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Previous issues of the BEEF Cattle letter

Issue # 494

July 5, 2006

Cattle Demand Remains Strong During First Half of 2006 - Brian Roe, Associate Professor, Dept. AED Economics

As predicted, the supply of beef from the US cattle sector has expanded greatly so far in 2006. During the first half of the year, we have produced 852 million more pounds of beef than we did during the same period in 2005 - a 7% increase. Not surprisingly, prices have suffered with the average price down about $4 compared to last year, though nearly all of these lower prices emerged during the second quarter, where prices have been down about $8 compared to last year.

While lower prices hurt cattle producers, it is important to understand whether recent price weakness is due merely to the additional supplies or rather to an underlying weakness in the fundamental demand for these supplies. In Econ 101 speak, whether we are experiencing movement along a stable demand curve or whether that demand curve is shifting. My analysis of data from the first half of 2006 suggests that the fundamental demand for cattle has increased modestly compared to the last two years. Put another way, if supplies had this been this large during 2004 or 2005, cattle prices would have been even weaker than those observed during 2006.

For example, April cattle prices averaged around $81 while, during April 2005, the average price was nearly $92. However, beef production in April 2006 was up 4.5% compared to 2005 and, furthermore, there was one less weekday during April 2006. So, on a work-day basis, beef production was up nearly 10% compared to the previous year. Over the past several years, a 10% increase in April production would normally lead to an 18% reduction in price - that is, prices would have been around $75 this April had historical demand conditions been in place. So, in short, April prices were about $5 - $6 stronger than the last couple of years once you account for the additional supplies. February data and initial data for June also show signs of strength with prices about $2 - $3 stronger than the last couple of years, once we adjust for the fact that supplies have been larger during 2006.

Now, let's suppose this modest improvement in cattle demand continues for the next couple of months and then, when Japan and Korea finally begin importing significant quantities of beef, suppose this demand may improve even more. Let's first consider August of 2006. Currently the futures price for August live cattle has been trading around $86. USDA projects third quarter beef supplies to be 6% higher than last year. If demand were merely as strong as the last 2 years, a 6% increase in supply would imply futures prices in the mid-$70's. If the recent improvements in demand persist, we might feel comfortable adding $5 to this, which leads us to August futures prices around $80. So, at this point, it would appear that either (a) August demand will need to be about $6 stronger than recent trends, (b) August supplies will need to be merely 3% higher than last year rather than 6% higher, (c) August prices will drop by around $6, or (d) some combination of the previous three things.

Arguments can be made that demand will be stronger - perhaps market psychology will take off if there are some early, large sales to the newly re-opened Asian markets, though frustration is at least as likely as elation when dealing with Japan on beef trade issues. On the supply side, placement models suggest that there will be a turning point somewhere during late summer where year-over-year marketings may cease to exceed last year. Though, with the hope of new export markets, it is hard to imagine that feedlots won't prefer to slow down marketings in the hopes of better news from Japan and Korea. Hence, this may be a situation where the cautious producer who has not already secured down-side price protection for late July and August cattle deliveries may wish to do so.

When I perform the same set of calculation for October, December and February futures prices, I find no misalignment like the one I found in the August contract. That is, projected supplies and trends in cattle demand fit nicely with recent trading ranges in those futures contracts. In fact, if demand from Japan and Korea rapidly reignite, there appears to be several dollars of upside potential in each of these months. However, given that each of these contracts have posted substantial gains during the past 2 months (e.g., the October contract is trading $10 higher than it was in May), the market may be shy about pushing this higher. Aggressive traders combined with good news on the demand side may allow these contracts to push higher, however. As such, only the most cautious producers may want to seek downside price protection for deliveries in these months.

