Global Meat Trade Expected To Grow In 2007

Global trade in red meat and poultry will remain strong in 2007 with beef exports growing 6.5%, pork 2.6%, and chicken 4.1%, USDA predicts. Driving the increases is the reopening of markets closed due to outbreaks of such animal diseases such as BSE, foot-and-mouth disease (FMD), and avian influenza, reports.

On the beef side, trade experts anticipate Argentina, Australia, India, New Zealand, Brazil, the U.S. and Canada will see export increases.

Meanwhile, China, Brazil and the U.S. are forecast to make the largest gains in beef production. China has grown beef production 5-7% annually since 2002 and will increase more than 5% in 2007 due to herd expansion. Beef production growth in Brazil is forecast to grow 3% in 2007, driven by strong domestic demand and lifting of FMD trade bans.

Specialists see global pork exports increasing to nearly 5.3 million metric tons (mt) after an expected 1% decline in 2006. The U.S. and Brazil will largely drive the export growth. While global pork exports are expected to increase nearly 4% in 2007 to more than 103 million metric tons, 77% of the increase will be from China, which accounts for more than half of global pork production.

Global chicken meat exports are forecast to increase to 6.7 million mt in 2007 after dropping in 2006. The U.S. market share is expected to increase to 37%, while Brazil's share will drop 1% to 38%, and the European Union share will remain at 10%.

Russia, the largest importer of chicken meat, is forecast to decrease imports in 2007 by more than 7% due to increasing domestic production.
-- Joe Roybal

Japan Allows U.S. Beef Stored For Nine Months

Japan's ruling Liberal Democratic Party (LDP) on Tuesday endorsed starting procedures on Friday to allow the entry into Japan of 910 tons of U.S. beef that have yet to clear customs since their arrival in late 2005, the Kyodo News reports.

The U.S. beef has been stored in bonded warehouses since January. It had already arrived in Japan when Tokyo re-imposed its ban on U.S. beef imports in mid January after spinal cord was discovered in a veal shipment from a Brooklyn, NY supplier. The ban was lifted in July but the frozen beef has remained at Japanese harbors and other areas.

A report in the Japan Times late last week quoted Ag, Forestry and Fisheries Minister Toshikatsu Matsuoka as telling reporters officials had wanted to watch U.S. beef imports for about three months before making a decision on the stored beef. About 2,500 tons of U.S. beef have been imported into Japan since the July trade reinstatement.

The LDP committee also said Japan should continue to open every single box containing U.S. beef to make sure it's safe.

"Although three months have passed after the import resumption, we will see how things will go a little more," the Kyodo News quoted Kazuaki Miyaji, chairman of the BSE panel, as saying.
-- Joe Roybal

Adding To The Great Ethanol Debate

Corn farmers love the ethanol boom and cattle feeders located in areas where ethanol production has grown, are learning lessons about competitive advantage. Those outside the immediate marketing area of the ethanol plants tend to be pretty down on ethanol plants as they raise the price of corn, and increase competition for feed grains. Some would argue that the historical relationship between corn prices and feeder calf prices will never be the same, if that is the case access to ethanol byproducts will be critical to survival.

There can't be much argument that we are in the middle of a harvest that promises to be one of the biggest in history and yet corn has shown significant strength in its face. While this rally may not be sustainable, the difference between $3 and $2 corn in the marketplace can't be denied. At current cattle prices, the incentive to make cattle big will not subside greatly with $3 corn, and the impact on the calf market is significant.

Some have argued that this could be the one factor that shifts fed cattle production back toward the Midwest, though that would also entail a shift in packing capacity and is difficult to foresee. It will be intriguing to see how the cow-calf segment adjusts its nutritional programs to attempt to take advantage of these byproducts.

Higher corn prices are possibly here to stay with ethanol demand projected to double with the U.S. government providing a subsidy of $.51/gallon. While the subsidy is distorting true market signals and falsely building demand, the risk for building an ethanol plant has largely been removed with numerous estimates suggesting that a new ethanol plant can pay for itself in 18 months.

