When profit is plentiful, making as
much as you can via the aspects you control only makes sense.
When the bottom line is running red, survival depends on such
exploitation. Consider the
high cost of developing replacement heifers. Even those can be
trimmed more than recent rules of thumb would suggest.
Specifically, heifers can be
developed to lighter than traditional target weights without
negative effects on profitability or future productivity.
That was the bottom line of research
presented at December’s annual Range Beef Cow Symposium by
researchers Rick Funston and Jeremy Martin from the University
of Nebraska West Central Research and Extension Center and
researcher Andy Roberts of the Fort Keough Livestock and Range
Research Laboratory at Miles City, MT.
In the presentation considering
extensive heifer development systems, they pointed to growing
research that runs counter to the logic of recent decades which
suggests heifers must achieve 60-65% of their mature body weight
prior to first breeding in order to achieve long-term
reproductive success. For
instance, in research during the last decade some studies
indicate pre-breeding weights as low as 51% of mature weight
were more economical than developing heifers to 57% of their
mature weight, even though the lighter heifers were allowed 15
days more during the breeding season; conception rates were
similar. Likewise, in
studies at Fort Keough, the researchers explain unlimited or
restricted (27% less feed) feed during the post-weaning period
supports the potential to reduce target weights and costs during
heifer development.
“The association of age at onset
of breeding and cumulative pregnancy rate was similar for
heifers developed on the two protocols. However, restricted
heifers were lighter at a given cumulative pregnancy rate,” say
the researchers. “Thus, age at the beginning of the breeding
season was more critical than body weight. Furthermore, rate of
growth from birth to weaning accounted for more variation in
puberty and AI pregnancy rate than did Average Daily Gain (ADG)
during the post-weaning period. Neither age nor ADG prior to
post-weaning period influenced final pregnancy rate. Thus, age
and early growth rate (up to approximately 8 months of age)
influenced time of puberty and conception, but did not alter
overall pregnancy rate in a 48 to 60-day breeding season.”
Bottom line, the researchers say,
“Post-weaning management of heifers to achieve traditional
target weights, particularly by feeding high-energy diets, is
not supported by current research. Heifers developed on forage,
however, generally require additional protein supplementation to
achieve even modest gains. One reason reproductive performance
has not been drastically impaired by feeding to lower target
weights may relate to genetic changes in age of puberty.”
Up and Down and Round She Goes…
Back to the necessity of exploiting such fine-tuned management…
Though, fundamental price
relationships were so bent and twisted through the commodity
bubble and then the Great Recession, they still apply.
Just consider the second week of
January. USDA surprised everyone with its year-end crop
production report, estimating a record corn crop of 13.2 billion
bushels, 9% more than the previous year.
Corn futures prices plummetted with
the news, limit-down when the report was issued Tuesday (down
40¢/bu. on the Omaha cash market), another 8¢ Wednesday, then
sideways to lower the rest of the week, especially on the
front-end months.
That’s fundamental.
As corn prices came crashing down,
Feeder Cattle futures jumped to their highest levels since
September. That’s
fundamental, too, unlike times during the wind-up and wind-down
to the commodity bubble when both corn and futures prices could
break a the same time.
Short-term Corn Questions
Incidentally, though the USDA report provides a welcome price
reprieve in the cattle markets, it comes with a huge question
mark. Given the late start to the planting season and sloppy
harvest conditions this fall, there’s still a significant number
of unharvested acres. Analsyts with the CME Group Daily
Livestock Report estimated as much as 5% of corn
acres—approximately 4.3 million acres—have yet to be harvested.
That fact has plenty of folks wondering how it is that USDA
raised its final yield estimate 3 bu./acre from the November
estimate. For its part, the
same day it issued the report, USDA announced that it may
re-poll producers who had unharvested acres prior to the January
12 report and may release updated acreage, yield, production and
stocks estimates in its March 10 Crop Report.
According to the National
Agriocultural Statistics Service, “When producers were surveyed
in late November and early December, there was significant
unharvested acreage of corn in Illinois, Michigan, Minnesota,
North Dakota, South Dakota and Wisconsin; and significant
unharvested acreage of soybeans in Georgia, North Carolina,
South Carolina and Virginia.”
