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News
Immigration Economics
The beef industry got a taste of how the simmering
immigration issue can impact economics last Tuesday when an
investigation by the U.S. Department of Homeland Security's Immigration
and Customs Enforcement (ICE) division temporarily shuttered six Swift
and Company production facilities.
Those facilities represent all of Swift's domestic beef processing
capacity and 77% of its pork processing capacity, according to Swift
officials.
Employees at the plants were questioned by ICE agents as part of an
identity-theft investigation allegedly involving Swift employees.
The day of the raid, Swift spokesmen explained, "Any loss of a
significant number of employees at any facility could adversely affect
the operations of that facility until Swift is able to replace any lost
members of its workforce and return to normal production levels."
According to the company, approximately 1,300 workers were detained by
ICE for further questioning. The Company was able to resume operations
at all facilities the same day, but at reduced output levels.
Even supposing production chatters along without another hiccup, the
move certainly cost cattle feeders who sold earlier than later in the
week, in part concerned there wouldn't be room at the inn for past due
entries on their show lists. Early week sales were $1-$2/cwt. lower than
the previous week; they ended the week at mostly $85-$85.50, down
$1-$1.50.
"Swift believes these actions by the government violate the agreements
associated with the Company's participation over the past ten years in
the federal government's Basic Pilot worker authorization program and
raise serious questions as to the government's possible violation of
individual workers' civil rights," explained a statement issued by the
company.
Until the broader immigration issue is resolved, last week's reality
opens a wider gap of uncertainty in the marketplace, more room for rumor
and innuendo to overwhelm logic and fundamentals.
Weather And Crops
Grain Price Estimates Rise
Strong futures prices and their expected impact on the
unsold portion of this year's crop have increased forecast prices of
sorghum and corn by 10¢ at both ends of the range from $2.90 to
$3.30/bu.
That's according to the monthly "Feed Outlook" issued by the Economic
Research Service last week. Analysts there note, "Feed grain supplies
for 2006-2007 are unchanged from November, and are down 16.4 million
metric tons from 2005-2006. The year-to-year supply decrease reflects
lower production and beginning stocks as compared with last year.
Imports are expected to be higher in 2006-2007, but still account for
only a small share of supply at the projected 2.4 million metric tons."
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Stocker Economics
Marginal Perspectives
"First, identify the sensitive variable you think you
can use to improve your profitability. Second, examine what effect a
small change in this sensitive variable will have on your marginal
returns. Lastly, determine the marginal cost of making the small change.
If marginal returns are greater than the marginal costs, move forward
with making the needed change. These small changes can surely help you
achieve a bigger profit and/or reduce a loss," says Walt Prevatt.
That's how the Auburn University Extension beef specialist leads off a
discussion about the marginal costs and returns in the stocker business.
"Average Daily Gain (ADG), death loss, feeder price, minerals, implants,
ionophores, deworming, stocking rate, altering the marketing window,
grazing days, alternative feeds or byproduct feeds, and feed waste are
the sensitive variables that affect the profitability of the stocker
enterprise. Evaluating the marginal relationships of these sensitive
variables will help us determine whether it is profitable to seek
improvements in these variables," Prevatt says.
While each variable is only one component in the stocker equation, the
potential of each can be dramatic.
For instance, say you purchased six-weight calves the middle of August
for $103 /cwt., or $618/head, (basis Oklahoma City). Suppose you
provided minerals that cost $600/ton. At 0.20 lb. intake/day and an
increased ADG of 0.25 lbs./day, the marginal cost would be
6¢/head/day, or $6/head across 100 days of stockering.
After a 100-day grazing period, assume these calves weigh 800 lbs. after
shrink and sell for $90/cwt., or $720/head, in December. The gross
margin is $102/head ($720 - $618). The value of gain is 51¢/lb. The
marginal return from adopting the above mineral program is $12.75/head
(25 lbs. x 51¢/lb. value of gain). This works out to be a 2 to 1
rate of return. So, in this example, the decision to increase marginal
cost with the mineral program makes sense as a way to improve profits.
That's where the true power of marginal costs and returns lies. Whether
it's finding opportunity where none seems to exist before purchasing
calves or trying to salvage a profit in the face of a market wreck or
animal health disaster, marginal costs and returns provide flexibility.
More specifically, plenty of risk management exists in the margins.
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reserved.
Issues
National Cowherd Treading
Water
Further evidence that lingering and expanding drought
has stalled national cowherd expansion once again comes with the latest
cow and heifer slaughter numbers.
According to weekly data assembled by the Livestock Marketing
Information Center (LMIC), federally inspected (FI) cow slaughter
increased 11% from January to mid-November this year compared to 2005,
tallying 4.9 million head. Compared to the prior five-year average
though, cow slaughter was down about 5% for the same period.
Incidentally, dairy-cow slaughter for the same period this year is 4%
larger than in 2005.
Moreover, LMIC analysts report, "Since late October, FI heifer slaughter
has noticeably increased, with weekly slaughter levels surpassing the
corresponding weekly totals last year. As of mid-November, weekly heifer
slaughter was slightly larger (about 15,000 head) than 2005's. However,
for the first three weeks of November, heifer slaughter was up nearly 9%
from last year. As drought conditions persisted in several major
cow-calf areas of the U.S. in 2006, cow-calf operations culled cows
aggressively but attempted to hold back heifers. Tight forage supplies
caused many producers to abandon those heifer hold-back plans during the
summer and early fall."
Overall, the folks at LMIC say slaughter data indicate cowherd growth
for the year will likely be less than 0.5% as of Jan. 1, 2007.