This false demand has the potential to be as market distorting as the farm bill, and will likely lead to a clash between those who would like to see more ground to go into corn production with the new demand dynamics (we can't continue to bank on record crop year after year, just to meet today's demand levels). This is likely to clash with those who continue to push for more conservation and even more land being taken out of production.

There are many in this country that do not see food production as a national security priority and would like to see food production shifted out of this country, especially animal production. The energy concerns magnified with the unrest in the Middle East, and environmental concerns in the form of increased demand for conservation lands, will be working together to lower U.S. beef production.
-- Troy Marshall

Cattle Prices Weathering The Storm...Sort Of

"We're producing about 25-million lbs. of beef/week more than last year," says Randy Blach, executive vice-president of Cattle-Fax. That's the equivalent of the 5-6% increased production expected and seen through September of this year. "Normally that kind of increased production would equate to about a $5 change (decrease) in fed-cattle prices. We're down about $2. I think that underscores the importance of trade," he adds.

Blach is alluding to the fact that while exports are yet to retrieve all the market share lost in the wake of BSE, the net import/export picture is brighter than a year ago.

In offering perspective to participants at the annual meeting of the Texas Cattle Feeders Association, Blach explained, "Herd expansion has slowed, not stopped." He expects the Jan. 1 numbers to show a 1% increase in cow numbers, compared to the 2-3% increase most market analysts expected at the beginning of 2006. While it's true cow slaughter through September was 17% more than the previous year, Blach emphasizes the cow-slaughter level is the third-smallest in the past three decades.

Also, while domestic consumer demand has been down for the previous six quarters, Blach notes demand for Choice and higher-grading beef continues to increase.

The primary wild card for cattle prices is corn.

According to Blach, the Corn Stocks to Use Ratio for the year is expected to be 8.3%, marking only the fifth time since 1960 that the ratio dipped below 10%. That's a key reason corn prices rocketed ahead during the past month rather than taking a typical seasonal dip. Of course, the Oct. 1 USDA corn estimate added fuel to the fire -- down 2% from the September estimate at 10.9 billion bu.

"The market will be on pins and needles," Blach says. "This isn't a short-term spike (corn prices). There won't be a correction overnight." He explains increasing the cost of corn about 50¢/bu., typically decreases the price of feeders about $6/cwt. and the price of calves about $7/cwt.

Expanding ethanol production obviously plays into the short and longer trends in corn prices. For perspective, Blach says the percentage of corn used for ethanol production this year will be about 14%; it ran about 11% the previous three years. Corn usage for ethanol is projected at 19% next year. If all the proposed ethanol currently being considered are built, that rate could multiply exponentially.

Shorter term, corn's weight on calf and feeder prices is becoming more pronounced.

"Calf prices have been steadily losing ground for a full six weeks, basically since the spring calf crop started hitting the midwestern auctions early this fall," say analysts for USDA's Ag Marketing Service (AMS). "Losses have been most severe on the fleshy unweaned calves that lack their vaccinations, while the market for pre-conditioned calves and yearlings was able to stave off the bulk of the pressure.

"However, the last three weeks of sharply higher CBOT grain prices have taken their toll on yearling feeders; even the fanciest longtime-weaned calves with multiple series of shots are not immune to the market pressure that $3/bu. corn has brought. The sudden surge in the corn market was not expected (especially right during harvest) and has caused cattle feeders to refigure their cost-of-gains," AMS reporters write.

