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News and views on stocker segment issues from BEEF magazine.
December 19, 2006 A Prism Business Media Publication
ISSUE CONTENTS
Immigration Economics

Grain Price Estimates Rise

Marginal Perspectives

National Cowherd Treading Water

OSU's Stocker Receiving Management Conference & The Mid-South Stocker Conference

Feeders Steady -- Pressure Looms

Questions & Comments


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Be sure to check out www.beefstockerusa.org for all your stocker cattle information and management needs.


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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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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