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News and views on stocker segment issues from BEEF magazine.
January 23, 2003 A Prism Business Media Publication
ISSUE CONTENTS
Snow And Ice Continue Altering Market

DDGs Stocker Supplementation Shows Potential

USDA Lowers Final Corn Estimate

Ethanol Phenomenon Is "Like a Freight Train"

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

Markets Weak In Light Test

Questions & Comments


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News
Snow And Ice Continue Altering Market
It's been a while since Mom Nature threw a wrench like this one into the infrastructure of the cattle business.

Starting with last month's first Colorado blizzard that tagged parts of other states, cattle losses began to mount. According to firsthand estimates, death loss in affected feedlots was running 1 to 4 head/1,000 head due to the storm. That was immediate; more losses are expected for the next several weeks due to the extreme stress. This doesn't take into account the cows and calves lost, nor factor in anticipated losses of this year's expected calf crop.

Short-term that should mean fewer fed cattle ready for market than anticipated when those feeders were placed. That's due to death loss and stress-impaired performance. Longer term, it could also further slow herd expansion.

"Boxed-beef prices have jumped sharply the last two weeks, mainly a result of limited availability of fed cattle which has reduced slaughter," Derrell Peel, Oklahoma State University livestock economist, says in his market comments last week. "Packer margins have improved and packers should be aggressively chasing available fed-cattle supplies in the coming weeks. Market-ready supplies of fed cattle have been reduced by death loss and poor feedlot performance. Many feedlot cattle lost weight in the storms and are barely maintaining weight under cold, wet, sometimes muddy, conditions that will continue for some time. Slaughter and carcass weights will be lower for some weeks and January fed-cattle marketings will certainly be less than previously expected."

Higher boxed-beef prices have yet to boost fed cattle though, as packers have reduced slaughter levels (see Markets section).

Add to that the bearish impact of escalating corn prices (see Crops/Weather) and the fact cattle feeders are coming off of their worst year on record.

According to the Livestock Information Center (LMIC), "Average monthly losses per steer sold in calendar year 2006 were about $75/head. For the year, only three months had positive returns (January, August and September) and five sale months had losses exceeding $100/steer."



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Stocker Nutrition
DDGs Stocker Supplementation Shows Potential
"I'm very much enthused about using dry distiller's grains (DDGs) to produce more beef on a fixed-land base. The caveat will be to see what previous supplementation does to subsequent wheat grazing gains. We'll have some data on that in the spring," says Jim MacDonald, a Texas Ag Extension Service (TAES) beef nutritionist.

Though MacDonald expects the majority of DDGs produced via ethanol to be used by feedlots and dairies, he believes the sheer volume of availability will provide stocker opportunity, too. More specifically he explains the most promising opportunity may be in the situation where lightweight calves are held for a couple of months before they go onto wheat.

With that in mind, MacDonald and TAES conducted a summer grazing study using heifers averaging 600 lbs. which compared feeding 3 lbs. of DDGs/head/day (about 0.5% of the animal's body weight) to no supplement. Calves receiving the supplement gained 1/4lb./day more than those not receiving it.

In a study where DDGs was used as supplement on fall dormant range, steers weighing about 400 lbs. received 1lb., 2 lbs. or 3 lbs./head/ day of DDGs. Compared to calves receiving no supplement, MacDonald says gain improved from just over 1/2 lb./head/day at the 1-lb. supplement rate to 1¾ lbs./head/day at the highest level of supplementation.

"However, the effect was quadratic in that the more you supplemented, the incremental gain was lower," MacDonald explains. "In other words, at the 1-lb. rate, the efficiency of gain was about 50%, where at the highest rate, it was 40%."

During the summer trial, the efficiency was only about 10%, he says, because both sets of animals were eating well on grass and the supplementation did not make as big a difference.

Of course, MacDonald points out the economics of supplementing with DDGs will depend on the cost relative to the value of gain. He paid $118/ton for DDGs in the study, which equated to a $12.50/head investment for $18.80/head in return over the 63 days the heifers were fed in the summer trial.

With the increase in corn and DDGs prices, by the first part of January, MacDonald explains the same scenario would have the producer paying $175/ton, which would result in a $18.96/head investment for a $16.20/head return.

The $175/ton DDGs rate in the fall study adds up to a $16.33/head investment at the highest level of supplementation. That investment was worth $68.25/head.

"Producers need to run the economics in their situation to see if it is a good fit," MacDonald says.

MacDonald also cautions that producers feeding DDGs need to be cognizant of all sulfur sources, including water. He explains feeding DDGs high in sulfur to cattle that also have high sulfur in their water can lead to trouble.

Find more info at agnews.tamu.edu/dailynews/stories/ANSC/Jan0307a.htm.



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Weather And Crops
USDA Lowers Final Corn Estimate
Call corn oversold if you want, but fundamentals and emotion continue to support record-breaking futures prices.