According to AMS, "Steer and heifer calves sold $1-$5 lower last week, with instances as much as $8 lower on unweaned offerings weighing over 500 lbs. "

The summary below reflects the week ended Oct. 20 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 47,400
South Dakota
North Dakota






OK 37,400 $122.10 $111.50 $108.07 $108.45 $104.76 $101.46
NE 31,700 $126.32 $112.514 $108.76 $115.48 $108.2954 $102.35
MO 25,600 $121.08 $113.09 $108.01 $109.05 $104.93 $104.744
TX 25,100 $114.93 $108.80 $105.85 $108.81 $102.02 $95.15
KY* 22,500 $104-114 $95-105 $92-1025 $93-103 $89-993 $82-925
CO 18,000 $119.36 $113.972 $106.72 $110.56 $101.984 $98.46
WY 14,700 $117.98 $114.792 $108.23 $110.42 $106.152 $106.376
AL 13,100 $110-120 $100-108 $96-1054 $102-108 $93-101 $87-974
KS 11,000 $124.18 $111.94 $108.236 $112.40 $107.18 $1101.74
TN* 9,900 $107.82 $99.78 $92.63 $97.22 $89.55 $83.90
FL* 9,700 $89-102.50 $84-98 $80-87 $985-100 $80-96 $73-88
GA*(***) 8,900 $93-113 $86-101 $85-100 $84-110 $80-103 $75-1034
NM 7,300 $118.74 $106.372 $99.00 $107.90 $100.672 **
Carolinas* 6,900 $89-1107 $84-973 $75-90.505 $80-95 $72-883 $66-795
MT 6,700 $120.26 $118.002 ** $109.85 $106.322 $101.457
AR 6,200 $113.26 $104.38 $101.46 $101.97 $96.33 $90.73
MS* 5,200 $100-1101 $90-100 $85-904 $90-1001 $88-903 **
LA(ND heifers) 4,800 $105-119 $96-1093 ** $100-1161 $98-1033 **
VA 4,700 $119.73 $102.17 $95.42 $94.94 $92.98 $91.644
WA* 3,500 $106.90 $103.732 ** $100.80 $98.862 **

* 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.

The Power Of Gross Margin

We've all heard the age-old wisdom of buying a profit. Bryan McMurry, PhD and a beef economist with Cargill Animal Nutrition, explains the specifics of accomplishing that by purchasing a wider margin up front.

He uses the example of buying four-weight calves vs. those 100 lbs. heavier, and putting 200 lbs. of gain on them. At the outset, there is $50 more margin to work with -- buy price vs. expected sell price.

In this case, a 400-lb. calf at $1.50 costs $600. Figuring $1.20 at 600 lbs. that's $720, or a gross margin of $120. Compare that to a five-weight steer calf purchased at $1.40 or $700; and a selling price of $1.10 on a seven-weight, or $770. So, there's an additional $50 margin advantage in favor of buying and selling lighter in this scenario.

Spun another way, McMurry points in this example the breakeven cost of gain on the lighter weight calf is 60¢ vs. 35¢ for the heavier one.

Using the margin above and applying the costs in Table 1, McMurry calculates the profit advantage of the lighter animal to be $49.54. So, the profit was purchased in the form of gross margin -- the cost of gain for both the 4-weight and 5-weight was identical at 43¢.

"That's just too much margin to ignore," McMurry says.

Obviously, he's not suggesting this is the profit or cost one can expect in any given situation. The point is comparing gross margins at the outset can reveal opportunities tougher to see when focusing only on price and cost of gain.

Table 1:

Profit Loss Comparison
500-lb. Steer* 400-lb. Steer*
Grazing $50.00 $50.00
Processing $12.00 $12.00
Vet/Med $2.00 $4.00
Mineral $6.00 $6.00
Hay $5.60 $5.60
Interest (cattle)
Total Cost
Net Profit/Loss** -$16.39 +$33.15

*200 lb. of gain on 100 days
**Calculated using the purchase and sell prices described in the above article.

Source: Bryan McMurry, PhD, Cargill Animal Nutrition

Corn Production Pegged Lower

Though 10.9 billion bu. would still be the second-largest corn crop on record, that figure represents a 2% decline in USDA's October estimate compared to the month prior.

