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News and views on stocker segment issues from BEEF magazine.
April 10, 2007 A Penton Media Publication
ISSUE CONTENTS
Fed Cattle Push Past $100 -- Lots of Them

Grazing Stockers Longer

Planting Intentions -- 90.5 Million Acres of Corn

Feeder Prices Charge Ahead

Questions & Comments


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News
Fed Cattle Push Past $100 -- Lots of Them
Unlike a couple of weeks ago when fed cattle prices hit the century mark for just a little while, and only in the Northern Plains, last week saw cattle feeders receiving that much from north to south. For the week, 217,000 head traded, according to the National Agricultural Statistics Service.

There are plenty of factors at play, including USDA's estimate of spring corn planting -- price-bearish at 90.5 million acres (see "Crops & Weather" section below) -- but mostly it underscores supply and demand fundamentals.

More specifically, the market continues to feel the effects of reduced tonnage due to the harshest cattle-feeding winter most anyone can remember.

At the annual meeting of the Texas and Southwest Cattle Raisers Association on April 1, Randy Blach, Cattle-Fax executive vice president, pointed out average carcass weights increased 12 lbs./carcass for the past two years. That was the equivalent of adding 2% more beef production each of those years. This year, between the winter and corn prices, carcass weights are declining.

So, at about the same level of demand there just isn't as much supply.

Best of all, according to Jim Gill, Texas Cattle Feeders Association market director, at least in the Southern Plains, last week's market rally -- $4-5 more than the previous week -- gave cattle feeders a chance to get current. In his market report, Gill says the average carryover for member yards is 44% during the first quarter; last week it dropped to 18%.



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Stocker Management
Grazing Stockers Longer
"We have a clear situation where feedlots are looking for heavier, older cattle," says John Anderson, Mississippi State University Extension livestock marketing specialist. "We should see a shift away from calf-feds to traditional feeder animals, and even heavier. It's a normal response to high corn prices -- feedlots are trying to reduce the amount of corn they have to feed."

Derrell Peel, Oklahoma State University livestock marketing economist, says the need to add more weight outside the feedlot will slow the rate of cattle turnover in the country and speed it up at the feedlot. So, feedlot inventories will likely continue to shrink at least through the second quarter this year.

"For the last 3-4 years, we've maintained feedlot inventories by feeding fewer cattle more days, and now we need to feed the same small set of cattle fewer days," Peel says.

According to Pat Smith, a longtime stocker and cow-calf operator at Dawn, TX, that makes marketing his cattle an even bigger chore. He normally tries to market stocker cattle at 650-750 lbs., depending on the availability of wheat pasture and feeder prices. This year though, he looks to push feeders to 800-850 lbs.

"With the corn situation, the bigger you can make them (outside the feed yard) the better off you are. Hopefully we can at least break even." Smith says.

To help manage the longer period of risk Smith protects price with either options or hedges.

"With options, I try to purchase whatever I can for $1/cwt.," Smith explains. "For yearlings to be marketed in May, I bought $94 puts (for $1 premium) in December."

Those were March puts he rolled into May in early February when the feeder market started to rebound; he was considering a straight hedge as March approached.

"The option will protect us against a wreck. We just hope the cattle bring a lot more than that when we market them," Smith explains.

Though options can provide stocker operators with price insurance, they can be expensive, especially when profits are slim.

More specifically, Mark Green, a commodity broker for Schwieterman, Inc. at Garden City, KS, says options can help secure a floor price while leaving the upside open in the event of a rally.

"But with these price levels and volatility, nothing comes cheap," Green says. He suggests using a put-options spread, "...something close to the money and something about $10 out of the money."

For example, an at-the-money May feeder cattle put at $102/cwt. for seven-weight stockers coming off wheat pasture this spring would have cost $3.25/cwt. But by selling a $92 May put for $85/cwt., the cost of the price protection declines to about $2.40.

"That would have left the upside open, and if the time value happens to deteriorate, perhaps the $92 put could be bought back for 15-20¢, lowering the cost of protection even more," Green says. "If the value of the futures price goes below $102, those puts could be rolled down (and a profit taken to lower the cost of protection more). The $102 puts could be replaced with a lower floor, while the upside would still be open."

Anderson encourages stocker operators to plan their pricing strategy early.

"We're still seeing volatile situations with corn that could become even more of a problem for cattle producers," Anderson says. "Last fall when corn prices started going up, it took $150/head off a lot of cattle. If we were to have a drought in the Corn Belt this summer, prices could be worse. If that happens, calves bought by stocker operators that looked cheap early on are not going to be that cheap."

Some possible price protection strategies Anderson points to:
  • "If you're on a low cost of production forage system you should be able to find a favorable buy and sell market.

  • "Cash-based forward contracts are easier to carry off these days with all of the video and Internet auctions, as well as local sales. Or, an options or straight hedge strategy can help protect the cattle investment.

  • "Buying puts for protection against the threat from the volatile corn market isn't a bad idea. Of course, every operator has a different situation that can impact their level of risk taking with futures or options."
-- by Larry Stalcup, a freelance writer based at Amarillo.



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Weather And Crops
Planting Intentions -- 90.5 Million Acres of Corn
Farmers intend to plant the most acres of corn since 1944 when 95.5 million acres were planted, according to USDA's "Prospective Plantings" report issued April 30. The 90.5 million acres -- 15% more than last year -- ran at the top end of most industry estimates ahead of the report.

Iowa and Illinois, which churn out the most corn each year, each are adding more than 1 million acres of corn for totals of 13.9 million acres and 12.9 million acres, respectively. According to the report, producers in Nebraska and North Dakota are also aiming to plant approximately 1 million more acres.