Even with the unexpected increase in corn production, January’s
World Agriculture Supply and Demand Estimates raised expected
corn prices on both ends of the range, anticipating
season-average prices of $3.40-$4.00/bu. For 2009-2110.
Longer Term Corn Questions
What’s more, even if the estimates for 2009 corn production
stand, there’s lots more potential upside to corn demand.
Ethanol usually comes to mind. After
all, the government-mandated inclusion of grain-based ethanol in
gasoline helped spawn the commodity bubble.
Even while producers and
consumers are still coming to grips with government policies
joining the price of food and fuel at the hip through its
mandates, the Evironmental Protection Agency is considering
whether to increase the maximium allowable gasoline blendinf
rate from 10% to 15%. Tom
Elam of Farm Econ, LLC, says in his analysis, Issues with an
Ethanol Rate Increase: “Increasing the maximum blend of ethanol
in gasoline, combined with higher 2010 RFS (Renewable Fuel
Standard) requirements, will increase cost pressures on both
ethanol and food producers. Those cost pressures will further
erode the viability of ethanol and food producers. U.S. biofuels
policies need to be revised to accommodate the inherent conflict
between the RFS and our nation’s limited ability to produce both
food and fuel. The 2007 EISA (Energy Independence and Security
Act of 2007) increases in the RFS have resulted in an ethanol
sector that is not economically sustainable, even with large tax
credit subsidies, the demand guarantees of the RFS, and a
generous tariff on imported ethanol. Increasing the blending
ceiling will do nothing to address this fundamental fact, and
will likely make the economic situation worse for all corn
users, including ethanol producers.”
Now, consider international demand.
The United States is the world’s largest corn producer and
consumer. The second largest is China.
According to a recent report from
the Economic Research Service, China’s increasing industrial use
of corn has dramatically decreased its corn exports—down from 16
million metric tons in 2003 to less than 1 million metric ton in
2008. There, as here, government policies created artificial
markets. In their case, government subsidies supporting the
industrial use of corn, and the export of industrial corn
products. That worked swell economically when commodity prices
were soaring. When prices plunged with the global recession, the
Chinese government reversed its policies.
“As the 2009 harvest approached, the
tradeoffs from supporting corn prices became clear. It was
widely anticipated that the government would again support corn
prices at a high level to protect farmers’ income and encourage
them to continue planting corn,” say ERS analysts. “However, the
high corn price translated to negative profit margins for corn
processors. According to
news reports, many processing facilities were idle for much of
2009 and many were bankrupt or trying to sell their factories.
Small privately owned companies—with less access to bank loans
and ineligible for processing subsidies (only processors with at
least 100,000 metric ton annual capacity were eligible)—were in
an especially precarious position. High corn prices also crimped
the profits of feed mills (who were not given subsidies) and
livestock producers.”
Bottom line, Chinese economic growth manipulated by their
government will likely mean less corn for export, and add to
global price volatility at the least.
Cattle Producers see some Daylight
In the meantime, other market fundamentals are finally trending
in a positive direction for cattle producers.
As Dillon Feuz, agricultural
economist at Utah State University pointed out in a January In
the Cattle Markets analaysis, “…fed cattle prices have recovered
about $5-6/cwt. from the lows in early December. If the market
could put on another $3-4, feedlots should be breaking even. For
ranchers who have retained calves to sell them after the first
of the year, that market has gained about $10/cwt. from fall
lows in October. Cull cow prices have also strengthened
$4-5/cwt. If these price trends can continue into spring, not
only might cowboys be seeing green grass again, but they may
also have some green to put in their pockets.”
More broadly, speaking to the
decline in annual farm income last year, Murray Wise, founder
and CEO of Westchester Group, Inc.—a leading agricultural asset
management firm, said in January, “The agriculture industry has,
in general, outperformed many other world industries throughout
this global recession. Farm income in 2008 was one of the
highest on record and a decrease should have been expected…There
is so much capital looking for a home in agriculture that this
will have little impact…Even today many investors are turning to
agriculture as a viable investment. While many of us continue to
invest our money in money markets currently earning only 0.31%,
agriculture continues to offer its investors a 3% to 4% return.”
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