Wednesday, July 6, 2011

TEXAS DROUGHT THREATENS NATIONAL BEEF SUPPLY

AUTHOR'S NOTE - All of the premises presented in this series of posts are solely based on personal experience as a livestock producer and strictly as a cattleman (I have a basic understanding of farm commodities markets, but no real experience with such, and cannot speak with much authority from the farm side of things; Though I would think there are going to be some similarities). The information represents my opinion and is based on personal experiences. Any factual information may or may not be referenced, but be aware, the majority of the content is personal conjecture. Dialogue and comment are welcome.


Beef is the No.1 selling protein in the United States. Last year, consumer spending on beef totaled $74.3 billion. Per capita consumption of beef in 2010 was 59.6 pounds while per capita spending for beef was $240, according to industry research firm CattleFax.

 In the state that gave birth to the cowboy and spawned the culture of cattle drives, modern-day ranchers are fighting for survival. Severe drought (the worst in 44 years) and several million charred acres from wildfires have delivered a devastating "gut" punch, forcing ranchers to take drastic measures to save ranches across Texas. The state's livestock industry has lost $1.2 billion under withering conditions, according to the Texas Agrilife Extension Service, a service branch of Texas A&M University.

In Texas and other states with large cattle herds, the beef supply chain starts at the ranch. Ranchers own a herd of beef cows, each of which gives birth to a calf once a year. The mother nurses the calf and the pair graze on grass through the summer and into the fall, whereupon the fattened calf is sent to market.
This year, ranchers should be reaping the benefits of high prices, low supplies and high demand for their beef. The demand for calves from feedlots, where cattle add hundreds of pounds before slaughter, seems insatiable. Without rangelands full of nutritional forage, cows will struggle for nutrients. The herd will lose interest in breeding and cows may not provide enough milk for their calves, bringing the critical first step of America's beef cycle to a halt.

Among all meat production, beef producers typically incur some of the highest production costs. For example, costs for raising cattle are much higher than for poultry farming. Cattle producers pay more for each animal, grazing lands, fertilizers, feed and processing systems versus poultry farmers. Also the time it takes to prepare cattle for sale is much longer compared to other meats. It takes just 46 days for chicken to be market ready, but can take up to two years for beef.

Exacerbating the situation further is the shrinking number of cattle available for consumption. As beef producers struggle with the escalating drought, rising business costs, and mounting debt, more of them are selling their heifers for meat production, instead of breeding them to expand the herd. In Texas, the largest producer of cattle in the U.S., the "state herd" is down nearly 18% since 2008. In fact, ranchers and farmers across the country are shrinking their herd sizes bringing the nation's cattle herd count to it's lowest since 1958.


ADDING SALT TO THE WOUND:

The outlook for more rain looks grim. The National Weather Service's Climate Prediction Center forecast below-normal rainfall for Texas over the next month at least.


A Mother and Her Son


      
                                                             A "Hug" for Mom                 


                                     

Monday, July 4, 2011

The WACKY WORLD OF CATTLE and COMMODITY PRICES




AUTHOR'S NOTE - All of the premises presented in this series of posts are solely based on personal experience as a livestock producer and strictly as a cattleman (I have a basic understanding of farm commodities markets, but no real experience with such, and cannot speak with much authority from the farm side of things; Though I would think there are going to be some similarities). The information represents my opinion and is based on personal experiences. Any factual information may or may not be referenced, but be aware, the majority of the content is personal conjecture. Dialogue and comment are welcome.



Well...several months of research and data down the drain! 


Here I was, all set to show you how the retail price to the customer was going to sky rocket this summer, how the price of corn and feed grains were too high for cattle producers to profit and, in general complain about how the cattle producer was being squeezed. 


Then, last week (June 30, to be exact), The USDA released "The Crop Report". 


Let me set this up...
In a nutshell, I was going to show:


1. Based on the late spring flooding of hundreds of thousands of acres of corn through the Midwest to Arkansas and Louisiana, the persistent cool weather and rains across the farm belt that have delayed annual plantings, and the devastating effects of storms and tornados across the mid-section of our country as well as through the South would drive the prices of corn and grains to all time highs. 


2. Because these commodities were the back bone of "grain fed" beef, the price of consumer prices for beef would rise, while the cattle producer would struggle to make a profit DUE to the higher costs associated with feeding cattle grain. 


AND, I was right (ever so briefly) ...corn and soybean prices were soaring and cattle producers, who are currently reaping very high prices for their cattle, were having their profit squeezed by the high cost of feeding corn...


Which brings me back to "The Crop Report"......


Turns out, the expected 2011 corn harvest will be much higher than expected and the harvest of other important food grains are also going to be well above average......This caused both corn and soybeans to back off of their "highs" by more than 10%. Grain commodities will continue to trend down over the next few weeks to very manageable cost levels for the beef industry.

GRAINS-U.S. corn extends losses after USDA report
                                                                                        Reuters News Service


So, what we have, currently, is the most rare of events in the cattle markets. The producer is actually receiving record prices for cattle while also enjoying "cheap feed"!! In other words, cattle producers are in a position to maximize profits not only through "lower input costs", but also while receiving historically high prices for their livestock.

"
Compared to last week’s sharply higher market, yearling feeder cattle 
continued their momentum and sold firm to 5.00 higher.  Steer and heifer calf 
demand improved on the heels of last week’s gains and traded from steady to 
6.00 higher with instances as much as 10.00 higher.  The most impressive 
signal of this week’s higher trade was the fact that it took place on fairly 
heavy receipts for this time of year with no help from the CME futures or fed 
cattle trade until the tail-end of the week." - USDA CATTLE AUCTION REPORT, JULY 1, 2011





Meanwhile, consumer prices for retail beef are still going up due to the inverse relationship with the above financial factors...the record high prices paid to producers are being "passed along" to the consumer.


"...higher corn costs—all higher costs—ultimately wend their way through the system and wind up in the retail price of the product..."  Burt Rutherford, Senior Editor, Beef Magazine