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Stocker Award
Deadline For $10,000 Stocker Award
Is April 1
If you plan to apply for this year's National Stocker
Award, sharpen your pencil. The deadline is April 1.
The BEEF magazine award is open to any stocker or backgrounding
operation that derives the majority of its cattle-based income from the
stocker and backgrounding businesses. You can nominate yourself, or
someone else.
The overall winner wins $10,000 in cash, and two other divisional
winners receive $2,500 in cash. For more info or an application, go to
www.nationalstockeraward.com.
For a hard-copy application, contact Marilyn Anderson at 800-722-5334
ext. 14710.
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News
Fed-Cattle Prices Hold Recent
Strength
Whew! Fed-cattle prices last week retained most of the
$7-9/cwt. increase gained the previous two weeks. Southern Plains fed
cattle traded for mostly $98. In the North, the market bottom was $98,
with some early-week trades bringing a smooth $100.
Calf and feeder prices followed suit last week with yearlings bringing
steady money to $3 more, and calves $2-6 more (see "Calf-Yearling Prices
Advance").
You could see the upswing in prices coming, but the degree to which
supply fundamentals can push the market is always amazing to witness.
The full effects of continuing year-to-year declines in carcass weights
due to blizzard losses and high grain prices are finally coming to the
fore. In turn, retailers fearing tighter supplies later this spring have
been pushing boxed-beef prices -- $8 more last week.
Though the recent run in prices brings some relief, analysts with the
Livestock Marketing Information Center (LMIC) point out cash- market
prices on a daily basis haven't approached the record highs achieved in
the last quarter of 2003.
In October of that year, steers reached $113.83, based on the
five-market average used by the National Ag Statistics Service; $116.94
for steers grading better than 65-80% Choice. The fourth-quarter average
that year was $97.57. That was back when BSE pulled Canadian cattle from
the international export market, and before U.S. cattle suffered the
same fate.
"On an annual basis, record-high, fed-steer prices occurred in 2006; the
five-market average for steers was $85.94," says LMIC. "This year,
current forecasts call for new, record-high, annual average
slaughter-steer prices. For the year, steers could average about $90, up
about 5% from last year. But setting new record-high, daily cash levels
won't occur without some additional spark. Setting a new, record-high,
quarterly average fed-cattle price might happen in 2007 and is even more
likely in 2008."
$4.5-Million Study Looks At Captive
Supply
Cattle prices go down as consumer beef demand declines
due to decreasing beef quality, and risk increases. That's what happens
when you try to legislate the market.
Specifically, that's what would happen if alternative marketing
agreements (AMAs) -- basically anything that isn't a cash trade in the
spot market -- were restricted, according to the recently concluded
$4.5-million "GIPSA Livestock and Meat Marketing Study." It was
conducted by RTI International for USDA at the behest of the industry,
including the National Cattlemen's Beef Association (NCBA).
"During debate of the 2002 farm bill, concerns from producers about
packer concentration led NCBA members to ask Congress to study the
livestock and meat-marketing complex," explains John Queen, NCBA
president. In 2003, Congress authorized $4.5 million to conduct such an
independent study and provide a report that would be the definitive
answer on this issue.
In sum, the cattle portion of the study concludes that if AMAs
--including packer-owned fed cattle, formula pricing and forward
contracting -- were reduced or eliminated, feeder-cattle producers,
feedlots and packers would all make less money, while the consumer would
pay more for a product of less quality.
"The cost savings and quality improvements associated with the use of
AMAs outweigh the effect of potential oligopsony market power," the
report says. "In model simulations, even if the complete elimination of
AMAs would eliminate market power that might currently exist, the net
effect would be reductions in prices, quantities, and producer and
consumer surplus in almost all sectors of the industry because of
additional processing costs and reductions in beef quality.
Collectively, this suggests that reducing the use of AMAs would result
in economic losses for beef consumers and for the beef industry."
Try this on for size: researchers -- some of the nations' top ag
economists -- simulated both a 25% reduction in AMAs and the complete
elimination of them.
When AMAs were reduced by 25%, what is termed producer surplus --
basically what would be compared to what could have been -- decreases by
an estimated $1.9 billion, while consumer surplus decreases by an
estimated $0.4 billion in the short run. Consumer surplus decreases
because consumers would have to pay more, yet no one in the production
chain would be making any more. By year 10, producer surplus declines by
an estimated $0.7 billion and consumer surplus declines by an estimated
$0.2 billion.
In the scenario where AMAs are eliminated, producer surplus decreases by
an estimated $10.5 billion and consumer surplus decreases by an
estimated $2 billion in the short run. By year 10, producer surplus
declines by an estimated $4 billion and consumer surplus declines by an
estimated $0.8 billion.
According to these simulations, salt in the wound comes with the fact
that any market power such restrictions would take away from packers
would be overwhelmed by other economic losses.