According to the Livestock Marketing Information Center (LMIC), based on weekly data, for the first three quarters of this year, Omaha corn prices averaged $2.04/bu. compared to $1.81 last year; about 3% less than the 2000-2004 average. In early October, Omaha corn prices were over $2.40/bu.

In fact, the LMIC folks explain that in their calf and yearling price forecasts for 2007 and 2008, most of the forecasted declines in prices are due to higher corn prices.

For the week ending Oct. 15, according to National Ag Statistics Service (NASS).

  • Corn -- 41% is harvested , which is 7% behind last year and 2% behind the five-year average. 61% is rated Good or better , compared to 57% last year.
  • Soybeans -- Growers have harvested 69% of the crop, compared to 74% at this time last year and 65% for the average.
  • Winter Wheat -- 79% of the crop is sown, 1% more than the same time last year but 1% less than average. 52% of the crop has emerged, 1% ahead of last year, but 4% behind the normal pace. Development was behind normal in the Corn Belt and in the Great Plains.
  • Sorghum -- 95% was at or beyond turning color, 4% behind last year and 2% behind the normal pace. 76% is mature, compared to 71% last year and 70% for average. 48% has been harvested, compared to 50% last year and 53% for average. 31% is rated Good or better, compared to 50% last year.
  • Pasture -- 27% is rated Good or Excellent, compared to 31% last year. 23% is rated Poor and 19% is ranked Very Poor, compared to 21% and 14% respectively at the same time last year.
States with the worst pasture conditions -- at least 40% of the acreage rated poor or worse -- include: Alabama (62%); Arkansas (40%); California (83%); Georgia (50%); Kansas (46%); Louisiana (44%); Mississippi (65%); Missouri (63%); Nebraska (45%); Nevada (60%); North Dakota (57%); Oklahoma (68%); Oregon (65%); Texas (62%); and Wyoming (62%).

States with the lushest pasture conditions -- at least 40% rated good or better -- include: Idaho (43%); Illinois (50%); Indiana (64%); Iowa (52%); Kentucky (74%); Maine (70%); Maryland (51%); Michigan (52%); Minnesota (42%); New Mexico (57%); New York (55%); North Carolina (68%); Ohio (71%); Pennsylvania (47%); South Carolina (43%); Utah (48%); Virginia (56%); Washington (62%); West Virginia (60%); and Wisconsin (52%).

Smithfield & Conti To Build New Packing Plant

When Smithfield Beef Group (SBG) and ContiGroup Companies (CGC) joined forces last year to create the world's largest cattle-feeding company -- Five Rivers Ranch Cattle Feeding -- both logic and simmering rumors suggested it would be just a matter of time before the partnership evolved into vertical coordination with packing. That time has come.

Last week, the two companies announced plans to construct, in partnership, a $200 million -- 5,000-head/day-capacity -- packing plant in Texas County, OK, near the town of Hooker.

"We selected Texas County because of its proximity to nearby feed yards, the availability of water supply, the area's outstanding labor pool and well-developed utility and transportation infrastructures," explains Richard V. Vesta, SBG president and CEO.

"We expect to source cattle for the plant from the plentiful nearby supply of livestock, including the surrounding Five Rivers feed yards, which we believe will save considerable transportation expense," says Vesta. "Access to these cattle also will be valuable in terms of traceability, an increasingly important issue in the U.S. and in export markets..."

As the first beef-packing plant of its size constructed in the past 20 years, newer technology should also serve up lower-cost opportunities. Construction on the facility is supposed to begin in January 2007, with completion scheduled for mid 2008. Vesta says the plant will provide 2,500-3,000 jobs.

The plant is being built smack in the middle of the densest regional population of fed cattle. If you assume the majority of cattle fed by Five Rivers will flow through the new plant, Five Rivers' fed-cattle production capacity would go a long ways toward meeting the new plant's needs for cattle -- about 1 million head/year.