Forage Focus: Summer Slump - Are You Ready? - Allen Gahler, Extension Educator, Agriculture & Natural Resources Fairfield County

Grazing in April, May, and sometimes even June can be a piece of cake most years. But what about July and August, that period many graziers dread because of the excess heat and lack of rain, often referred to as the summer slump. Although we have not been faced with this situation yet this summer, the time period for it to occur is here, and despite adequate moisture in most areas around the state (and way more than enough in many areas over the last 2 weeks), we all know it does not take long for the ground to dry up and the grass to stop growing. If and when this occurs, that piece of cake from May or June is suddenly dry and chalky, the frosting's all been licked off the top, and the baker is on vacation until September!

Most of us can (and should) do without that piece of cake for a couple of months, but what if you were a cow? Lush green grass or something similar might be to you what the occasional cake is to me - a necessity. So what do I do in July or August when I realize that even with acres of cake batter, there is no frosting, the oven's stuck on 500 degrees, and even putting it in for 10 minutes is too long? Simple, I go to the cookie jar! Or I check in the freezer to see if that leftover piece I tucked away after the Ag luncheon at the office is still there. Or I might go to the 4-H bake sale and buy a piece or three.

Just as I have options with cake, we also have options as graziers when faced with tough times. Many of us have, in the past, removed our animals from overgrazed or dormant pastures in mid-summer, certainly favoring the life of our grasses. Our "cookie jar" as graziers can be stored hay, silage, whole grains, or even by-product feeds, depending on what is available locally and what fits the budget. Or it might be a slow growing hay field that we could graze the top off and simply delay the next cutting until the moisture returns in late summer. Our "Ag Luncheon" might be the rental of a neighbor's pasture which is under-stocked, or the utilization of idle ground after wheat harvest to plant an annual such as oats or rye for late summer, fall, or winter grazing.

No matter what option I resort to, you can bet I will not be eating any of that thin, dry, over-baked cake with no frosting. I not-so-fondly remember one year when they apparently quit making sugar about the 1st of July. My cake was drying out so fast I had already depleted my cookie jar. And the Ag luncheon was canceled, so I had nothing to eat all summer except that thin cake with no frosting. I lost 30 pounds (that's 15% of my weight), you could see my ribs from the other side of the swimming pool, and when football practice started, the coach said I was too thin and weak, so I got cut from the team!

If, as graziers, we try to tough it out through the summer slump, forcing our animals to nibble at 1 or 2 inch high stems, we are depleting both the animal and the forage of nutrients, and costing ourselves money. Rather than me, it might be your cow that lost 15% of her weight, and she has consequently aborted her calf, and the bull can't get her bred because she is so thin she is not cycling properly, or he is stressed and not producing sperm. Whether its me, the cow, or the bull, the result is likely the same - getting cut from the team, or culled from the herd.

Over the years, I have learned a lot from that sugar-less summer experience, and I know if I don't approach it with an open mind, it will happen again. Yes, I can usually count on some cheesecake at the 4th of July picnic, and there's usually some birthday cake for somebody in the office at some point during the summer, but just like a nice, slow, lingering summer shower that gives us 1.5 inches over 24 hours, cake at these parties is occasional, and we can never count on it for sure each year.

If we do get that lucky once or twice during the summer and it's a slow soaker rather than a flooding thunderstorm, hopefully we can continue grazing, or at least turn them out again temporarily and wisely utilize the new forage growth. But I'm not counting on anything, and I hope you don't either. So when I take a couple weeks off after wheat harvest, instead of dumping the herd into a large pasture and not moving them, I'm going to contain them in a sacrifice lot, and have Dad feed round bales that we made off of a high quality mixed alfalfa hay field that got rained on for two days after it was cut. (That hay was no longer high enough quality to make small squares for our horse and dairy hay markets, but it is still sufficient beef cow feed, and thanks to the wet spring we have plenty of it). Then when I get home from vacation, I'm going to spray the wheat stubble and plant 2 bushels of oats per acre around the first of August. I'll turn the cows back out to pasture by September, and by the time we finish harvest in the fall and the frost has slowed the grass, I'll have at least two and maybe 4 tons of dry matter per acre of oats on my otherwise idle wheat field that I can graze. That should more than make up for the quantity of hay that I fed for those 5 or 6 weeks in the summer, and with any luck, it will allow for a carryover of hay into next year, or result in the sale of some round bales for extra cash flow.