"The positive effect of reduced potential oligopsony market power that
might result from restricting AMAs is unable to offset the negative
effects of increased processing costs and reduced quality associated
with restricting AMAs. In describing these results, it's important to
note that the economic incentives associated with using individual types
of AMAs by individual industry participants may differ from the results
for the industry as a whole," the researchers say. Oligopsony is
basically the condition that exists when there are a relatively small
number of participants who control a relatively large proportion of
market share.
"The direct cost savings from AMAs is approximately 0.9% of average
total costs, or approximately $1.22/head," the study says. "Packers also
experience additional cost savings from reduced variability in cattle
supplies ($1.70/head) and increased slaughter volumes ($3.56/head) at
packing plants. The total cost savings associated with AMAs is
approximately $6.50/animal. For an industry with an average loss of
$2.40/head during the 30-month sample, this is a substantial benefit."
In fact, the report states: "Beef producers said that cattle quality
would suffer in an all-cash market environment because it's more
difficult to control quality when using the cash market than using
long-term or forward contract arrangements. Although many believe it is
possible to purchase quality cattle in the cash market, they also
believe the quality of cattle procured in the cash market is more
variable... Some producers stated they need formula sales under a
marketing agreement to obtain premiums for producing cattle for
customized buying programs. Packers said the ability to obtain quality
cattle under AMAs was a much stronger incentive than issues related to
procurement costs. Because beef-product buyers are demanding
higher-quality products, packers use AMAs to ensure that cattle
purchased meet the quality standards needed to meet buyer requirements
for beef products..."
In other words, decrease quality and consistency, and you decrease beef
demand.
Spin this around: AMAs provide both producers and the industry a sturdy,
reliable risk-management tool, in more ways than many usually consider.
Looking at packer ownership specifically, the study concludes: "One
implication of restricting AMAs that was noted by several respondents
was the impact on risk-bearing ability and capacity utilization. Full or
partial packer ownership of a pen of cattle reduces the equity the
feeder (or other cattle owners) must provide to feed cattle. Packer
ownership also allows the feeders to secure better terms from lenders.
"Feeders may be able to own more of the cattle that are currently owned
by packers, but they would face a capital constraint preventing them
from owning all the cattle. The individual feedlots would have
underutilized capacity or would have to find new investors to replace
the capital packers once provided.
"To attract capital that is not in cattle feeding would require a higher
rate of return than cattle feeding currently offers; otherwise, that
capital would already have been invested in cattle feeding. Given that
the supply and demand of beef is relatively fixed in the short run,
fed-cattle prices are not expected to change substantially. Thus, higher
rates of return would have to come from downward pressure on
feeder-cattle price. Likewise, if feeders have more debt and/or more
risk, the higher cost of borrowing will result in lower bids for feeder
cattle."
The study results comprise a massive volume (you can find it at www.gipsa.usda.gov.) But it's one
every producer should give a gander. Aside from accomplishing its
purpose of quantifying the impact of arbitrarily deciding cattle
businesses can't do business with one another how they choose, the study
serves as a short course for what drives industry economics beyond the
cow-calf pasture.
"Buyers of livestock and meat may choose to use specific marketing
arrangements because they reduce the cost of procurement, improve the
quality of animals and products purchased, aid in risk management, and
generate efficiencies in procurement and marketing. Likewise, sellers of
livestock and meat may choose to use specific marketing arrangements
because they facilitate market access, reduce the cost of selling,
increase the price received, and reduce risk," the report says.
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Weather And Crops
Most CRP Acres Will Re-enroll, USDA
Says
If results of a recent survey by USDA are correct, 84.4%
of the acres currently enrolled in CRP -- with contracts set to expire
between 2007 and 2010 -- will be re-enrolled. These contracts account
for about 27.8 million acres.
More specifically, participants indicate they'll pull about 4.6 million
acres out of CRP. Of these, approximately 1.4 million acres are located
in major corn-producing states, USDA says.
"The percentage of landowners choosing to remain in CRP is consistent
with what we've seen in the past, despite speculation that re-enrollment
would drop significantly due to high corn prices," says USDA Secretary
Mike Johanns. "We're closely monitoring interest in CRP re-enrollment,
planting projections and demand for commodities to determine the most
appropriate actions in administering the Conservation Reserve
Program."
In the meantime, according to the National Agricultural Statistics
Service, for the week ending March 11:
- Warm, dry weather throughout most of the Great Plains promoted
small-grain growth and development in the southern half of the
region.
- Milder weather across the Corn Belt eased stress on livestock, but
melting snow contributed to lowland flooding in portions of Illinois,
Indiana and Ohio.
- In California, warm dry weather was beneficial for growth of
grasses, small grains and forage crops.