Doug Rogers Named Stocker Award Finalist

"People aren't getting into the cattle business because they don't think you can make a living at it, and that's not true," says Doug Rogers, who owns and operates D&H Cattle Company, LLC at Collins, MS.

In fact, Rogers -- a West Point graduate and the holder of an MBA degree -- chose the stocker business because of the potential economic returns it offers.

"I don't compare my business to other stocker operations. I compare it to other industries in terms of rate of return and profitability," explains Rogers. "We shoot for about 20% return on investment. Sometimes it's higher, sometimes it's lower."

Though Rogers modestly explains it has as much to do with luck as skill, he's made money for the last 12 years (ever since he started). He's made at least $50/head for the past 10 years.

For perspective, Rogers basically buys three-weight heifers year-round to straighten out. Key advantages to the operation are the availability and price of these lightweight calves, as well as typically plentiful and affordable ryegrass. This part of central Mississippi averages about 65 in. of rainfall. Add that to cheap fertilizer in the form of poultry litter and there are usually plenty of groceries worth the money.

Risk Or Opportunity?
Lots of folks consider flyweight, put-together calves one of the riskiest investments in the cattle business; Rogers sees them as a strategic business hedge.

"I buy light, small cattle, which is in itself a hedge against the market. I have more opportunity to choose when to market... Buy them small and light enough and you can ride out a lot of things," Rogers says. "I buy the mismanaged cattle, those born at the wrong time of year, sired by the wrong bull, born on the wrong place."

Besides, Rogers says there are as many health problems with 400- and 500-lb. cattle as there are with the lighter calves, meaning he's gambling fewer dollars on the same level of risk.

Similarly, Rogers runs only heifers. Besides the fact Rogers likens the shelf life of steers to that of ripe bananas, he says simply, "Heifers give you more options." In his case, Rogers sorts off a jag of the heifers that will work as replacement heifers and markets them at an added premium to the stocker profit he already has in them. As well, he's found a way to moonlight by providing heifer calves to cutting-horse competitions in the area.

Rogers has a different view on risk and health management than some, too. Unlike those who shy from using modified-live vaccines for lighter calves when they're under the most stress, he prefers them.

"If I'm going to lose a calf, I want to lose her during the first two weeks of ownership rather than the last two weeks," Rogers says. This is also the period of time when calves are watched the closest anyway. "It always seems like death loss is the one thing no one wants to talk about," he says. But, it's a fact of life that must be managed.

For perspective, Rogers receives 100-200 head/week. Calves rest for 24 hours before being evaluated, turned out to small grass traps and given access to hay, water and grass (pelleted soybean hulls if grass is short). Cattle are wormed, branded, tagged and vaccinated. Over the next two weeks, calves will rotate through a series of traps on their way to another weaning and booster vaccinations; then they go out to pasture.

Risk is also why Rogers prefers to forego feeding cattle, though he does retain ownership in a portion of his calves. "There always comes a reckoning in the cattle feeding business," he says.

Rogers has grown his stocker business substantially during the past few years to his current level of about 6,000 head. Primarily, he says he grew the operation to generate the added income to purchase more property.

Rather than the proverbial tail of cash flow wagging the operation dog, property expansion in this case has plenty to do with adding predictability to his business over the long haul. As in other parts of the world, he explains leases are tougher and more costly to come by these days.

The potential to increase beef production per acre with the same number of acres also drew Rogers to the stocker business. In his operation he can turn is inventory at least twice each year. In other words, he explains, "There's lots of opportunity to turn money faster in this business."

That notion of turning money faster as both leverage and a hedge came as something of an epiphany to Rogers when he was in business school. But it was nothing compared to discovering what it is that he's really selling.

A buddy from West Point who went to work for one of the world's leading business consulting firms got to quizzing Rogers: why the cattle business, why the stocker business, why this and why that? Drill down deep enough and Rogers understood that his knowledge and experience in the stocker business was the true asset he was trading upon.