On the supply side, USDA's final 2006 crop estimates released about 10 days ago added more fuel to corn prices. In that report, estimated corn production was lowered from 10.745 billion bu. to 10.535 billion bushels based in reductions in estimated number of acres planted and harvested, as well as a reduction in yield of 2.1 bu./acre. Carryover stocks were also reduced by 183 million bu. to 752 million bu. Projected corn prices for 2006-07 were raised another dime to $3-$3.40/bu.

Keep in mind, even with the reduced estimate, the crop in 2006 was the third largest on record.

For price perspective, the University of Missouri's Ron Plain and Glenn Grimes reported in their "Cattle Outlook" last week: "For the period of 1908-1942, corn prices averaged 78¢/bu., for 1942-1972 the average corn price was $1.26/bu., and from 1973-2005 the average corn price was $2.37/bu.

"The probabilities appear high for another step-up in prices for several years. If corn prices increase in future years by the percentage of the average of the two previous step-ups, we will have corn prices above $4/bu. for the next period."



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Issues
Ethanol Phenomenon Is "Like a Freight Train"
That's the analogy Barry Dunn gave about ethanol at this week's Southwest Beef Symposium in Amarillo. But with a twist. "The ethanol industry is a freight train going down the tracks. Hardly anybody knows where it's going, they're laying the tracks as they go and pulling them up behind because there's little chance we're going back."

Dunn, a Midwest native and executive director of the King Ranch Institute for Ranch Management at Texas A&M University-Kingsville, said while few people know the eventual outcome of the ethanol industry, its effect on cow-calf producers is clearly evident.

Using a Cattle-Fax projection that fed cattle will average $84/cwt. in 2007, Dunn said corn prices at $3.50/bu. puts a 550-lb. feeder steer at $99.25. Corn at $4 puts that steer at $87, and $5 corn puts him at $62.71.

"We're not there yet," he said of feeder cattle prices, meaning the market has some downside potential this year. Dunn called on ag to begin an earnest debate about the full effect of ethanol not only on ag as a whole, but on society as well. In many regions, ethanol is viewed as apple pie and motherhood. "But its not. It's not apple pie and motherhood to a rancher in West Texas."
-- Burt Rutherford


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

Jan. 25 -- 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.


Markets
Markets Weak In Light Test
Icy weather forced many auction markets to forego sales last week, and that may have been a good thing. As it was, based heavily on USDA's bearish corn report the previous week, as well as rocketing corn futures, the stocker calves and feeders that did sell were $3-$7 off the preceding week.

Moreover, analysts with USDA's Ag Marketing Service (AMS) explain, "Higher feed costs and weather expenses that feedlots are faced with have not been offset with a higher fed cattle market as sales were mostly $1 lower this week from $86.50-$87. Last year at this time, fed cattle were selling at $96, cash corn was more than $2/bu. cheaper, and the feeder cattle index was more than $17 higher."

As such, the AMS folks say, "Many feeder-cattle buyers and sellers were more than willing to take a step back and watch cattle and corn markets settle down."

The summary below reflects the week ended Jan. 19 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.
Dakotas 30,900
South Dakota
North Dakota

$116.28
$115.13

$103.40
$106.10

$93.36
$96.69

$102.53
$103.15

$94.11
$94.47

$97.15
$91.10
KY* 16,600 $94-104 $86-96 $82-92.505 $80-90 $75-853 $74-845
IA 16,200 $112.02 $107.832 $96.98 $98.83 $94.622 $88.497
AL 12,900 $95-104 $84-90 $80-88 $80-90 $75-853 $72-82
NE 11,500 $121.79 $105.93 $96.90 $103.76 $94.89 $90.88
Carolinas* 9,500 $80-105 $72-93.503 $69-845 $70-87 $64.50-833 $60-775
CO 8,800 $108.15 $95.89 $93.91 $99.43 $86.43 $89.92
MO 8,300 $110.91 $100.81 $93.62 $94.81 $92.34 $86.39
TN* 7,200 $93.93 $85.73 $80.99 $83.99 $79.32 $79.10
KS 6,800 $119.08 $108.96 $96.93 $106.08 $91.84 $91.48
TX 6,600 $98.11 $94.232 $90.84 $90.95 $88.03 $86.182
OK 6,300 $110.50 $97.73 $96.01 $93.69 $90.55 $87.46
FL* 5,200 $82-101 $76-92 ** $74-91 $76-79 **
NM 4,400 $104.26 $95.60 $95.264 $94.77 $90.18 $92.974
AR 4,200 $102.98 $96.12 $89.584 $89.10 $85.06 $84.104
MS* 3,900 $85-951 $75-853 ** $77-851 $70-773 **
WY 3,800 $122.09 $109.872 ** $96.50 $94.152 **
VA 3,300 $100.80 $90.97 $83.72 $83.47 $76.38 $91.334
GA*(***) 2,000 $87-102 $80-98 $72-87 $76-91 $72-85 $75.50-80.50
MT 1,900 $111.11 $110.752 $98.564 $102.31 $97.05 $87.45
LA(ND) 1,700 $81-94 ** ** $78-94 ** **
WA* 1,600 ** ** ** $88.07 ** **

* 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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