- In Texas, Oklahoma and Kansas, warm weather promoted growth of
winter wheat and other small grains. Winter wheat was in mostly fair to
good condition across the three states as the crop was developing at a
near normal rate in Texas and Kansas, and somewhat ahead of normal in
Oklahoma.
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© 2006 Merial Limited. All rights reserved.
Markets
Calf-Yearling Prices Advance
Sooner was better than later for folks selling feeder
cattle last week, as the steady-to-$3 price increase began to turn south
on Thursday. That resistance came as the board dropped and packers were
able to hold off further fed-cattle price increases, though $100 was
reached in northern trade earlier in the week. Fed-cattle trade ended
the week at $98-100 in the North; mostly $98 in the South (a $1 decrease
from the previous week). Yearling feeder prices were steady to $3 more.
Calf prices shrugged all of that off though, finishing the week $2-6
higher in the Midwest and Plains; as much as $10 more in some areas.
Prices were steady to $3 higher in the Southeast.
"Spring-like weather and the tint of green on the horizon was all that
calves and thin-fleshed, lightweight yearlings needed to increase in
value," explain Ag Marketing Service (AMS) analysts. "Backgrounders have
grass fever and many fear the availability of stockers will be very
tight this spring.
"The best demand was for long-weaned and hard-wintered five-weight
calves; more so for the steers than the heifers. These buyers are
looking for something that can maximize the cheap gain that grass
provides, as grains and commodity feed are twice as expensive as last
year. But just as everyone has gotten used to the sound of $4 corn, the
price has been slowly slipping and May Chicago Board of Trade corn
futures actually fell below $4/bu. this week," AMS analysts say.
The summary below reflects the week ended March 16 for Medium and Large
1 -- 500- to 550-lb., 600- to 650-lb. (calves), 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 | 47,900 | $129.19 | $113.21 | $107.86 | $112.47 | $104.94 | $98.12 |
| OK | 43,900
| $124.60
| $116.02 | $107.27 | $111.25 | $104.36
| $97.08 |
| Dakotas | 39,500 | $124.23
$126.08 | $121.62
$115.03 | $110.88
$110.59 | $111.68
$112.56 |
$106.38
$104.37 | $99.30
$97.86 |
| KY* | 30,500 | $107-117 |
$97-107 | $88-985 | $90-100 | $84-943 | $78-885 |
| TX | 21,500 | $118.68 | $112.24 | $106.38 | $111.14 |
$103.48 | $99.14 |
| KS | 15,200 | $138.96 | $117.44 | $107.69 | $113.40 | $104.71 | $98.73 |
| NE | 14,800 | $132.30 | $120.37 |
$110.80 | $117.43 |
$109.05 | $100.87 |
| IA | 13,600
| $125.21
| $120.922 | $107.53 | $116.33 | $110.852 | $98.74 |
| TN* | 11,800 | $115.95 | $104.54 | $94.16 | $100.04 | $91.67 | $85.32 |
| AL | 11,100 | $115-125 | $104-112 | $97-100 | $104-111 |
$93-100 | $86-91 |
| CO | 10,700
| $134.14
| $115.99 | $105.11 | $113.16 | $104.62 | $95.83 |
| GA*(***) |
9,600 | $100-124 |
$90-113.50 | $78-101 | $91-109 | $82-101 | $74-93 |
| AR | 8,700 | $121.87 | $109.29 | $101.05 | $105.04 | $99.04 | $91.36
|
| Carolinas* |
7,300 | $98-124.20 |
$82-101 | $85-98 | $81-107 | $82-100 | $74-87 |
| NM | 7,000
| $122.27
| $112.42 | 106.03 | $107.31 | $100.37 | 98.994 |
| FL* | 5,200 | $93-116 | $88-101 | $81-854 |
$81-101 |
$80.50-91 | ** |
| VA | 5,100
| $117.63
| $109.23 | $96.97 | $97.14 | $90.90 | $93.81
|
| WY | 5,000
| $127.392 | $120.84 | $104.71 | $115.67 | $105.46 | $100.85 |
| MS* | 5,000 | $110-120 | $95-1053 | $90-955 | $100-1051 |
$90-1003 |
$85-905 |
| LA(ND) | 3,400 | $109-125 | $106-1202 | ** |
$98-116 | $96-1122 | ** |
| MT | 3,400
| $132.89
| $117.77 | $103.44 | $112.31 | $104.67 | $95.18 |
| WA* | 1,600 | ** | ** | $98.86 | ** | ** | ** |
* Plus 2
** None reported at this weight or near weight
(***) Steers and bulls
(?) As reported, but questionable
NDNo Description
1500-600 lbs.
2550-600 lbs.
3600-700 lbs.
4650-700 lbs.
5700-800 lbs.
6750-800 lbs.
7800-850 lbs.
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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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