Rogers grew up in the family's seedstock and cow-calf operations. By high school, he was learning his way through identifying and doctoring stocker cattle running on some new ground his folks purchased. By the time he graduated from college and had to choose between the cattle business and some tempting corporate offers, his stocker knowledge was broad and deep enough that he saw the promise of the stocker business as just that, a profitable business opportunity.

"I just do what works for me," says Rogers. "The name of the game is making money. If I can make a dollar I move on and hope my customer can make two dollars...If I make it or break it, it's all on me."

The National Stocker Award (NSA) competition was divided into three categories: Backgrounding/drylot Stocker (feed-based); Fall/winter stockering (forage-based); and Summer stockering (forage-based). A single winner was chosen in each category, and then the overall NSA winner was selected from these.

Doug Rogers of Collins, MS was named winner of the fall/winter category. Triple Heart of Wanette, OK was named winner of the backgrounding/drylot category.

Each operation received a $2,500 cash prize from NSA sponsor, Elanco Animal Health. Overall NSA winner, Hughes Cattle Company of Bartlesville, OK (winner of the summer stockering category) received a $10,000 cash prize.

Profiles of each winner appears in the October issue of BEEF magazine.

Obesity Concerns Spawn A Worrisome Movement

The issue of demographics is an interesting one. We know that more sedentary lifestyles and an aging population will increase the interest in health-related issues and dietary pressures. A case in point is diabetes -- in 2000, there were 171,000,000 people in the world with diabetes; that's expected to more than double to 366,000,000 by 2030.

Trans fatty acids (TFAs) are the latest nutritional issue to be elevated to the point of absurdity. New York, New Jersey, and even Chicago, have proposed initiatives to ban all TFAs in local restaurants.

Chicago is an interesting study in itself. Its city council, which banned foie gras (goose liver) earlier this year, modified its proposed ban on TFAs to only companies with at least $20 million in sales. Thus it's alright for the local diner to sell food with TFAs but not McDonald's. And after banning smoking in restaurants, Chicago now wants to ban drivers from smoking in their car if they have a passenger with them under the age of 8.

Where will it stop? This movement by the diet police is scientifically misguided and might actually lead to increased risk of heart disease as it diverts attention and emphasis away from the real causes. But the most disturbing aspect of this movement to regulate our diets is these groups' advocacy for government intrusion into not only our lifestyles but personal choices.

One of the best thinkers I know posed the question last week, "Will we select for health attributes in cattle genetics in the future?" It's relatively easy to measure, it's highly heritable and there's plenty of variation to make genetic selection for it viable. It's hard to imagine it in the near future, but I wouldn't be surprised to see it.
-- Troy Marshall

USAHA Calls For Mandatory National ID

The National Assembly of the U.S. Animal Health Association (USAHA) is recommending national animal ID become mandatory for the U.S. cattle breeding herd. The USAHA's Livestock ID Committee approved a similar resolution, during the group's annual meeting in Minneapolis, MN, this week.

Brownfield Ag News reports Sam Holland, South Dakota State Veterinarian as saying: "For animal health reasons, I think animal health officials at the state levels and many of those at the national level, and industry also, see it being mandatory to be effective."

Holland says USAHA is less concerned about BSE relative to animal ID and animal health, and much more worried about contagious cattle diseases like bovine TB, brucellosis and foot-and-mouth disease. "We really need to protect out industry that we see as growing in vulnerability to recurrence of some of the traditional diseases," Holland said.

USAHA is a science-based, non-profit, voluntary organization made up of 1,400 members who are state and federal animal health officials, national allied organizations, regional representatives, and individual members. It works with government, universities, veterinarians, livestock producers, national livestock and poultry groups, researchers and seven foreign countries to control livestock diseases in the U.S. It represents all 50 states, seven foreign countries and 18 allied groups serving health, technical and consumer markets.
-- Joe Roybal