly $3.4 billion in beef product exports in 2003; the total represents nearly 90% of the U.S. total beef export value ($3.8 billion) for the year. Revenue derived from our major trade partners equates to approximately $150 for every fed steer and heifer slaughtered in the U.S. Trade normalization across the globe has been grueling and incremental. And amidst that grind the major bright spot has been trade volume with our NAFTA partners: exports to Canada and Mexico combined have grown by nearly $400 million from 2003 levels and now provide revenue of $1.7 billion to the U.S. beef industry (the two countries now comprise nearly 80% of the U.S. beef export market). That's approximately $75/head in the fed market and comparatively $15-20/head more than 2003 trade levels with Canada and Mexico.

Conversely, the two major players in the Pacific Rim provide a different picture. Japan and Korea, combined, accounted for only $67 million in 2006; that represents a loss of nearly $2.2 billion or $90-95/head relative to 2003 levels. Japan sales are slowed by a supply shortfall; the U.S. is challenged by finding sufficient inventory of documented 20-month old cattle which meet the trade agreement. Korea sales are currently nonexistent because of the country's ban on U.S. products following discovery of bone fragments in an initial load of product. (Those challenges are compounded by Korea's continued insistence upon establishing conditions to reject beef shipments and providing indications it will not recognize OIE's upcoming classification for the U.S.)

Now let's put the importance of exports into broader perspective. The second illustration below provides USDA's newest domestic consumer meat expenditure projections. Total expenditures are a function of dollars per capita and growing domestic population. Clearly, ten-year projections provide lots of room for discussion. However, the actual numbers aren't as important as the trend. Beef expenditures are forecast to grow $18 billion; the competition (pork and poultry) expenditures are expected to grow in excess of $30 billion. Per capita meat spending is forecast to increase approximately $100 during the next decade; for every dollar beef gets, the competition will be getting almost $2. Beef's market share is projected to decline from 47% to 45% over the next ten years.

Following BSE's discovery in December, 2003 the market managed to buffer export cessation because of exceptional domestic demand. Much of that was attributable to low-carb dieting trends. However, it wasn't sustainable and late in 2004 interest in such diets quickly waned; the outcome was some challenging market volatility and the absence of export premiums was fully realized. The beef industry can't let up on the domestic front; consumers are fickle. Beef 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. Full-court press!!!!!

HEIFER DEVELOPMENT: Puberty - Steve Boyles OSU Extension Beef Team

Puberty is defined in heifers as the time when they first ovulate and show an estrus or heat period. The process involves sensitivity to hormones and receptors in the brain (specifically the hypothalamus) and the ovaries in females.

Heifers born early in the calving seasons are usually heavier at weaning and reach puberty earlier than heifers born late in the calving season. Heifers must reach puberty by 13-14 months of age to calve as two-year-olds. Puberty is influenced by age, weight and breed.

Yearling beef heifers conceiving early in their first breeding season, will have increased lifetime production and efficiency. It is critical that these heifers attain enough weight to initiate their first estrous cycle before the onset of the breeding season. Puberty occurs when heifers reach about 65-67% of their mature weight. Montana research indicates that conception rate is higher on the third estrus compared to the first. Getting heifers to target weights a month prior to the breeding season may increase the percentage conceiving early in the breeding season. The following weights should be attained for puberty about a month prior to breeding.

Relationship of frame score to estimated weight at first estrus.

                                                                       1       3        5      7       9
Estimated weight at first estrus, lb                     580   623   728   803   880

Source: Fox, D. G., C. J. Sniffen, and J. D. O'Connor. 1988. Adjusting nutrient requirements of beef cattle for animal and environmental variations. Journal of Animal Science 66:1475.

Puberty: Individual Weights vs. Group Weights: Individual weights rather than group weights should be considered for replacement heifers. If a group of similar breed-type heifers averages 650 pounds, that may mean some only weigh 500 pounds and are not ready for breeding. Heifers born in a short calving season should be relatively uniform in weight and would not need to be fed in different groups to reach the desired weight. North Dakota data suggests that deworming can improve uniformity of performance.

