Beef Market Advisor

Wednesday, May 17, 2006

Comments On The Corn Market

In our May 12 edition of the DLR we briefly noted the latest USDA projections of corn supply and demand conditions for the upcoming marketing year. This was the first USDA assessment of the corn market for next year, and, naturally, much will depend on weather, conditions over, the summer months.

Depending on how yields shape up, one can make an argument that could send either bulls or bears house happy. Either way. this year's corn harvest is likely to be one of the most significant for the meat industry.

While feed costs have always been a significant driver of meat supplies. This year, more than any other time in history, we have a wild card that could wildly skew the demand side of the equation. That wild card is ethanol production in the US.

For those that have not looked at sugar futures in recent months, take a quick peek and see the impact that ethanol production in Brazil is having on world sugar, supplies. The rise in energy prices is pushing an increasing amount of agricultural products into the energy market -- be this in the form of grain or sugar cane ethanol or soybean based bio-diesel.

What does the latest USDA report suggest for corn supplies and prices in the upcoming year? Far starters, gone is the advantage of large starting corn stocks. While we are expected to inherit more than 2.2 billion bushels of corn front the 2005/06 marketing year, the decline in production is expected to be large enough that overall supplies during 2006/07 are projected to actually be down 3.4'% compared to the previous year. Overall production is expected to be 5.1% lower as a result of farmers planting 5.7'% fewer corn acres.


Yields on the other' hand are expected to be 0.7% higher. a projection based on the linear trend for corn yields since 1960. A 2% decline in yields from a year, ago would cause ending stocks for the year to be 850 million bushels, and the corn stocks to usage ratio would drop to just 7% –- one of the lowest ever. At such levels. it is conceivable that corn prices could go past the $4 per bushel mark in order, to ration available supplies.

A 2% increase in yields from a year ago would cause ending stocks to be somewhat larger than the current USDA estimate of 149 bu./acre but those stocks would still be 42% lower than during 2005/06.

Bottom line is that given the sharp decline in corn acres, the only way corn prices will hold any-where close to where they were in 2005/06 would be if corn yields approach the 160 bu/acre we saw two years ago. A divergence below trend, would be a real cause for concern if you are a cattle or hog producer.

Source: CME Newletter 17 May 06.

posted by Dr. Harlan Hughes 3:56 PM [edit]

Sunday, May 14, 2006

Natural Beef: Could your cattle qualify?

Among the growing popularity of branded beef programs, brands labeled "natural" are also coming of age. So what does the buzz-word "natural" truly mean, and what's the future for the natural niche?

Turk Stovall, with the Montana-based integrated beef genetics company ORIgen and formerly with North Platte Feeders in Nebraska, says, "Natural beef is moving from niche to mainstream. I really believe we are at the dawn of natural programs exploding. The industry is sending signals for international and domestic growth."

As an example, he reports that last year one-third of the cattle on feed at North Platte Feeders -- about 43,000 head -- were associated with natural programs.

With the increased demand, high premiums are being paid for cattle that qualify for natural programs, according to Stovall. "Natural beef companies are fighting for supply at different times of year and, as a result, premiums are being paid for all classes," he says. Stovall reports seeing premiums for natural cattle from $5-15/cwt. at the public auction, on the video market and for private sales.

What does natural mean?
By USDA's definition, natural simply means unprocessed. However, Stovall says the marketplace has adopted a "never-ever" standard for natural meats. This requires that cattle have never-ever been administered hormones or antibiotics from birth to harvest.

However, Stovall emphasizes that vaccines are not antibiotics, and says they are essential for natural programs because they help maintain calf health -- which would reduce the need for antibiotic treatment of sick calves.

Based on that definition, Stovall says any producer has the ability to produce natural cattle. In fact, he says, "Many ranchers already produce natural beef, but simply don't market them as such."

He says the key to raising and marketing natural cattle is the ability to keep records on the calves and identify any that have been treated with antibiotics due to sickness. Once an animal is treated, they no longer qualify for natural programs.

If you are willing to follow the production practices and keep the records to verify natural production, Stovall says producers should then cultivate a relationship with buyers or feeders to help secure a premium for their natural cattle.

"The No. 1 influencer of feeder calf premiums for natural programs is health management and assessment, and ranchers set the pace on this," Stovall says. Regarding feeder calves destined for natural programs, he says feeders want calves that have been preconditioned and backgrounded for 45 days after weaning. "No one can wean or background a calf better than the rancher himself," he adds.

Lastly, Stovall says reputation of the ranch is critical for building on natural programs in the future. "Feeders want a ranch they trust so they know the cattle are truly natural and all vaccinated to reduce health risks. At no time will a yard misrepresent themselves to a packer," he says.

He concludes, "If you can minimize that risk with your management at the ranch and create confidence and a good reputation for your calves, you'll be rewarded."

Producers who follow the proper protocols can identify their calves as "natural" through the Pfizer SelectVAC program. For more information visit www.selectvac.com.

Source: BEEF Quality Strategies [beef-mag@pbinews.com] 27 Apr 06

posted by Dr. Harlan Hughes 10:34 AM [edit]