In a perfect world, it will not even get that dry this year, so I might make it through summer, fall, and winter feeding minimal hay, making life a lot easier and my pocket book heavier, creating room for a winter getaway, or at least enough to stop at the bakery a time or two!

But since we all know this world is far from perfect, be sure to make your plans now in case that dry spell does hit. And if you don't have a cash hay operation to fall back on like I do for a cheap, convenient feed source, or a wheat field that can be planted with oats or other annuals for fall grazing, then think about your other local sources of feed, and keep looking until you find a scenario that benefits the health of your pastures and your herd. It will take some thinking outside the box, but a little input or cash out now, and some minor changes in our feeding practices may add up to a much bigger return in a year's time.

Summer Grazing Management - Rory Lewandowski, Extension Educator Ag/NR Athens County

Summer temperatures and moisture conditions generally mean that our cool season grass pastures exhibit slower growth. This slower growth calls for a different management strategy than was used in spring and early summer. As pasture growth slows, the rotation through the paddocks must also slow because it will take a longer rest period for grass to grow back to grazing height. Remember that providing adequate rest periods is one of the key principles of rotational grazing. The challenge is in how to slow down the rotation without violating the other key grazing principle of take half leave half.

It is vital that adequate leaf cover be left in a paddock for several reasons. First, by allowing at least 50% of the plant to remain after a grazing pass, the plant root system continues to provide nutrients and moisture to the plant. Remove more than 50% and the plant begins to experience large diebacks in roots, slowing down plant recovery. Second, leaving 50% or more of the plant insures that there is adequate leaf tissue to permit the plant to continue the photosynthesis process without drawing upon carbohydrate reserves in the roots. Finally, that leaf cover that remains acts to shade the soil, reducing evaporation moisture loss and helping to keep the soil cooler, conditions that can help to keep the plant actively growing.

The temptation is to speed up the rotation to prevent livestock from overgrazing a paddock. This may work in the short run, but eventually the grazier will find the livestock returning to a paddock that maybe only has 5 or 6 inches of growth instead of 8 to 10 inches. At this point the livestock can only graze off 1 or 2 inches before overgrazing; which is tough to manage. During drought conditions it's possible that a quick rotation sees livestock returning to a paddock where no growth recovery has occurred. So, how should this be managed?

First, to really have some management options to slow down rotations during the summer months requires a minimum of 6 to 8 paddocks. Second, do what can be done to keep pastures in a vegetative stage. It's hard to tell what take half, leave half looks like when the paddock is full of seed heads. This means make sure the seed heads are mowed off before we get into the heat of summer. Next, look ahead, monitor growth in those paddocks that livestock will be grazing in the future. The grazier has to have some system of measuring grass growth in order to manage. By monitoring the growth in future paddocks you can determine how long livestock will need to stay in each paddock. If you reach a point where re-growth does not permit you to move livestock out of a paddock until it is overgrazed, then the grazier must make a decision to sacrifice a paddock. This involves holding livestock in a paddock and feeding hay as the paddock is overgrazed. When grass re-growth in other paddocks resumes or increases, then the grazing rotation can be started again. This strategy prevents other paddocks from being overgrazed and allows adequate rest periods to be maintained. Another option may be to add additional grazing paddocks by incorporating a hay field or maybe a neighbor's unused pasture into the rotation during the summer.

Summer grazing can be a challenge and requires that the grazier have the discipline and management ability to follow the key grazing principles.

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BEEF Cattle is a weekly publication of Ohio State University Extension in Fairfield County and the OSU Beef Team. Contributors include members of the Beef Team and other beef cattle specialists and economists from across the U.S.

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Fairfield County Agriculture and Natural Resources