Scrotal Circumference: Research shows that bulls with a larger scrotal circumference tend to sire heifers that reach puberty at an earlier age than bulls with a smaller scrotal circumference. In those breeds that have a scrotal circumference EPD, breeder should use them to improve age at puberty.

Breed: Numerous studies have reported both between-breed and within-breed differences in age and weight at puberty as well as subsequent reproduction in beef cattle. To achieve optimum production levels, it is important to know the relationships between puberty traits and measures of productivity for effective use of selection, heterosis and complimentarity. Breed differences, sire and dam effects within a breed, and heterosis, or hybrid vigor, contribute to genetic control of age at puberty.

Age at puberty can be decreased in three ways:

* By selecting a breed with younger age at puberty.
* By selecting within a breed for younger age at puberty.
* By crossbreeding with another breed that has a similar or younger age at puberty.

Forage Focus: Pasture Rental Rate - Rory Lewandowski, OSU Extension Educator, Athens County

I'm getting a few phone calls on pasture rental rates, and, in fact, a couple of weeks ago got myself in the middle of a pasture rental disagreement between two parties based on an answer I gave. This has caused me to go back and review some of the various methods that can be used to calculate a pasture rental rate. Let's begin this discussion by laying down a few ground rules:

* Pasture rental rates should be determined and agreed on by both parties before any animals are placed on pasture. The best situation is to have the agreement in writing signed by both parties.

* Rental rates will vary depending upon the method and factors used in calculating a rental rate. There is not one correct answer. The method used may depend upon the quality of pasture available, time of year the pasture is rented and the type of livestock that will be grazed on the pasture.

* Rental rate calculations are guidelines, that is, they provide a place to start a discussion between parties. They may or may not provide the final, agreed upon rental price.

* The market rules. If there is high demand for rental pasture, rental price could go higher than a calculated value. Conversely, if demand is low, the rental price could be lower than a calculated value.

There are several good publications available that provide some similar information and guidelines relating to establishing pasture rental rates. Iowa State University Extension has a publication entitled "Computing a Pasture Rental Rate" by Don Hofstrand and William Edwards. It can be found on line at: http://www.extension.iastate.edu/agdm/wholefarm/pdf/c2-23.pdf. There is also an Extension publication from the North Central Region, publication 149, entitled "Pasture Rental Arrangements for Your Farm" available for order through Midwest Plan Service ($4.00) at 800-562-3618 or on line at: http://www.mwpshq.org/. Recently OSU Extension Educators Jeff Fisher and Dave Mangione have written an excellent pasture rental fact sheet entitled "Establishing a Fair Pasture Rental Rate". This fact sheet is available through your county Extension office or on-line at: http://ohioline.osu.edu/fr-fact/0008.html. I'll try to briefly summarize a couple of methods of computing pasture rental that might be applicable in our area and that are contained in some of these publications.

One method that can be used to calculate pasture rental is forage value. To use this method estimate the expected pasture production on a per acre basis. If farm records have been kept on hay production, this might provide an estimate of pasture production. I went to the Ohio Department of Agriculture's annual Agricultural Statistics report and looked at the average hay production figure for Athens County. It was 2.26 tons per acre. Some pastures, especially those that have been limed and fertilized on regular basis and managed with rotational grazing, should be producing significantly above this average. Some pastures will be below this average. Once there is some agreement on pasture production potential, multiply that figure by 25% of the price of grass hay during the grazing season. For example, assume that a pasture has a potential to produce 2.5 tons of useable forage during the grazing season, and that grass hay can be purchased for $40 per ton during the grazing season. Pasture rental rate would be 25% of hay price (.25 x 40 = 10) times the pasture production of 2.5 tons or: 10 x 2.5 = 25 dollars per acre.

A second method that is sometimes used to calculate pasture rental is a per head per month charge. Under this method an animal unit (A.U.) figure is calculated and multiplied by a pasture quality rating and a hay price per ton. We must first define an animal unit. Generally one animal unit is composed of 1000 pounds of animal weight. The following table is taken from the OSU Extension fact sheet on pasture rental and provides guidelines on animal units for various classes of livestock.