Events
OSU's Stocker Receiving Management
Conference & The Mid-South Stocker Conference
Jan. 25 -- 2007 OSU Stocker Receiving Management
Conference, Enid, OK. Registration is $25. Speakers include Tom
Noffsinger, Dan Thomson, Mike Apley, Clint Krehbiel, DL Step. For more
info, contact, Greg Highfill at 580-237-7677, or greg.highfill@okstate.edu.
Feb. 13-14 -- Mid-South Stocker Conference, Cave City, KY,
presented by the University of Kentucky and the University of Tennessee.
For more info, visit www.midsouthstocker.org. You can also contact Jim
Neel at 865-974-7294 or jneel@utk.edu; John Bartee at
931-648-5725 or jbartee1@utk.edu; or John T.
Johns at 859-257-2853 or jtjohns@uky.edu.
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Markets
Feeders Steady -- Pressure
Looms
Depending on your inclination, the feeder-calf market
held up admirably last week; mostly steady to $3 higher. We say
admirable because there's plenty working against it.
As analysts for USDA's Ag Marketing Service note, "Country elevator bids
for corn are at a decade high and on top at $3.50/bu. compared to $1.87
a year ago... Dry weather persists in Southwest wheat pasture country,
and with wheat prices up near $5/bu. they may want to harvest every acre
and not graze as much. Year-to-date beef production is 5.8% above a year
ago with cattle slaughter numbers up 4% as average weights are currently
14 lbs. above a year ago. Cattle slaughter has averaged 638,000 head so
far this year and consumer demand seems unable to support a much larger
slaughter at current prices. Kills at this rate will not reduce feedlot
numbers very rapidly."
The summary below reflects the week ended Dec. 15 for Medium and Large 1
-- 500- to 550-lb., 600- to 650-lb., and 700- to 750-lb. feeder heifers
and steers (unless otherwise noted). The list is arranged in descending
order by auction volume and represents sales reported in the weekly USDA
National Feeder and Stocker Cattle Summary:
| Summary Table |
| State | Volume | Steers | Heifers
|
| Calf Weight | 500-550 lbs. | 600-650 lbs. |
700-750 lbs. |
500-550 lbs.
| 600-650 lbs. |
700-750 lbs. |
| MO | 57,400 | $110.91 | $102.63 | $100.62 | $99.35 | $95.73 | $93.04 |
| Dakotas | 38,300
South Dakota
North
Dakota |
$119.69
$113.07 |
$109.76
$105.15 |
$103.73
$99.36 |
$109.16
$102.68 |
$100.67
$95.85 |
$96.05
$94.09 |
| TX | 27,900 | $110.43 | $102.78 | $101.96 | $98.36 |
$94.86 | $93.97 |
| KY* | 26,400 | $95-105 |
$88-98 | $85-955 | $83-93 | $80-903 | $78-875 |
| NE | 23,300 | $119.68 | $106.16 | $106.16 | $106.49 |
$101.10 | $100.904 |
| OK | 21,900 | $117.86 | $105.98 | $103.79 | $101.43 | $96.94 | $95.96 |
| IA | 15,700
| $115.23
| $106.67 | $102.474 | $103.00 | $97.44 | $96.98 |
| KS | 13,600 | $115.12 | $108.33 | $104.02 | $102.68 | $100.32 | $96.75 |
| WY | 11,300
| $116.89
| $109.392 | $102.586 |
$99.33 |
$95.64 | $97.176 |
| AL | 11,100 | $100-108 | $94-101
| $90-964 | $90-100 | $83-90 | $79-865 |
| CO | 10,000
| $110.69
| $105.03 | $97.624 | $101.82 | $96.904 | $94.70 |
| TN* | 9,800 | $100.56 | $91.78 | $88.78 | $88.78 | $85.16 | $82.69 |
| AR | 9,500
| $108.24
| $98.07 | $94.20 | $94.06 |
$89.78 | $87.61 |
| FL* | 7,300 | $86-105 | $80-95 | $76-854 |
$83-104 |
$76-87 | $70-75 |
| NM | 6,900
| $105.15
| $102.72 | $96.45 | $98.37 | $93.68 | $90.54 |
| MT | 6,600
| $116.32
| $100.68 | $93.29 | $100.14 | $89.22 | $86.91 |
| Carolinas* |
5,600 | $89.50-106 |
$80-98.503 | $77-925 | $79-93 | $75-883 | $65-805 |
| MS | 4,800 | $90-1001 | $80-903 | ** |
$85-951 | $79-853 | ** |
| LA(ND) | 3,700 | $90-107 | $87-1062 | ** |
$84-102 | $82-992 | ** |
| VA | 3,600
| $107.59
| $94.16 | $90.88 | $84.17 | $79.51 | $94.16 |
| WA* | 3,400 | $95.282 | ** | $90.72 | $90.29 | $87.592 | $87.506 |
| GA*(***) |
2,000 | $98.97 |
$88.59 | $84.51 | $90.26 | $86.49 | $77.624 |
* Plus 2
** None reported at this weight or near weight
(***) Steers and bulls
NDNo Description
1500-600 lbs.
2550-600 lbs.
3600-700 lbs.
4650-700 lbs.
5700-800 lbs.
6750-800 lbs.
7800-850 lbs.
Contact
Questions & Comments
Please send questions to:
Wes Ishmael, Contributing Editor, BEEF Stocker Trends, at wesleysink@aol.com
Joe Roybal, Editor, BEEF magazine, at jroybal@beef-mag.com
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