As expected, much of the increased corn planting is coming from soybean ground. According to the report, producers intend to plant 67.1 million acres of soybeans, 11.1% less than last year.

Cotton planting is expected to decline 20% to 20.1 million acres.

All wheat plantings are estimated to increase 5% to 60.3 million acres. Of that, 44.5 million acres of winter wheat reflects 10% more.

For the week ending April 1, according to the National Agricultural Statistics Service:
  • Winter wheat -- 71% is rated in good or excellent condition, compared to 38% at the same time last year, and 53% for the week of Nov. 26, when the last rating was published.

  • Spring wheat -- 3% of the crop is in the ground, which is 1% ahead of last year and on par with the five-year average.

  • Barley -- 7% of seeding is complete; 4% ahead of last year and 2% ahead of average.

  • Sorghum -- 16% of the intended acreage is sown, which is 2% ahead of last year and 5% ahead of average.

  • Oats -- 29% of planting is complete, which is 1% less than last year and 2% behind the five-year average.
You can find the complete "Prospective Plantings" report at www.usda.gov/nass/PUBS/TODAYRPT/pspl0307.pdf



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Events
April 26 -- Feeder-Calf Evaluation & Management, Producers Livestock Auction, San Angelo, TX; 325-659-6523.

May 1-2 -- Animal Grazing Behavior: Understanding and Managing Livestock, Wildlife, Plans, Soils and People, Prairie Knights Casino & Resort, Fort Yates, ND; 701-567-4323 or chrisopher.schauer@ndsu.edu.

May 2 -- Beef Cow-Calf Standardized Performance Analysis (SPA) workshop, Texas A&M University Research and Extension Center, Vernon, TX; 940-552-9941, ext. 231.

May 3 -- KSU Beef Cattle & Forage Crops Field Day, Southeast Agricultural Research Center, Mound Valley, KS; 620-421-4826.

May 9-10 -- California Animal Nutrition Conference & Technical Symposium, Piccadilly Inn University, Fresno; 916-441-2272 or aquinn@cgfa.org.

May 30-June 10 -- Beef Empire Days, Garden City, KS; 620- 275-6807 or beefempiredays@gcnet.com.

June 6-9 -- Beef Improvement Federation Annual Research and Symposium, Hilton Fort Collins, Fort Collins, CO; 785-532-5428 or www.beefimprovement.org.



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Markets
Feeder Prices Charge Ahead
"Calves are now selling very close to year-ago levels in most areas, with yearling feeders $5-10 higher," say analysts for the Agricultural Marketing Service (AMS).

That's based on last week's market, which saw feeder and stocker cattle selling firm to $4 higher, with fed cattle trading $4-5 higher (at mostly $100 live) in all five major cattle feeding regions (see "Fed Cattle Push Past $100 -- Lots of Them").

"Stocker cattle and calf prices continue to rise as widespread moisture has most grazing areas lush and green," explain the AMS analysts. "Also, the upturn in the CME Feeder Cattle Futures (stemming from the lower grains) helped calf buyers continue to turn up the heat on calf prices."

For perspective, according to AMS, corn prices are roughly $1.25/ bu. higher than last year, but fed cattle are selling from $17-20 higher than the first week of April last year.

The summary below reflects the week ended April 6 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 45,000 $129.61 $122.60 $112.44 $114.90 $109.31 $101.06
KY* 28,400 $108-118 $102-112 $92-1025 $96-106 $88-983 $86-965
OK 22,000 $130.66 $121.55 $111.65 $118.01 $109.34 $101.78
Dakotas 19,700
South Dakota
North Dakota

$135.16
$130.28

$124.65
$120.72

$115.05
$116.944

$115.11
$109.54

$109.65
$106.58

$103.06
$103.77
IA 15,800 $132.05 $127.122 $111.97 $117.41 $112.262 $104.75
TX 15,400 $125.93 $115.59 $111.27 $118.42 $108.06 $103.26
KS 13,200 $141.26 $124.16 $112.34 $118.29 $108.28 $103.50
CO 13,000 $137.16 $115.53 $112.56 $118.00 $109.21 $99.69
NE 10,600 $133.53 $120.00 $112.26 $120.43 $109.15 $104.80
AL 9,700 $117-125 $110-119 $99-107 $109-119 $99-107 $84-975
TN* 8,600 $119.19 $107.93 $97.78 $105.13 $95.74 $88.34
GA*(***) 8,500 $101-124 $90-115 $85-106 $95-117 $88-103.10 $82-93
Carolinas* 7,100 $102-121 $98-113.50 $91-101 $90-111 $83-99.50 $76-88
AR 6,900 $117-127 $106-1163 $97-1075 $103-1131 $97-1073 $87-975
FL* 5,400 $103-121 $92-110 $90-984 $87-112 $89-103 $86-924
NM 5,100 $121.28 $106.354 92.08 $108.26 $102.392 **
VA 4,900 $116.15 $108.14 $100.38 $102.87 $94.98 $89.54
MS* 4,000 ** $100-1103 $90-1005 $100-1101 $92-1003 $82-925
WY 3,200 $126.132 $124.43 $107.25 $116.77 $105.63 $105.084
LA(ND) 2,900 $110-125 $107-1172 ** $101-115 $110-1142 **
WA* 2,000 $114.09 $106.29 $99.23 $107.28 $98.08 $93.87
MT 1,000 $129.94 $124.04 $116.884 $110.552 $104.88 **

* 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.


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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