Table 1. Animal Units (A.U.) 
Type of Livestock                                                                                           A.U.

Cow with an unweaned calf at side, or heifer two years old or older           1.25
Bull, two years old or older                                                                          1.3
Young cattle, one to two years                                                                   0.8
Weaned calves to yearlings                                                                         0.6

Horse, mature                                                                                               1.3
Horse, yearling                                                                                            1.0
Weanling colt or filly                                                                                    0.75

5 Mature ewes, with or without unweaned lambs at side                             1.0
5 Rams, two years old or older                                                                   1.3
5 Yearlings                                                                                                   0.8
5 Weaned lambs to yearlings                                                                      0.6

Meat Goats
5 Mature does, with or without unweaned kids at side                               0.75
5 Mature bucks, two years old or older                                                      1.0
5 Yearlings                                                                                                   0.5
5 Weaned kids to yearlings                                                                         0.25

Next, we have to make some assessment as to pasture quality, and assign it a value. This is subjective and rental parties must come to some agreement. Referring again to the OSU Extension fact sheet on pasture rental, the following table can be used as a guide:

Pasture Type                                                                                  Quality Rating
Lush, green, high protein pasture, high legume content                      0.22
Excellent pasture: grass and legumes mixed                                        0.20
Very good permanent pasture                                                              0.18
Fair to good pasture                                                                             0.15
Poor or weedy pasture                                                                         0.12

As an example consider a situation where a neighbor wants to rent pasture for 20 heifers weighing about 650 pounds on average. According to our animal unit table, each heifer counts as 0.8 A.U. The pasture is of average quality so use a quality rating of 0.15. Hay can be purchased for $50 per ton out of the field. Applying our formula, pasture rent is equal to A.U. x Pasture Quality Rating x Hay price/ton, or 0.8 x .15 x 50 = $6.00/head/month.

Pasture rental can also be determined by what others are charging. This information could be gathered at a neighborhood coffee shop, or on a more formal basis by sending out a survey. The last OSU survey that attempted to get information on pasture rental rates had a poor response, especially for our area of the state, so the information should be taken with a bit of caution. The 2002 survey showed pasture rental rates around the $25 dollars per acre value for our area of the state. Remember, 2002, and limited responses. Also, this standard of "what others are charging" can be misleading. I know that there are dairy producers paying $1.00 per head per day for pasture rental. This may not work for another class of livestock, but it is what some are paying for pasture rental.

Another method sometimes used in establishing pasture rental is based on a percentage of cropland value. This varies by region of course, but on average, pastureland rents for about 70% of cropland value.

The recent ethanol production push and the resulting higher corn prices may be a wildcard factor in determining pasture rental rates. If pastures are suitable for crop production, this potential use could compete against keeping the land in pasture. Essentially, pasture would have to be as profitable as $4.00 per bushel corn at this point in time.

Some other factors to consider in determining pasture rental rate include pasture upkeep, fence, time of year, and labor/management. Who is responsible for mowing weeds/clipping pastures? Does the renter have any obligations as far as maintaining fertility and soil pH? Who will maintain the fence and water system? If the fence is electric, does the renter or the pasture owner pay the utility bill? If public water is used, who pays that cost? Are you renting during the growing season or are you renting stockpiled pasture for winter use? Who is responsible for checking the livestock and/or moving the fence and livestock if rotational or strip grazing is being utilized? In the example I gave of a dairy producer paying $1.00 per head per day, this was to rent stockpiled pasture for winter grazing and the pasture owner checked the cows and moved the fence as required. The owners were only contacted in the event of some problem.

Although pasture owners and potential renters may want a definitive, specific answer when they call about pasture rental rates, the best answer really may be, "it depends". It depends upon understanding the various methods that can be used to calculate a rate and understanding what is and what is not included in that figure. Pasture rental should start with some type of calculation as a starting point for discussion between the two parties that should end with a written agreement that satisfies both parties. The OSU Extension fact, "Establishing a Fair Pasture Rental Rate" by Fisher and Mangione does a good job of laying out various options to calculate a rental rate and also includes a sample pasture lease agreement.